This is the accessible text file for GAO report number GAO-10-464R
entitled 'Revitalization Programs: Empowerment Zones, Enterprise
Communities, and Renewal Communities' which was released on March 12,
2010.
This text file was formatted by the U.S. Government Accountability
Office (GAO) to be accessible to users with visual impairments, as
part of a longer term project to improve GAO products' accessibility.
Every attempt has been made to maintain the structural and data
integrity of the original printed product. Accessibility features,
such as text descriptions of tables, consecutively numbered footnotes
placed at the end of the file, and the text of agency comment letters,
are provided but may not exactly duplicate the presentation or format
of the printed version. The portable document format (PDF) file is an
exact electronic replica of the printed version. We welcome your
feedback. Please E-mail your comments regarding the contents or
accessibility features of this document to Webmaster@gao.gov.
This is a work of the U.S. government and is not subject to copyright
protection in the United States. It may be reproduced and distributed
in its entirety without further permission from GAO. Because this work
may contain copyrighted images or other material, permission from the
copyright holder may be necessary if you wish to reproduce this
material separately.
GAO-10-464R:
United States Government Accountability Office:
Washington, DC 20548:
March 12, 2010:
The Honorable Max Baucus:
Chairman:
The Honorable Charles E. Grassley:
Ranking Member:
Committee on Finance:
United States Senate:
The Honorable Sander M. Levin:
Acting Chairman:
The Honorable Dave Camp:
Ranking Member:
Committee on Ways and Means:
House of Representatives:
Subject: Revitalization Programs: Empowerment Zones, Enterprise
Communities, and Renewal Communities:
Beginning in 1993 and in subsequent legislation in 1997, 1999, and
2000, Congress established the Empowerment Zone (EZ), Enterprise
Community (EC), and Renewal Community (RC) programs to reduce
unemployment and generate economic growth in selected Census tracts.
Urban and rural communities designated as EZs, ECs, or RCs received
grants, tax incentives, or a combination of both to stimulate
community development and business activity. The EZ, EC, and RC
programs expired on December 31, 2009, though legislation has been
introduced to extend the programs.
The Community Renewal Tax Relief Act of 2000 (Public Law 106-554)
mandated that GAO report to Congress by January 31, 2004; 2007; and
2010 on the EZ, EC, and RC programs and their effect on poverty,
unemployment, and economic growth in designated program areas. We
issued the first two mandated reports in 2004 and 2006.[Footnote 1]
The purpose of this report is to make publicly available information
we provided in a briefing to your staffs on January 29, 2010.
Enclosure I contains a copy of the briefing slides, which describe (1)
the purposes and characteristics of the EZ, EC, and RC programs; (2)
the information available on the results of the programs; and (3)
agency actions in response to GAO's prior recommendations and
observations.
Background:
Congress established the first round of EZ and EC programs through the
Omnibus Budget Reconciliation Act of 1993. Further legislation in 1997
and 1999 authorized the second rounds of the EZ and EC programs, while
the Community Renewal Tax Relief Act of 2000 authorized a third round
of EZs and established the RC program. The Department of Health and
Human Services (HHS), the Department of Housing and Urban Development
(HUD), the United States Department of Agriculture (USDA), and the
Internal Revenue Service (IRS) had key roles in administering the
programs.[Footnote 2] While eligibility varied slightly by program and
round, the designated EZ, EC, and RC communities were selected largely
on the basis of poverty and unemployment rates, population, and other
area statistics. In general, program benefits in the first two rounds
included a combination of grants and tax incentives, while the third-
round EZs and RCs generally received only tax benefits.
In our 2004 report, we described the features of the EZ, EC, and RC
programs, the extent to which the programs had been implemented, the
methods used to evaluate their effectiveness, and the results of these
evaluations. We recommended that HUD, USDA, and IRS collaborate to (1)
identify the data needed to assess the use of the tax benefits and the
various means of collecting such data; (2) determine the cost-
effectiveness of collecting these data; (3) document the findings of
their analysis; and, if necessary, (4) seek the authority to collect
the data, if a cost-effective means was available. In our 2006 report,
we focused on the first round of the EZ and EC program that started in
1994 and discussed program implementation and oversight, the data that
were available on the use of program tax benefits, and the programs'
effect on poverty, unemployment, and economic growth. We made
observations that should be considered if these or similar programs
are authorized in the future. Our final briefing slides provide an
overview of all three program rounds with a focus on the Round III EZs
and RCs that primarily received tax benefits. It also addresses HUD,
USDA, and IRS' responses to our recommendations and observations in
the two prior reports.
Summary:
While these programs initially offered a mix of grants and tax
incentives for community and economic development, later rounds
offered primarily tax incentives for business development. Grant funds
in the early EZ and EC programs financed projects and activities to
enhance community development. Further, the facility bond feature of
the EZ and EC programs helped facilitate large business projects. More
recently, the Commercial Revitalization Deduction (CRD) feature of the
RC program helped to facilitate smaller business projects.
Some information is available on the results of the EZ, EC, and RC
programs. For instance, HUD collects data on utilization of facility
bonds in EZs and the CRD in RCs. In addition, IRS provided data to HUD
on EZ/RC employment credit use. However, data limitations make it
difficult to accurately tie the use of the credits to specific
designated communities. It is not clear how much businesses are using
other EZ, EC, and RC tax incentives, because IRS forms do not
associate these incentives with the programs or with specific
designated communities. Going forward, the U.S. Census Bureau will
begin releasing more frequent poverty and employment updates at the
Census tract level than it has traditionally provided, and this
information could be a useful tool in determining the effects of such
programs on poverty and employment in designated Census tracts.
In response to our prior recommendations and observations, HUD and IRS
have collaborated to provide outreach and to share data on the use of
some program tax incentives. In addition, HUD has taken steps to
improve data collection and program monitoring. However, the agencies
are not yet able to tie the use of tax benefits, including employment
credits, to particular communities because of limitations in
distinguishing such information on existing tax forms, making it
difficult to begin assessing the impacts of these tax benefits.
To accomplish our work, we reviewed relevant documents and interviewed
officials from HUD, USDA, and IRS. We also conducted a survey of the
most recently designated EZs and RCs and performed fieldwork at
selected urban and rural EZ and RC locations.
We conducted our work from July 2009 to January 2010 in accordance
with generally accepted government auditing standards. Those standards
require that we plan and perform the audit to obtain sufficient,
appropriate evidence to provide a reasonable basis for our findings
and conclusions based on our audit objectives. We believe that the
evidence obtained provides a reasonable basis for our findings and
conclusions based on our audit objectives.
We provided a draft of the slides to HUD, USDA, and IRS for comment.
The three agencies provided technical comments, which were
incorporated where appropriate. HUD's Acting General Deputy Assistant
Secretary for Community Planning and Development provided written
comments, which are presented in enclosure II.
We are sending copies of this letter and the slides to the Secretaries
of Housing and Urban Development, Agriculture, Treasury, and other
interested parties. In addition, the letter and slides will be
available at no charge on GAO's Web site at [hyperlink,
http://www.gao.gov].
If you or your staffs have any questions about this report, please
contact me at 202-512-4325 or shearw@gao.gov. Contact points for our
Offices of Congressional Relations and Public Affairs may be found on
the last page of this report. Major contributors to this report were
Andy Finkel, Assistant Director; Emily Chalmers; Barry Kirby; Kirsten
Lauber; John McGrail; Marc Molino; Ellen Ramachandran (intern); Lisa
Reynolds; and Walter Vance.
Signed by:
William B. Shear:
Director, Financial Markets and Community Investment:
Enclosures:
[End of section]
Enclosure I: Information on Empowerment Zone, Enterprise Community, and
Renewal Community Programs:
Briefing for Congressional Addressees:
Overview:
Information on Empowerment Zone (EZ), Enterprise Community (EC), and
Renewal Community (RC) Programs:
* Objectives;
* Summary;
* Background;
* Scope and methodology;
* Discussion of objectives;
* Profiles of sites visited.
Objectives:
This briefing is in response to the Community Renewal Tax Relief Act
of 2000, which mandated that GAO audit and report in 2004, 2007,
and 2010 on the EZ/EC/RC programs and their effect on poverty,
unemployment, and economic growth. To date, we have issued the
first two of these required reports. These briefing slides provide the
results of our 2010 review.
Our objectives were to describe:
1) purposes and characteristics of the EZ, EC, and RC programs;
2) information available on the results of the EZ, EC, and RC
programs; and;
3) agency actions in response to GAO's prior recommendations
and observations.
Summary:
The EZ, EC, and RC programs were designed to revitalize high-poverty,
economically distressed communities that were designated through a
competitive process. Initially, these revitalization programs offered
a mix of grants and tax incentives for community and economic
development, but later rounds offered primarily tax incentives for
business development.
Some additional data on EZ/EC/RC results, such as more frequent
updates to Census statistics on poverty at the Census tract level, are
available beginning this year. However, data on the use of program tax
benefits and their impacts are limited.
* The Department of Housing and Urban Development (HUD) collects data
on the use of the Commercial Revitalization Deduction (CRD) and
facility bonds in designated communities.
* The Internal Revenue Service (IRS) provided data to HUD on the use
of EZ/RC employment credits, though data limitations have inhibited
the agencies' ability to accurately tie the use of the credits to
specific designated communities.
* The extent to which businesses are using EZ/EC/RC tax incentives
other than facility bonds, CRDs, and employment credits is not
measurable because IRS forms do not associate these incentives with
such programs or specific designated communities.
* Census data on poverty and unemployment in these areas have not
typically been available more than once per decade, but Census is
taking steps to release more frequent updates in the future.
Since 2006, HUD and IRS have initiated outreach and data-sharing
efforts in response to recommendations we made in 2004.[Footnote 3]
HUD has also made some progress in response to GAO's observations in
2006 regarding data collection and monitoring.[Footnote 4] However,
the agencies are not yet able to tie the use of employment credits to
particular communities, making it difficult to begin assessing the
impacts of these tax benefits.
Background:
Congress authorized the EZ, EC, and RC programs in several rounds of
legislation beginning in 1993.
Table:
Program: Round I EZ/EC;
Title: Omnibus Budget Reconciliation Act of 1993;
Summary:
* Established the EZ/EC program and its package of grants and tax
benefits;
* Authorized 6 urban and 3 rural Round I EZs[A];
* Authorized 65 urban and 30 rural Round I ECs[A];
* Established eligibility requirements and selection criteria for
EZ/ECs.
Program: Round II EZ/EC;
Title: Taxpayer Relief Act of 1997;
Summary:
* Authorized 5 rural and 15 urban Round II EZs;
* Changed the eligibility requirements for EZ/ECs;
* Created the Washington, D.C. EZ.
Program: Round II EZ/EC;
Title: Omnibus Consolidated and Emergency Supplemental Appropriations
Act of 1999;
Summary:
* Authorized up to 20 additional rural ECs.
Program: Round III EZ and RC;
Title: Community Renewal Tax Relief Act of 2000;
Summary:
* Authorized 2 rural and 7 urban Round III EZs;
* Established the RC program and its package of tax benefits;
* Authorized designation of 40 RCs, with 12 designations for rural
areas;
* Made additional tax benefits available to EZs.
Program: Round III EZ and RC;
Title: American Jobs Creation Act of 2004;
Summary:
* Allowed the expansion of RC boundaries based on 2000 Census data.
Source: GAO summary of P.L. 103-66, P.L. 105-34, P.L. 105-277, P.L.
106-554, and P.L. 108-357.
[A] HUD subsequently added 2 Supplemental EZs and 4 Enhanced ECs. In
January 2000, the 2 Supplemental EZs received Round I EZ status.
[End of table]
Background:
Designations for EZs, ECs, and RCs were chosen largely on the basis
of residents' socioeconomic characteristics.
The EZ, EC, and RC programs have each offered a different mix of
grant funds and tax benefits targeting designated communities.
* EZ and EC programs have generally offered a mix of grant funds and tax
benefits.
* No grant funds were provided with later RC and Round III urban EZ
programs.
Other tax credits are available to businesses in areas considered to be
distressed that may or may not be in EZ/EC/RC designated communities,
including the:
* Work Opportunity Tax Credit,
* Welfare to Work Tax Credit, and,
* New Markets Tax Credit.
Four federal agencies have had key roles in administering the
EZ/EC/RC revitalization programs.
* HUD oversaw the EZ/EC programs in urban areas, administered grants to
Round II urban EZs, and oversaw all of the RCs.
* The U.S. Department of Agriculture (USDA) oversaw EZ/EC programs in
rural areas and administered grants to Round II rural EZ/ECs and Round
III rural EZs.
* The U.S. Department of Health and Human Services (HHS) administered
block grant funds to communities designated in Round I of the EZ/EC
programs.
* IRS has been responsible for administering tax benefits available
under the EZ, EC, and RC programs.
Table: Administration of EZ/EC/RC Programs:
Round I EZs — Urban:
HHS: [Check];
HUD: [Check];
USDA: [Empty];
IRS: [Check].
Round I EZs — Rural:
HHS: [Check];
HUD: [Empty];
USDA: [Check];
IRS: [Check].
Round I ECs — Urban:
HHS: [Check];
HUD: [Check];
USDA: [Empty];
IRS: [Check].
Round I ECs — Rural:
HHS: [Check];
HUD: [Empty];
USDA: [Check];
IRS: [Check].
Round II EZs — Urban:
HHS: [Empty];
HUD: [Check];
USDA: [Empty];
IRS: [Check].
Round II EZs — Rural:
HHS: [Empty];
HUD: [Empty];
USDA: [Check];
IRS: [Check].
Round II ECs — Rural (no urban):
HHS: [Empty];
HUD: [Empty];
USDA: [Check];
IRS: [Empty].
Round III EZs — Urban:
HHS: [Empty];
HUD: [Check];
USDA: [Empty];
IRS: [Check].
Round III EZs — Rural:
HHS: [Empty];
HUD: [Empty];
USDA: [Check];
IRS: [Check].
RCs — Urban:
HHS: [Empty];
HUD: [Check];
USDA: [Empty];
IRS: [Check].
RCs — Rural:
HHS: [Empty];
HUD: [Check];
USDA: [Empty];
IRS: [Check].
[End of table]
GAO has previously reported on the characteristics and impacts of the
EZ, EC, and RC programs.
* In 2004, we reported on the features of the programs, the extent to
which they had been implemented, the methods used to evaluate their
effectiveness, and the results of these evaluations.
- We concluded that the programs had been implemented but that limited
data on the use of EZ and RC tax benefits presented multiple
challenges to evaluating the programs. We noted that acquiring
additional data that could attribute the use of the tax benefits to
particular EZs and RCs would help facilitate an audit of these
programs. Additional tax data would be necessary to evaluate certain
aspects of the programs, such as the use of the tax benefits.
- We further reported that without utilization data, EZs and RCs could
not reliably report on how local businesses used the program, limiting
the ability of GAO and other researchers to determine the programs'
impact on designated communities.
* Our 2006 report, which focused on Round I EZ and EC programs,
discussed program implementation and oversight; the available data on
the use of program tax benefits; and the programs' effect on poverty,
unemployment, and economic growth, with the following findings:
- Round I EZs and ECs had expended 85 percent of $1 billion in grant
funds on a variety of projects, mostly involving community development.
- Reliable data on the extent of leveraging funds with other sources
were not available.
- Federal agencies responsible for program oversight—including HHS,
HUD, and USDA—collected some information on budgeting and the use of
grants, but did not account for amounts actually spent on specific
activities.[Footnote 5]
- The extent of federal monitoring varied across EZ and EC sites.
- Detailed IRS data on the use of EZ/EC program tax benefits were not
available.
- Although improvements in poverty, unemployment, and economic growth
had occurred in the EZs and ECs, our econometric analysis of the eight
urban EZs could not tie these changes definitively to the EZ
designation.
The EZ, EC, and RC programs expired December 31, 2009.
* In December 2009, the House passed the Tax Extenders Act of 2009,
which would extend the EZ and RC programs for one year. In March
2010 the Senate also passed the Act.
* House and Senate bills proposing longer-term program reauthorizations
were referred to the relevant committees.
Scope and Methodology:
To assess the purposes and characteristics of the EZ, EC, and RC
programs, we reviewed relevant laws and regulations and IRS
publications, and interviewed HUD and USDA officials. We also drew on
our 2004 report on federal revitalization programs.
To determine what information was available on results of the Round I
and II EZs and ECs, we reviewed HUD and USDA online performance
management systems; interviewed HUD, USDA, and IRS officials; and
revisited our 2006 report on EZs and ECs. To obtain information on
Round III EZs and RCs, we surveyed all RCs and Round III EZ
administrators. Our survey had a response rate of 100 percent. We also
conducted site visits and telephone interviews with RC and Round III
EZ communities that were selected based on the type of community they
were and, in part, on their survey responses.[Footnote 6]
To assess actions and progress that had been made in addressing GAO's
recommendations, we interviewed HUD, USDA, and IRS officials and
collected relevant documentation.
We conducted this performance audit from July 2009 to January 2010
in accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe
that the evidence obtained provides a reasonable basis for our findings
and conclusions based on our audit objectives.
Objective 1: Program Features:
EZ, EC, and RC programs were designed to reduce unemployment and
generate economic growth.
* EZ, EC, and RC areas had to be nominated for their designations
by one or more local governments and the state or states in which
they were located.
* These communities comprised Census tracts that were selected
largely on the basis of poverty, unemployment rates, population,
and other area statistics from the decennial Census. Some local
RC administrators expressed concern about changes to eligibility
criteria that excluded certain high-poverty Census tracts.
* Nominated EZs and ECs had to submit a strategic plan showing
how they would meet key program principles, while nominated
RCs had to submit a written "course of action" with commitments to
carry out specific legislatively mandated activities.
Table: EZ/EC/RC Eligibility Requirements by Program Round:
Minimum required poverty level in nominated census tracts[A]:
Urban EZ/EC, Round I: 35% in half of tracts, 25% in 90% of tracts, and
20% in all tracts[B];
Urban EZ/EC, Rounds II and III: 25% in 90% of tracts, 20% in all
tracts[B];
Rural EZ/EC, Round I: 35% in half of tracts, 25% in 90% of tracts, and
20% in all tracts[B];
Rural EZ/EC, Rounds II and III: 25% in 90% of tracts, 20% in all
tracts[B];
RC: 20% in all tracts[C].
Minimum required unemployment rate:
Urban EZ/EC, Round I: 6.3% (1990 national rate)[A];
Urban EZ/EC, Rounds II and III: 6.3% (1990 national rate)[A];
Rural EZ/EC, Round I: No minimum specified; could be demonstrated by
several different indicators;
Rural EZ/EC, Rounds II and III: No minimum specified; could be
demonstrated by several different indicators;
RC: 9.45% (1.5 times the 1990 national rate)[A].
Required populations:
Urban EZ/EC, Round I and Urban EZ/EC, Rounds II and III: Maximum:
200,000 or the greater of 50,000 or 10% of the population of the most
populous city within the nominated area Minimum: None;
Rural EZ/EC, Round I and Rural EZ/EC, Rounds II and III: Maximum:
30,000; Minimum: None;
RC: Maximum: 200,000; Minimum: 4,000 if any portion lay within a
metropolitan statistical area of 50,000 or greater; 1,000 otherwise,
except for areas entirely within an Indian reservation, which had no
population restrictions.
Maximum required area[A]:
Urban EZ/EC, Round I: 20 square miles[D];
Urban EZ/EC, Rounds II and III: 20 square miles, with up to 3
developable sites[D,E];
Rural EZ/EC, Rounds II and III: 1,000 square miles, with up to 3
developable sites[{D,E};
RC: None, but area boundary must be continuous.
Conditions of general distress:
Urban EZ/EC, Round I: 6 indicators, such as high incidence of crime or
narcotics use and amount of abandoned housing;
Urban EZ/EC, Rounds II and III: 17 indicators, such as average years
of school completed, number of persons on welfare, and dropout rate;
Rural EZ/EC, Round I and Rural EZ/EC, Rounds II and III: 14
indicators, such as average years of school completed and incidence of
crime or narcotics use;
RC: 17 indicators, such as average years of school completed, number
of persons on welfare, and dropout rate.
Other requirements:
Urban EZ/EC, Round I and Urban EZ/EC, Rounds II and III: Strategic
plan based on the four key principles of the EZ/EC program: (1)
economic opportunity; (2) sustainable community development; (3)
community-based partnerships; and (4) strategic vision for change;
Rural EZ/EC, Round I and Rural EZ/EC, Rounds II and III: Strategic
plan based on the four key principles of the EZ/EC program: (1)
economic opportunity; (2) sustainable community development; (3)
community-based partnerships; and (4) strategic vision for change;
RC: "Course of action" that committed to carrying out 4 of 6
activities (e.g., crime reduction strategies and an increase in the
level of efficiency of local services within the RC).
Source: GAO summary of P.L. 103-66, P.L. 105-34, P.L. 106-554, 24
C.F.R. 597, 24 C.F.R. 598, 24 C.F.R. 599, and 7 C.F.R. 25.
[A] Based on 1990 Census data.
[B] In all rounds of the EZ/EC program, communities could not include
Census tracts with central business districts that did not have a
poverty level of at least 35 percent. The authorizing legislation also
established special requirements for nominated Census tracts with low
or no population.
[C] In urban areas, at least 70% of households had to have incomes
below 80% of the local median.
[D] Nominated communities could include up to 3 noncontiguous parcels.
[E] A developable site is a parcel of land of up to 2,000 acres
(including noncontiguous parcels) that can be used for commercial or
industrial purposes.
[End of table]
Early rounds of the EZ and EC programs provided grant funds, but later
rounds offered primarily tax incentives.
* The EZ program provided grant funds for EZs in Rounds I and II (but
not in Round III urban EZs) coupled with tax benefits to businesses
for all three rounds of the program. The two rural EZs in Round III
did receive grant funds along with the tax benefits, however.
* The EC program provided some grant funds for both program rounds and
tax benefits for the first round.
* The RC program provided only tax benefits.
Table: Summary of EZ/EC/RC Grant Funds Per Designated Community:
Program: Round I — EZs;
Designated Areas: Urban EZs;
Funds: $100 million;
Source of Funds: HHS.
Program: Round I — EZs;
Designated Areas: Rural EZs;
Funds: $40 million;
Source of Funds: HHS.
Program: Round I — EZs;
Designated Areas: Supplemental EZs;
Funds: $87 to 125 million;
Source of Funds: HUD.
Program: Round I — ECs;
Designated Areas: Urban ECs;
Funds: $2.95 million;
Source of Funds: HHS.
Program: Round I — ECs;
Designated Areas: Rural ECs;
Funds: $2.95 million;
Source of Funds: HHS.
Program: Round I — ECs;
Designated Areas: Enhanced ECs;
Funds: $22 million;
Source of Funds: HUD.
Program: Round II — EZs[A];
Designated Areas: Urban EZs;
Funds: $25.6 million;
Source of Funds: HUD.
Program: Round II — EZs[A];
Designated Areas: Rural EZs;
Funds: $17.7 million;
Source of Funds: USDA.
Program: Round II — ECs[A];
Designated Areas: Rural ECs;
Funds: $2.2 million;
Source of Funds: USDA.
Program: Round III — EZs[A];
Designated Areas: Urban EZs;
Funds: [Empty];
Source of Funds: [Empty].
Program: Round III — EZs[A];
Designated Areas: Rural EZs;
Funds: $2.9 million;
Source of Funds: USDA.
Program: RCs;
Designated Areas: Urban RCs;
Funds: [Empty];
Source of Funds: [Empty].
Program: RCs;
Designated Areas: Rural RCs;
Funds: [Empty];
Source of Funds: [Empty].
[A] Grant funds were appropriated to HUD and USDA and were affected by
rescissions.
[End of table]
Table: Summary of tax Benefits:
Wage Credits:
Employment Credit - Annual tax credit for businesses of up to $3,000
or $1,500 for each employee living and working for the employer in an
EZ or RC area, respectively.
EZ: [Check];
EC[A]: [Empty];
RC: [Check].
Work Opportunity Credit - Business tax credit of up to $2,400 for each
new employee age 18 to 24 living in an EZ/EC/RC, or up to $1,200 for a
youth summer hire.
EZ: [Check];
EC[A]: [Check];
RC: [Check].
Deductions:
Commercial Revitalization Deduction - Accelerated method of
depreciation to recover certain business costs of new or substantially
rehabilitated commercial buildings in an RC (states allocate up to $12
million annually per RC).
EZ: [Empty];
EC[A]: [Empty];
RC: [Check].
Increased Section 179 Deduction - Increased deduction of up to $35,000
of the cost of eligible property purchases (including equipment and
machinery) for businesses in an EZ/RC.
EZ: [Check];
EC[A]: [Empty];
RC: [Check].
Investment Incentives:
Facility Bonds - Bonds issued for projects in EZs/ECs by state or
local governments at lower interest rates to finance construction
costs (up to $230 million in urban EZs).
EZ: [Check];
EC[A]: [Check];
RC: [Empty].
Qualified Zone Academy Bonds - No interest bonds issued in EZs/ECs by
state or local governments to finance school programs, with purchasers
receiving interest payments as tax credits.
EZ: [Check];
EC[A]: [Check];
RC: [Check].
Rollover of Capital Gains - EZ business owners may be able to postpone
part or all of the gain from the sale of a qualified EZ asset that
they hold for more than 1 year.
EZ: [Check];
EC[A]: [Empty];
RC: [Empty].
Increased Exclusion of Capital Gains - Taxpayers can exclude 60
percent of their gain from the sale of small business stock in a
corporation that qualifies as an enterprise zone business.
EZ: [Check];
EC[A]: [Empty];
RC: [Empty].
Exclusion of Capital Gains - RC business owners can exclude qualified
capital gains from the sale or exchange of a qualified community asset
held more than 5 years.
EZ: [Empty];
EC[A]: [Empty];
RC: [Check].
Source: GAO Summary of IRS Publication 954 and HUD fact sheets.
[A] ECs only received tax incentives in Round I.
[End of table]
Early EZ and EC programs targeted community development and
large business projects, while the RC program targeted small and
medium-sized business projects.[Footnote 7]
* Grant funds in the early EZ and EC programs financed projects and
activities to enhance community development, but this financing
decreased in successive rounds of the programs.
* The EZ and EC programs featured facility bonds to aid in the
financing of large business projects that were tied to the employment
of residents in the designated areas.
* The RC program provided more benefits to small and medium-sized
projects, incorporating the CRD instead of the facility bond feature.
* The RC program's CRD feature, which encompassed an annual allocation
of $12 million per RC and was administered locally, was intended to
facilitate new construction and rehabilitation projects.
[End of Objective 1]
Objective 2: Information Available on the EZ/EC/RC Programs:
GAO has previously observed that improvements occurred in early EZs
and ECs, though changes could not be conclusively tied to the programs.
* In 2006, we found that in some cases Round I EZs and ECs, which
received a combination of grants and tax incentives, showed
improvements in poverty, unemployment, and economic growth (measured
by the number of businesses and the number of jobs).[Footnote 8]
- In most Round I EZs and ECs, both urban and rural, poverty rates
fell between 1990 and 2000, with most communities experiencing
statistically significant decreases in the poverty rate that ranged
from 2.6 to 14.6 percent.
- Fewer than half of the individual EZs and ECs experienced a decrease
in unemployment, with declines ranging from 1.5 to 11.7 percentage
points. Some communities saw increases in unemployment of up to 6.5
percentage points, and others did not experience a significant change.
- Most of the Round I communities experienced an increase in at least
one measure of economic growth between 1995 and 2004.
* However, we could not definitively tie these improvements to the EZ
and EC programs.
- An econometric analysis of the eight urban Round I EZs could not
determine whether the changes were a response to the program or to
other economic conditions.
- Similarly, interviews and surveys of EZ and EC stakeholders revealed
that respondents credited the programs for certain improvements but
also noted that external factors, such as changes in the national
economy and in welfare policy, may have been associated with the
economic changes in designated communities.
* In 2004, we observed a small number of evaluations that had been
conducted on the EZ/EC programs' effectiveness.
- The evaluations used a variety of research methods, reported varying
results, and were subject to limitations.[Footnote 9]
- While some of these early evaluations described changes in
employment, we noted that they could not be used to conclude that the
EZ and EC programs actually caused the observed changes.
* We also recently reviewed seven academic studies; all examined Round I
EZs, and one also examined Round I ECs. Like the earlier studies, these
evaluations used different methods and reported varying results with
regard to poverty and unemployment. Further, none of them systematically
evaluated the effect of the tax benefits-only design of the RCs and
Round III urban EZs.
Some information on the use of tax benefits is currently available,
but information at the EZ/EC/RC level remains limited.
* HUD collects information on the use of some program tax benefits
requiring authorization from local program officials, including:
- facility bonds that were used for projects in EZs,[Footnote 10] and;
- CRD allocations that were used for projects in RCs.
* Facility bonds have been used to finance large construction projects
in EZ areas.
- Local administrators of urban EZs reported that about $643 million
in facility bonds were tied to 40 projects over a 16-year period.
- Of 31 urban EZs in program rounds I through Ill, fewer than half
reported using facility bonds.
* CRD allocations allowing accelerated depreciation of new and
rehabilitated facilities in RC areas have benefited small and medium-
sized business projects.
- Local RC administrators reported allocating over $1.7 billion in
CRDs from 2002 through 2008.
- CRD allocations that were reportedly used represented just over 50
percent of the possible total allocations.
Aggregate data on the use of employment credits could not be broken
down to conclusively show the use of such credits in specific EZ/RC
areas.
* IRS has provided HUD with aggregate data from Form 1040 returns
revealing that filers in EZs and RCs nationwide were allowed about $675
million in employment credits for processing years 1997 through 2008.
[Footnote 11]
* Aggregate data from IRS Form 1120 returns indicated that corporate
filers were allowed approximately $2.6 billion in employment credits for
processing years 1997 through 2008.
* However, for both 1040 and 1120 filers, identifying the employment
credits taken for specific EZ or RC areas has been problematic.
- IRS officials stated that data on employment credits taken cannot be
directly linked to specific EZs or RCs because there is no information
on the relationship of the taxpayer's address to the EZ or RC
location(s) where employment tied to these credits occurred.
- IRS Form 8844 does not break down the employment credits taken by
the specific EZ or RC location(s).
* Other than employment credits, HUD does not receive data from IRS that
can be linked to EZ/EC/RC programs.
* Challenges exist to identifying EZ/EC/RC tax benefits taken and
associating them with a given designated community.
- Most IRS forms incorporating EZ/EC/RC tax benefits are not specific
to revitalization program activities, with the exception of IRS Form
8844, which solely addresses the EZ and RC employment credits.
- Breaking out figures on tax benefits tied to EZ/EC/RC programs would
be difficult on most IRS forms, because the forms are not specific to
these programs and because EZ/EC/RC credits and deductions would be
aggregated with other types of credits and deductions.
- EZ and RC administrators told us that a lack of data on the use of
tax benefits within their designated communities inhibited their
ability to evaluate program effectiveness. For example, the only tax
benefits that administrators could track were CRDs and EZ facility
bonds, because administrators were involved in the approval process.
Table: Key IRS Forms for EZ/EC/RC Benefits and Their Data Limitations:
Wage Credits:
Tax Benefit: Employment Credit;
Key IRS Forms: 8844;
Limitations to Attributing Tax Benefits from IRS Forms to Specific
Programs or Areas: Credits cannot be tied to specific EZs/RCs.
Tax Benefit: Work Opportunity Credit;
Key IRS Forms: 5884/8850;
Limitations to Attributing Tax Benefits from IRS Forms to Specific
Programs or Areas: Credits for EZ/EC/RC employees are not
distinguished from credits for other eligibility groups.
Deductions:
Tax Benefit: Commercial Revitalization Deduction;
Key IRS Forms: 4562/8582;
Limitations to Attributing Tax Benefits from IRS Forms to Specific
Programs or Areas: CRD figures are not distinguished from other non-RC
deductions.
Tax Benefit: Increased Section 179 Deduction;
Key IRS Forms: 4562;
Limitations to Attributing Tax Benefits from IRS Forms to Specific
Programs or Areas: Increased section 179 deduction figures are not
distinguished from other non-EZ/RC deductions.
Investment Incentives:
Tax Benefit: Facility Bonds;
Key IRS Forms: 8038;
Limitations to Attributing Tax Benefits from IRS Forms to Specific
Programs or Areas: EZ/EC communities are not coded so that figures can
be systematically tabulated by community.
Tax Benefit: Qualified Zone Academy Bonds;
Key IRS Forms: 8860;
Limitations to Attributing Tax Benefits from IRS Forms to Specific
Programs or Areas: Qualified Zone Academy Bond credits for EZ/EC/RC
programs are not specific to a designated community.
Tax Benefit: Rollover of Capital Gains;
Key IRS Forms: Schedule D/4797;
Limitations to Attributing Tax Benefits from IRS Forms to Specific
Programs or Areas: Figures related to capital gains tied to the EZ
program are not specific to a designated community.
Tax Benefit: Increased Exclusion of Capital Gains;
Key IRS Forms: Schedule D/4797;
Limitations to Attributing Tax Benefits from IRS Forms to Specific
Programs or Areas: Figures related to capital gains tied to the EZ
program are not specific to a designated community.
Tax Benefit: Exclusion of Capital Gains;
Key IRS Forms: Schedule D/4797;
Limitations to Attributing Tax Benefits from IRS Forms to Specific
Programs or Areas: Figures related to capital gains tied to the RC
program are not specific to a designated community.
Source: GAO summary and analysis of IRS information.
[End of table]
Historically, data that can be used to assess household economic
outcomes at the local level have been largely confined to the
decennial Census, but with the American Community Survey (ACS), the
Census Bureau can now annually update poverty and other economic
variables at the local level.[Footnote 12]
* Historically, statistics on poverty and other household economic
variables at the Census tract level have been gathered through the
decennial Census. Therefore, statistics on poverty, unemployment, and
other indicators have not been available to evaluate outcomes of the
EZ/EC/RC programs at the Census tract level more than once every 10
years.
* The Census Bureau, through the ACS, now annually collects data
elements including income and employment figures at the Census tract
level—that were previously included on the "long form" of the
decennial Census.
* While the use of annual ACS data for Census tracts or geographic areas
comprised of multiple Census tracts will be limited due to the number
of households from each area included in the annual sample, ACS data
are expected to be a useful tool in tracking changes in household
economic conditions and demographics over time periods more frequent
than decennially.
* Using the ACS, the Census Bureau currently publishes single-year
poverty estimates for any geography with a population greater than
65,000, and 3-year estimates for all geographies with populations of
20,000 or more.
* In 2010, with the release of 5-year data, the Census Bureau will
produce estimates of poverty for all Census tracts. Both the 3-year
and the 5-year estimates will be updated annually, providing evidence
of trends over time.
The following slides contain examples of some projects carried
out in the RCs and Round III EZs we visited.
States and local governments issued facility bonds for large
construction projects in some EZs:
[Refer to PDF for image: 2 photographs]
For example, in the San Antonio EZ, developers used facility bonds to
assist in the financing of two hotel projects in the city's popular
Riverwalk area. With the help of a $39.9 million facility bond, one
hotel has so far employed over 30 EZ residents and will create
construction jobs and other employment generated by the developer's
gift of Riverwalk property to the city, according to local
administrators.
Source: TripAdvisor.com.
With the help of a $130 million facility bond, developers of another
hotel plan to generate an estimated 600 to 800 jobs, with at least 35
percent filled by EZ residents, according to local EZ officials.
Source: GAO photo.
[End of figure]
The CRD feature of the RC program has facilitated new construction and
rehabilitation projects involving commercial buildings and, according
to RC administrators, has aided businesses and improved the look of
areas in designated communities.
[Refer to PFG for image: 2 photographs]
The Chicago RC approved an $8.6 million CRD for a grocery store in an
area that formerly offered only convenience stores.
Source: GAO photo.
In the Chicago RC, a CRD helped finance a strip mall of several small
businesses, facilitating jobs in an area that is still dealing with
crime issues (as evident by the razor wire), according to RC officials.
Source: GAO photo.
[End of figure]
[Refer to PFG for image: 2 photographs]
The Milwaukee RC approved a CRD for several million dollars to help
facilitate the construction of a new facility for a national company
that based its location decision (in a former rail yard location) at
least partially on the RC benefits.
Source: GAO photo.
Several CRD projects approved by the Milwaukee RC involved
rehabilitating historic buildings that had become rundown, including
this old warehouse that was rehabilitated into a boutique hotel,
improving the look of the area.
Source: GAO photo.
[End of figure]
[Refer to PFG for image: 2 photographs]
In an urban RC located in Monroe, LA, the CRD helped finance the
construction of a new medical clinic to serve the public
and improve the look of the area.
Source: GAO photo.
A CRD allocation was also used by a local car dealer in Monroe, LA, to
update facilities to a look common to similar dealers across the
country.
Source: GAO photo.
[End of figure]
[Refer to PFG for image: 2 photographs]
In a rural RC in Louisiana, administrators allocated a CRD to help
finance new grain storage facilities. According to a management
official, the CRD was the deciding factor in making an expansion of
facilities possible, which has resulted in a five-fold increase in
sales by enabling the business to expand its market into Mexico.
Source: GAO photo.
In this rural Louisiana RC, one employer stated that the CRD had been
a key factor in obtaining capital investment in the business. The
employer also mentioned the employment credit had been an important
factor in keeping the plant open during the recent economic downturn.
Source: Company photo.
[End of figure]
[Refer to PFG for image: photograph]
Within a rural Round III EZ in Texas (FUTURO), USDA grants provided
funds to establish the Big Wells Community Education Center, providing
a computer lab and a community resource room in a poor rural
community.
Source: GAO photo.
[End of figure]
* Some EZs and RCs did not fully utilize facility bonds and CRDs.
Several RC administrators said that allowing the pooling of unused CRD
allocations would permit RCs to access unused CRD funds so that these
allocations could be used in areas of greater demand.
* HUD officials and some local administrators described several
challenges to using these incentives:
- Facility bonds are complicated transactions that require significant
up-front money and projects big enough to justify the transaction
costs.
- The economic climate in recent years has made it difficult for
businesses to obtain financing from other sources.
- Uncertainty over the EZ and RC programs' extension caused hesitancy
on the part of some administrators and would-be applicants and
investors.[Footnote 13]
- RCs and Round III Urban EZs lacked administrative funds to market
the programs' benefits. Some EZ and RC administrators suggested grants
for administrative funding and/or user fees tied to tax benefits that
are processed locally.
* RC and Round III EZ administrators identified pending or potential
projects that could be implemented if the programs were extended
beyond December 31, 2009.
- Of the 50 RC and Round III EZs that we surveyed, 39 communities (31
RCs and 8 EZs) indicated that they had pending projects.
- Local administrators described pending or potential mixed-use
projects that would include affordable housing, as well as commercial
and industrial projects that would create jobs.
[Figure: Refer to PFG for image: horizontal bar graph]
Pending projects?
Yes:
Round III EZ: 8 communities;
RC: 31 communities.
No:
Round III EZ: 2 communities;
RC: 9 communities.
Source; GAO analysis.
[End of figure]
[Refer to PFG for image: 3 photographs]
Examples of project sites not yet completed for future revitalization
programs: In Milwaukee (right), officials would like to focus future
revitalization efforts on developing an abandoned industrial area of
nearly 150 acres vacated by an automobile parts manufacturer. In rural
Louisiana (below), local officials would like to use RC benefits along
with other incentives for an automobile manufacturing plant. In San
Antonio (lower right), an EZ administrator told us that the City would
like to use future benefits to spur investment in the neighborhood
surrounding Fort Sam Houston, whose population is expected to grow by
12,000 people in the near future due to a military base realignment.
Sources: Northeast Louisiana Economic Alliance Web site; GAO photos.
[End of figure]
[End of Objective 2]
Objective 3: Agency Responses:
HUD and IRS have initiated cooperative efforts to begin addressing
past recommendations and observations.
* In 2004, we recommended that HUD, USDA, and IRS collaborate to:
(1) identify the data needed to assess the use of the tax benefits and
the various means of collecting such data;
(2) determine the cost-effectiveness of collecting these data,
including the potential impact on taxpayers and other program
participants;
(3) document the findings of this analysis; and;
(4) if necessary, seek the authority to collect the data, if a cost-
effective means is available.
* In 2006, we made the following key observations:
- Limited data and variations in monitoring by HUD, USDA, and HHS have
hindered federal oversight efforts; and;
- The lack of data on the use of program grant funds, the extent of
leveraging, and extent to which program tax benefits were used limited
GAO's ability and the ability of others to evaluate the effects of the
program.
1) In response to our 2004 recommendation, HUD's Office of Community
Renewal (OCR) and IRS established an action plan in 2006 that:
- Designated the IRS Office of Stakeholder Liaisons as IRS field
officials responsible for helping to market and educate business
owners on the EZ and RC tax incentives;
- Created a standard library of tools for stakeholder liaisons that is
now available, according to HUD officials, to assist EZs and RCs; and;
- Delivered IRS data that gave HUD some ability to measure the use of
the EZ and RC employment credits for processing years 1997 through
2008.
USDA did not act on the recommendation. USDA officials told us that
the IRS data was not relevant to overseeing the rural EZ/EC program
due to the low population densities in many rural EZs as many rural
residents do not work and live in EZs and therefore do not qualify.
2) In response to our 2006 observations about the collection of data
on how funds were used and the consistency of federal monitoring, HUD
streamlined its record-keeping system to allow consistent sharing of
management, program, and operational information within OCR.
3) HUD also created the RC/EZ Performance Workbook—a series of Excel
spreadsheets—to allow OCR employees to easily access large volumes
of data and text from its online Performance Measurement System
(PERMS) and other information sources.[Footnote 14]
4) To address the observation in our 2006 report that data on the
extent of leveraging were not available, HUD conducted an assessment of
leveraging for completed projects in Round II EZs, estimating that these
EZs generated public and private investments.
5) In an effort to estimate the impact of certain EZ/EC/RC tax
benefits on unemployment, HUD used IRS data to estimate the number of
jobs generated or supported by EZ/RC employment credits. However, the
data could not be tied to specific EZ or RC areas. IRS also expressed
concerns about the job estimates.[Footnote 15]
While HUD and IRS have made some progress in identifying data on
employment credits, data on the use of other tax benefits and any
impacts in designated communities are largely unavailable.
* Data produced through the HUD/IRS partnership revealed that IRS Form
1040 filers were allowed about $675 million in employment credits (for
processing years 1997 through 2008).
- In an attempt to breakout the data further by specific EZ/RC areas,
HUD provided IRS a list of ZIP codes that roughly coincided with EZ
and RC Census tracts, with the assumption that there would be some
correlation between the filing address of the 1040 filers and where
employment credits were taken.[Footnote 16] The data that IRS returned
from the Form 1040 thus identified employment credit use within ZIP
codes around these local EZ/RC areas, but HUD stated that data
limitations prevented the use of this information for performance
measurement purposes. In addition, data could not be broken out by EZ
or RC in metropolitan areas containing both an EZ and RC.
- Without asking for more information on IRS Form 8844, it is still
not possible to identify the EZ or RC area where the employment
credits were taken.[Footnote 17] Program administrators emphasized the
importance of obtaining available data from IRS on the employment
credits in a manner that identifies the communities where the credits
were taken. IRS officials told us that changing tax forms can result
in significant processing costs. However, an IRS official indicated
that since IRS Form 8844 was specifically generated for the EZ/RC
program, it would be easier to modify than other forms.
* IRS also gave HUD some employment credit utilization data gathered
from IRS Form 1120 (corporate filers) for processing years 1997 through
2008 that totaled about $2.6 billion.
- These data are difficult to connect to specific EZs or RCs because
corporations may employ EZ/RC residents in locations that differ from
their corporate tax filing address.
- National data can be identified but not accurately broken down to the
specific EZ/RC areas, as corporate ZIP codes are not necessarily
within these areas.
* IRS data on utilization of the Work Opportunity Tax Credit is
available for processing years 1997 through 2006, but a HUD official
stated that these data are less useful because they do not specify
whether the employee was eligible due to EZ/RC residency or other
factors.
* IRS noted that a change to IRS Form 8844 would require legislative
direction or a formal request from an agency to obtain certain
information from the form. Changes would encompass allowing for the
possibility of the taxpayer having credits from multiple zones as well
as data transcription enhancements.
In summary, in many cases economic conditions improved in
communities where the EZ/EC/RC grants and tax benefits were used.
But as we reported previously, it has been difficult to isolate the
impacts of these programs on conditions in distressed communities
without the ability to attribute the tax benefits to EZ/EC/RC areas. We
recognize the challenges inherent in evaluating economic development
programs. However, without linking tax benefits to the communities
where they are taken, important information remains unclear -- for
example, the extent to which various tax benefits are being used within
each community. Such tax-related information, coupled with more
current data on poverty and employment data in such areas, could
help program administrators assess the effectiveness of a revitalization
program.
[End of Objective 3]
Profiles of Sites Visited: RCs and Round III EZs:
Site: Chicago, IL - Urban RC:
[Refer to PDF for image: map of Chicago, IL - Urban RC]
Source: HUD Web site.
[End of figure]
Mission:
The mission of the Chicago Renewal Community (RC) is to improve the
viability and number of businesses located in the RC and promote job
creation by using federal tax incentives to enhance the well-being and
quality of life for residents. The City of Chicago will continue to
stimulate its economic development and revitalization efforts through
the designation.
Summary Data:
1990 RC Population: 199,932;
1990 RC Poverty Rate: 37.28%;
1990 RC Unemployment Rate: 23.36%.
The Coordinating Responsible Authority (CoRA)[Footnote 18]:
Office of Budget and Management-EZ/RC, Chicago, IL.
Site: Milwaukee, WI Urban RC:
[Refer to PDF for image: map of Milwaukee, WI Urban RC]
Source: Milwaukee RC.
[End of figure]
Mission:
Milwaukee's Redevelopment Authority ("RACM") is the CoRA for
Milwaukee's Renewal Community. RACM's mission is to improve the
quality of life in Milwaukee neighborhoods by guiding and promoting
development that creates jobs, builds wealth, and strengthens the
urban environment, and at the same time respects equity, economy and
ecology.
Summary Data[Footnote 19]:
1990 RC Population: 124,414;
1990 RC Poverty Rate: 49.76%;
1990 RC Unemployment Rate: 20.91%.
CoRA:
Milwaukee's Redevelopment Authority is the CoRA for the Milwaukee RC.
Site: Ouachita Parish, Louisiana - Urban RC:
[Refer to PDF for image: map of Ouachita Parish, Louisiana - Urban RC]
Source: Renewal Louisiana Web site.
[End of figure]
Mission:
The mission of the Ouachita Parish Urban Renewal Community is to
reduce overall poverty, unemployment and economic distress by creating
an atmosphere in which businesses and residents can prosper. This will
be accomplished by both encouraging full utilization of tax incentives
and by fulfilling state and local commitments.
Summary Data[Footnote 20]:
1990 RC Population: 43,276;
1990 RC Poverty Rate: 50.07%;
1990 RC Unemployment Rate: 17.84%.
CoRA:
North Louisiana Economic Development Corporation.
Site: Northern Louisiana - Rural RC:
[Refer to PDF for image: map of Northern Louisiana - Rural RC]
Source: HUD Web site.
[End of figure]
Mission:
The Mission of the Northern Louisiana Renewal Community is to inform
the existing business community of all Renewal Community tax benefits;
attract new business to Renewal Communities through promoting the tax
benefits; implement the state and local commitments cited in the RC
application and to explore and implement new methods of measuring,
educating and providing incentives to businesses in the RC.
Summary Data[Footnote 21]:
1990 RC Population: 199,291;
1990 RC Poverty Rate: 32.99%;
1990 RC Unemployment Rate: 12.23%.
CoRA:
Northeast Louisiana Economic Alliance.
Site: San Antonio, TX - Urban EZ:
[Refer to PDF for image: map of San Antonio, TX - Urban EZ]
Source: HUD Web site.
[End of figure]
Mission"
The vision of the San Antonio EZ is to educate, employ and empower
families by creating jobs; creating new business and industrial sites;
training the workforce; and improving infrastructure to implement
their strategic plan for enhanced economic development. The strategic
plan includes goals to close the jobs, education, and housing gaps for
EZ residents and to build safe, healthy, and sustainable communities
through system change.
Summary Data[Footnote 22]:
2000 EZ Population: 100,219;
2000 EZ Poverty Rate: 37.26%;
2000 EZ Unemployment Rate: 12.64%.
Site: Middle Rio Grande, TX (FUTURO) - Rural EZ:
[Refer to PDF for image: map of Middle Rio Grande, TX (FUTURO) - Rural
EZ]
Source: HUD Web site.
[End of figure]
Mission:
Families United To Utilize Regional Opportunities (FUTURO) is a five
county region, mostly Hispanic, in a remote area of rural Texas along
the Mexican border. The community experiences pervasive, grinding
poverty in less than substandard living conditions. FUTURO residents,
local government, and participating business partners agreed that
funding for regional projects should benefit all participating
communities rather than individual ones. Highlights of FUTURO's
strategic plan include industry development and support, consumer
services, education and training opportunities, and recreation and
tourism development.
Summary Data:
Counties: Dimmit, LaSalle, Maverick, Uvalde, and Zavala;
Community Population: 29,724 Poverty Rate: 46.5%;
Net Land Area: 913 square miles.
[End of Enclosure I]
Enclosure II: Comments from the Department of Housing and Urban
Development:
U.S. Department Of Housing And Urban Development:
Office of the Assistant Secretary for Community Planning and
Development:
Washington, DC 20410-7000:
February 25 2010:
Mr. William B. Shear:
Director:
Financial Markets and Community Investment:
United States Government Accountability Office:
Washington, DC 20548:
Dear Mr. Shear:
Thank you for incorporating the technical comments offered by the
Office of Community Renewal on January 28, 2010, into your draft
report to the United States Senate Committee on Finance and the House
of Representatives Committee on Ways and Means concerning the
revitalization programs of Empowerment Zones, Enterprise Communities,
and Renewal Communities.
As the newly appointed Acting General Deputy Assistant Secretary for
Community Planning and Development, I found your report enlightening
and gratifying, particularly in knowing that HUD has responded to the
recommendations and observations made in two earlier GAO reports
issued in 2004 and 2006. The draft report notes the steps that HUD has
taken to improve data collection and program monitoring for program
management purposes.
It is particularly important that GAO's draft report noted the steps
HUD has taken to improve data collection and program monitoring and
that both HUD and the Internal Revenue Service (IRS) have collaborated
to provide outreach and to share data on the use of program tax
incentives. The report also highlights the challenges in identifying
EZ/EC/RC tax benefits taken and associating them with a given
designated community.
In this regard, HUD will aggressively explore the availability of
additional sources of data that can reliably measure the EZIRC
businesses' use of the full complement of tax incentives, including
the development of reliable data that will tie employment credits and
their resulting impact on job creation and business expansion to
specific Empowerment Zones and Renewal Communities.
Sincerely,
Signed by:
Jeanne Van Vlandren:
Acting General Deputy Assistant Secretary for Community, Planning and
Development:
[End of Enclosure II]
Footnotes:
[1] GAO, Community Development: Federal Revitalization Programs Are
Being Implemented, but Data on the Use of Tax Benefits Are Limited,
[hyperlink, http://www.gao.gov/products/GAO-04-306] (Washington, D.C.:
Mar. 5, 2004) and, Empowerment Zone and Enterprise Community Program:
Improvements Occurred in Communities, but the Effect of the Program Is
Unclear, [hyperlink, http://www.gao.gov/products/GAO-06-727]
(Washington, D.C.: Sept. 22, 2006).
[2] HHS was involved only in the first round of EZs and ECs.
[3] U.S. General Accounting Office, Community Development: Federal
Revitalization Programs Are Being Implemented, but Data on The Use of
Tax Benefits Are Limited, [hyperlink,
http://www.gao.gov/products/GAO-04-306] (Washington, D.C.: March 5,
2004).
[4] U.S. Government Accountability Office, Empowerment Zone and
Enterprise Community Program: Improvements Occurred in Communities,
but the Effect of the Program Is Unclear, [hyperlink,
http://www.gao.gov/products/GAO-06-727] (Washington, D.C.: Sept. 22,
2006).
[5] HHS was involved only in Round I programs, administering the
largest share of grant funds.
[6] We visited the following Round III designated communities:
Chicago, Milwaukee, and Ouachita Parish, Louisiana (urban RCs); Northern
Louisiana (rural RC); San Antonio (urban EZ); and FUTURO, TX (rural
EZ). We conducted phone interviews with Oklahoma City (urban EZ) and
New Orleans (urban RC) and the EZ/RC/EC Coalition, an informal
organization of local administrators and some private partners whose
mission is to improve the EZ, RC, and EC programs.
[7] Categorizing small business projects as those of less than $1
million, medium-sized projects as those between $1 million and $10
million, and large projects as those more than $10 million.
[8] We used poverty and employment data from the 1990 and 2000
Censuses and obtained data on the number of businesses and jobs from a
private vendor.
[9] None of the evaluations we reviewed analyzed the RC program.
[10] USDA officials told us that rural administrators sometimes
provide facility bond data in their annual reports but that USDA did
not systematically collect this information.
[11] According to IRS, the processing year is the calendar year in
which the IRS received and processed the tax return. Generally this
reflects the tax year immediately preceding the processing year,
although data may also reflect late filed returns for earlier years.
[12] The Census Bureau's ACS is an ongoing survey that produces
statistics about our nation's people and housing. It covers the same
type of information that had been collected every 10 years from the
decennial Census long form questionnaire. The ACS eliminated the need
for a separate long form in the 2010 Census. ACS data are collected
continuously throughout the year and throughout the decade. This
allows the Census Bureau to produce new data every year about how
communities are changing. The ACS is sent to about 3 million addresses
in the U.S. and Puerto Rico every year.
[13] For instance, developers in EZs must find buyers for facility
bonds, while developers in RCs must have the funds to build or
substantially rehabilitate a building before they can take advantage
of the CRD.
[14] HUD officials indicated that they were unable to systematically
validate the PERMS data that they received from local administrators.
[15] IRS expressed concerns about the assumptions used in this
estimation exercise as well as the underlying assumed cause-and-effect
relationship between the credits and the jobs. For example, the
estimates could not distinguish between existing and new employees.
[16] In the absence of information from IRS forms to establish a
direct link between employment credits taken and specific EZ/RC
area(s) tied to these credits, HUD attempted to use zip codes of 1040
filers taking these credits to approximate where the EZ/EC credits
were taken.
[17] IRS and HUD officials noted that privacy laws could limit the
level of information that HUD could see in cases where a minimum
number of claims were not filed for a given geographic area.
[18] The Coordinating Responsible Authority, or CoRA, is the entity,
organization, or persons with the responsibility and authority to
achieve the state and local government commitments made at the time of
application and to undertake the development and administration of
policies, procedures, and activities to implement and maximize the
federal, state, and local benefits made available in the RC.
[19] These figures represent conditions prior to any boundary
expansions.
[20] These figures represent conditions prior to any boundary
expansions.
[21] These figures represent conditions prior to any boundary
expansions.
[22] These figures represent conditions prior to any boundary
expansions.
[End of section]
GAO's Mission:
The Government Accountability Office, the audit, evaluation and
investigative arm of Congress, exists to support Congress in meeting
its constitutional responsibilities and to help improve the performance
and accountability of the federal government for the American people.
GAO examines the use of public funds; evaluates federal programs and
policies; and provides analyses, recommendations, and other assistance
to help Congress make informed oversight, policy, and funding
decisions. GAO's commitment to good government is reflected in its core
values of accountability, integrity, and reliability.
Obtaining Copies of GAO Reports and Testimony:
The fastest and easiest way to obtain copies of GAO documents at no
cost is through GAO's Web site [hyperlink, http://www.gao.gov]. Each
weekday, GAO posts newly released reports, testimony, and
correspondence on its Web site. To have GAO e-mail you a list of newly
posted products every afternoon, go to [hyperlink, http://www.gao.gov]
and select "E-mail Updates."
Order by Phone:
The price of each GAO publication reflects GAO’s actual cost of
production and distribution and depends on the number of pages in the
publication and whether the publication is printed in color or black and
white. Pricing and ordering information is posted on GAO’s Web site,
[hyperlink, http://www.gao.gov/ordering.htm].
Place orders by calling (202) 512-6000, toll free (866) 801-7077, or
TDD (202) 512-2537.
Orders may be paid for using American Express, Discover Card,
MasterCard, Visa, check, or money order. Call for additional
information.
To Report Fraud, Waste, and Abuse in Federal Programs:
Contact:
Web site: [hyperlink, http://www.gao.gov/fraudnet/fraudnet.htm]:
E-mail: fraudnet@gao.gov:
Automated answering system: (800) 424-5454 or (202) 512-7470:
Congressional Relations:
Ralph Dawn, Managing Director, dawnr@gao.gov:
(202) 512-4400:
U.S. Government Accountability Office:
441 G Street NW, Room 7125:
Washington, D.C. 20548:
Public Affairs:
Chuck Young, Managing Director, youngc1@gao.gov:
(202) 512-4800:
U.S. Government Accountability Office:
441 G Street NW, Room 7149:
Washington, D.C. 20548: