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entitled 'Community Development: Federal Revitalization Programs Are 
Being Implemented, but Data on the Use of Tax Benefits Are Limited' 
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Report to Congressional Committees: 

United States General Accounting Office: 

GAO: 

March 2004: 

Community Development: 

Federal Revitalization Programs Are Being Implemented, but Data on the 
Use of Tax Benefits Are Limited: 

GAO-04-306: 

GAO Highlights: 

Highlights of GAO-04-306, a report to Congressional Committees 

Why GAO Did This Study: 

Congress established the Empowerment Zone and Enterprise Community 
(EZ/EC) program in 1993 and the Renewal Community (RC) program in 2000 
to provide assistance to the nation’s distressed communities. To date, 
Congress has authorized three rounds of EZs, two rounds of ECs, and one 
round of RCs.

The Community Renewal Tax Relief Act of 2000 mandated that GAO audit 
and report in 2004, 2007, and 2010 on the EZ/EC and RC programs and 
their effect on poverty, unemployment, and economic growth. This report 
describes (1) the features of the EZ/EC and RC programs, (2) the extent 
to which the programs have been implemented, and (3) the methods used 
and results found in evaluations of their effectiveness. 

What GAO Found: 

Both the EZ/EC and RC programs were designed to improve conditions in 
distressed American communities; however, the features of the programs 
have changed over time. Round I and II EZs and ECs received different 
combinations of grant funding and tax benefits, while Round III EZs and 
RCs received mainly tax benefits. To implement the programs, federal 
agencies have, among other things, designated participating communities 
and overseen the provision of program benefits. Since 1994, HUD and 
USDA have designated a total of 41 EZs and 115 ECs, and HUD has 
designated 40 RCs. Available data show that Round I and II EZs and ECs 
are continuing to access their grant funds and IRS data show that 
businesses are claiming some tax benefits. However, IRS does not 
collect data on other tax benefits and cannot always identify the 
communities in which they were used. Also, efforts by HUD to obtain 
these data by survey were limited to Round I designees, and EZ and RC 
officials have had difficulty obtaining such information directly from 
businesses. The lack of tax benefit data limits the ability of HUD and 
USDA to administer and evaluate the programs.

The few evaluations that systematically collected and analyzed data on 
EZ/EC program effectiveness used a variety of research methods to study 
different aspects of the program. The most comprehensive of these 
studies—the HUD Interim Assessment—found that employment of Round I EZ 
residents had increased from 1995 to 2000, that larger businesses were 
more likely to use tax benefits than smaller businesses, and that 
resident participation in EZ or EC governance has been uneven, among 
other things. 

What GAO Recommends: 

To facilitate the administration, audit, and evaluation of the EZ/EC 
and RC programs, we recommend that HUD, USDA, and IRS collaborate to 
(1) identify the data needed to assess the use of the tax benefits; (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 is available. 
HUD and IRS agreed with our recommendation, and USDA said such data 
could have marginal utility.

www.gao.gov/cgi-bin/getrpt?GAO-04-306.

To view the full product, including the scope and methodology, click on 
the link above. For more information, contact William Shear, (202) 
512-8678, ShearW@gao.gov.

[End of section]

Contents: 

Letter: 

Background: 

Results in Brief: 

EZ/EC and RC Programs Share Similar Goals and Objectives, but Features 
Vary: 

The EZ/EC and RC Programs Are Well Under Way, but Data on the Use of 
Some Benefits Are Limited: 

Among the Few EZ/EC Evaluations That Have Been Conducted, Research 
Methods and Results Have Varied: 

Conclusions: 

Recommendation: 

Agency Comments: 

Appendix I: Scope and Methodology: 

Appendix II: List of Designated Communities: 

Appendix III: Federal Benefits Available to EZs, ECs, and RCs at the 
Time of Designation and as of September 30, 2003: 

Appendix IV: Other Tax Benefits Available to Businesses Serving 
Distressed Communities and Low-Income Individuals: 

Appendix V: Other Benefits Available to Certain Designees: 

Appendix VI: Summary of Evaluations of the EZ/EC Program: 

Appendix VII: Comments from the Department of Housing and Urban 
Development: 

Appendix VIII: Comments from the Internal Revenue Service: 

Appendix IX: Comments from the U.S. Department of Agriculture: 

Appendix X: Comments from the Department of Health and Human Services: 

Appendix XI: GAO Contacts and Staff Acknowledgments: 

GAO Contacts: 

Acknowledgments: 

Bibliography: 

Related GAO Products: 

Tables: 

Table 1: Summary of Legislation Authorizing the EZ/EC and RC Programs: 

Table 2: Some Eligibility Requirements Differ among Rounds of the EZ/EC 
Program and between the EZ/EC and RC Programs: 

Table 3: Social Services Block Grant Funds Authorized for Round I EZs 
and ECs: 

Table 4: Economic Development Initiative Grants for Supplemental 
Empowerment Zones and Enhanced Enterprise Communities: 

Table 5: HUD Appropriations for Round II Urban Designees, Fiscal Years 
1999-2003 (Dollars in thousands): 

Table 6: USDA Allocation of Appropriations for Round II Rural 
Designees, Fiscal Years 1999-2003 (Dollars in thousands): 

Table 7: Federal Tax Benefits Specifically Available to Businesses 
Operating in EZs, ECs, and RCs: 

Table 8: Number of EZ/EC and RC Nominations and Designations: 

Table 9: Amount of Grant Funds Awarded and Drawn Down, as of September 
30, 2003 (Dollars in thousands): 

Table 10: Limitations with Data on EZ, EC, and RC Tax Benefits: 

Table 11: Variation in Census Statistics for EZs, ECs, and RCs: 

Table 12: Confidence Intervals for EZ Employment Credit Estimates: 

Table 13: List of Designated Communities: 

Table 14: Summary of Benefits Provided to EZs, ECs, and RCs at the Time 
of Designation and as of September 30, 2003: 

Table 15: Other Tax Benefits Available to Businesses Serving Distressed 
Communities and Low-Income Individuals: 

Table 16: Section 108 Loan Guarantees for Supplemental Empowerment 
Zones and Enhanced Enterprise Communities: 

Table 17: Amount of Section 108 Loan Guarantees Awarded and Used as of 
September 30, 2003 (Dollars in thousands): 

Figures: 

Figure 1: Timeline of Events in the Selection of EZ/EC and RC Program 
Participants: 

Figure 2: Geographic Distribution of Designees By Round: 

Figure 3: Geographic Location of All Designated Communities as of 
September 30, 2003: 

Figure 4: Variation in Average Characteristics of EZs, ECs, and RCs 
(Based on 1990 census data): 

Figure 5: Corporate Returns with EZ Employment Credit: 

Figure 6: Individual Returns with EZ Employment Credit: 

Figure 7: Number and Amount of Enterprise Zone, D.C. Enterprise Zone, 
and EZ Facility Bonds Issued 1995 through 2001: 

Abbreviations: 

EC: Enterprise Community: 
EZ: Empowerment Zone: 
HHS: Department of Health and Human Services: 
HUD: Department of Housing and Urban Development: 
IRS: Internal Revenue Service: 
RC: Renewal Community: 
USDA: U.S. Department of Agriculture: 

United States General Accounting Office: 

Washington, DC 20548: 

March 5, 2004: 

The Honorable Charles E. Grassley: 
Chairman: 
The Honorable Max S. Baucus: 
Ranking Minority Member: 
Committee on Finance: 
United States Senate: 

The Honorable William M. Thomas: 
Chairman: 
The Honorable Charles B. Rangel: 
Ranking Minority Member: 
Committee on Ways and Means: 
House of Representatives:

For decades the nation has faced the challenge of revitalizing its 
distressed urban and rural communities. To help such communities, the 
federal government provides assistance in the form of grants, tax 
benefits, loans, and loan guarantees involving more than 100 programs 
and billions of dollars. Within the past 11 years, Congress has created 
two new programs to help distressed communities--the Empowerment Zone 
and Enterprise Community (EZ/EC) program and the Renewal Community (RC) 
program. When it was enacted in 1993, the EZ/EC program provided grants 
to public and private entities for social services and community 
redevelopment and tax benefits to local businesses to attract or retain 
jobs and businesses in distressed communities. More recently, this 
program has provided mainly tax benefits. Since its enactment in 2000, 
the RC program has focused on providing tax benefits to businesses in 
designated communities to attract or retain jobs and businesses.

The Community Renewal Tax Relief Act of 2000, which created the RC 
program, also mandated that we audit and report in 2004, 2007, and 2010 
on the EZ/EC and RC programs and their effect on poverty, unemployment, 
and economic growth. This report is the first in a series examining 
these programs. Specifically, this report describes (1) the features of 
the EZ/EC and RC programs, (2) the extent to which the programs have 
been implemented, and (3) the methods used and the results found in 
evaluations of the programs' effectiveness, especially in terms of 
poverty, unemployment, and economic growth in the participating 
communities.

To determine the features of each program, we reviewed statutes, 
regulations, and program documentation and interviewed agency 
personnel. To describe the implementation of these programs, we 
reviewed program documentation, financial data, and taxpayer data and 
interviewed agency personnel, community officials, and experts. To 
describe the methods used in and the results of evaluations, we 
identified relevant research by conducting several literature searches 
and interviewing agency personnel and community development experts. 
Our descriptions include analyses of data that have been and could be 
used to administer and evaluate the programs. However, we did not 
evaluate the effectiveness of the programs or their implementation in 
this report. We conducted our work between April 2003 and February 2004 
in accordance with generally accepted government auditing standards. 
Appendix I provides additional details on our scope and methodology.

Background: 

The EZ/EC and RC programs target federal grant monies to public and 
private entities, tax benefits to businesses, or both in order to 
improve conditions in competitively selected, economically distressed 
communities. To be considered for these programs, areas must be 
nominated by one or more local governments and the state or states in 
which they are located.[Footnote 1] Areas on Indian reservations must 
be nominated by the reservation's governing body.

Congress authorized the EZ/EC and RC programs under four separate acts 
of legislation (see table 1). To date, Congress has authorized the 
designation of three rounds of EZs, two rounds of ECs, and one round of 
RCs. See appendix II for a list of all designated communities.

Table 1: Summary of Legislation Authorizing the EZ/EC and RC Programs: 

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 six urban and three rural Round I EZs; 
* Authorized 65 urban and 30 rural Round I ECs; 
* Established the 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; 
* Authorized two additional Round I EZs; 
* Changed the eligibility requirements for EZ/ ECs; 
* Created the Washington, D.C. Enterprise Zone.[A].

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 two rural and seven urban Round III EZ designations; 
* Established the RC program and its package of tax benefits; 
* Authorized designation of 40 RCs, with 12 designations reserved for 
rural areas. Designation valid until December 31, 2009; 
* Made some additional tax benefits available to EZs; 
* Extended Round I and II EZ designations through December 31, 2009.
[B]. 

Source: GAO summary of P.L. 103-66, P.L. 105-34, P.L. 105-277, and P.L. 
106-554.

[A] The D.C. Enterprise Zone received a set of tax benefits that are 
similar to those of EZ/ECs, but are unique to this designation.

[B] The designation for all Round I ECs will expire as previously 
scheduled on December 31, 2004.

[End of table]

The Omnibus Budget Reconciliation Act of 1993 authorized the number of 
EZ/EC designations to be awarded in the first round of the program, as 
well as the benefits that the designated communities would receive. The 
legislation authorized the special use of $1 billion in Social Services 
Block Grant funds for the EZ/EC program.[Footnote 2] It also 
established three tax benefits for businesses in the designated 
communities: (1) a tax credit for wages paid to employees who both live 
and work in an EZ, (2) an increased expensing deduction for depreciable 
property, and (3) tax-exempt bonds.[Footnote 3]

At the same time that the Department of Housing and Urban Development 
(HUD) and the U.S. Department of Agriculture (USDA) announced the Round 
I designations, HUD created two additional designations--Supplemental 
Empowerment Zones and Enhanced Enterprise Communities. Unlike EZs or 
ECs, these designations were not legislatively mandated. Rather, they 
were awarded to communities that had been nominated for but did not 
receive EZ designations.[Footnote 4] HUD designated two communities as 
Supplemental Empowerment Zones and four communities as Enhanced 
Enterprise Communities. HUD provided these communities with certain 
grants and loan guarantees, which can be used for activities eligible 
under the Community Development Block Grant program.

The second round of EZ/EC designations and the benefits those designees 
would receive were authorized by two acts of legislation--the Taxpayer 
Relief Act of 1997 and the Omnibus Consolidated and Emergency 
Supplemental Appropriations Act of 1999. However, neither act 
authorized block grant funding for Round II EZs and ECs. Instead, Round 
II EZs and ECs received annual appropriations through HUD and USDA 
appropriations bills each year from 1999 to 2004.

The Community Renewal Tax Relief Act of 2000 enhanced the tax benefits 
available to businesses in newly designated EZs and made these new tax 
benefits available to EZs that had been designated in previous rounds, 
but not to ECs. The legislation also did not make any appropriations or 
grant funds available to Round III EZs or to RCs. However, in January 
2004, the Consolidated Appropriations Act of 2004 appropriated a total 
of $994,100 to Round III rural EZs. This legislation did not make any 
funding available to Round III urban EZs or RCs.

Four federal agencies are responsible for administering the programs: 

* HUD oversees the EZ/EC program in urban areas, administers the grants 
to Round II urban EZs, and oversees the RC program in both urban and 
rural areas.

* USDA oversees the EZ/EC program in rural areas and administers the 
grants to Round II rural EZ/ECs and Round III EZs.

* The Department of Health and Human Services (HHS) administers the 
Social Services Block Grant funds to communities designated in Round I 
of the EZ/EC program.[Footnote 5]

* The Internal Revenue Service (IRS) is responsible for administering 
the tax benefits available under the EZ/EC and RC programs.

Results in Brief: 

Although the EZ/EC and RC programs have similar goals and objectives, 
we found that the features differed among the EZ/EC rounds and between 
the EZ/EC and RC programs. First, administrative features varied under 
the different EZ/EC rounds and between the EZ/EC and RC programs. For 
example, an interagency Community Empowerment Board consisting of high 
ranking federal officials existed to facilitate interagency 
coordination in Rounds I and II of the EZ/EC program, but not in Round 
III, and a smaller Advisory Council appointed by the HUD Secretary and 
consisting of individuals from nonprofit and for-profit organizations 
advises HUD on the RC program. Second, eligibility requirements often 
differed among rounds and between the programs. For example, the 
poverty level required for eligibility decreased between EZ/EC rounds 
and between the EZ/EC program and the RC program. Third, the 
participants for the two programs were selected differently. For 
instance, EZ/EC nominees were judged on the effectiveness of their 
strategic plans and assurances that these plans would be carried out, 
while RC nominees were selected on the basis of the communities' 
poverty, unemployment, and income statistics. Finally, the benefits 
available to designees varied both by round and by program. EZs and ECs 
in the first two rounds of designation received different combinations 
of benefits, including grant funding and tax benefits, while Round III 
EZs and RCs received mainly tax benefits.

To implement the EZ/EC and RC programs at the national level, the 
federal agencies involved have carried out selection procedures; 
designated participating communities; provided program benefits, 
outreach, and technical assistance; and monitored community 
performance. Since 1994, over the course of three rounds HUD has 
designated 31 urban EZs and 65 urban ECs, and USDA has designated 10 
rural EZs and 50 rural ECs.[Footnote 6] In 2002, HUD also designated 40 
RCs--28 urban and 12 rural. In addition, several federal agencies have 
provided grant funding, tax benefits, and other program benefits. Data 
from HHS indicate that the 104 Round I EZ/EC designees have drawn down 
about 70 percent of their $1 billion in Social Services Block Grant 
funds, while HUD and USDA data show that the 40 Round II designees have 
drawn down about 40 percent of their $434 million in grant funds. IRS 
data showed that taxpayers claimed an estimated $251 million in EZ 
Employment Credits between 1995 and 2001. Over that same period of 
time, state and local governments issued about $315 million in tax-
exempt facility bonds for the benefit of businesses in EZs and Round I 
ECs. However, IRS does not have data on the use of other benefits, such 
as the increased expensing deduction, the Commercial Revitalization 
Deduction, or the Nonrecognition of Gain on the Sale of EZ Assets. In 
addition, IRS does not collect data that would enable it to link the 
use of data for the employment credit to specific designated 
communities. Senior IRS officials indicated that they do not collect 
this information because, among other things, these tax benefits are 
not considered high risk since the amount claimed is small, compared 
with revenues collected from other tax provisions. The lack of data on 
the use of the tax benefits available to businesses in designated 
communities limits the ability of (1) HUD and USDA to administer the 
programs; (2) designated communities to attract additional resources; 
and (3) HUD, USDA, and others to audit or evaluate the 
programs.[Footnote 7] We found that federal agencies had provided 
outreach and technical assistance to applicants and designees through 
training, conferences, written guidance, and Web sites. HUD and USDA 
have also established oversight procedures for participating 
communities that include online reporting systems to collect 
performance data. But recent GAO, HUD Inspector General (IG), and USDA 
IG reports have raised concerns about EZ/EC program oversight and the 
reliability of program performance data.

The few evaluations that systematically collected and analyzed data on 
EZ/EC program effectiveness used a number of research methods and 
reported results that varied, depending upon the aspect of the program 
studied.[Footnote 8] None of the evaluations we reviewed assessed the 
effect of the program on poverty, although one assessed its effect on 
resident employment and three assessed its effect on aspects of 
economic growth in the designated communities. Those evaluations that 
have been conducted used a variety of research methods--including 
statistical analyses, surveys, and document reviews--to carry out their 
research. In some cases, the data available to researchers affected the 
methods they chose. For example, the most comprehensive of these 
evaluations--the HUD Interim Assessment--included a survey of 
businesses as a way to partly address a lack of data on the use of tax 
benefits.[Footnote 9] The HUD Interim Assessment found, among other 
things, that employment of Round I EZ residents had increased from 1995 
to 2000, that larger businesses were more likely to use tax benefits 
than smaller businesses, and that resident participation in EZ or EC 
governance had been uneven. As with all evaluations of community 
development programs, these evaluations were also subject to some 
limitations. In particular, the researchers faced challenges 
demonstrating what would have happened in the communities in the 
absence of the program.

This report contains a recommendation to facilitate the administration, 
audit, and evaluation of the EZ/EC and RC programs. We recommend 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 their analysis; and, if 
necessary, (4) seek the authority to collect the data, if a cost-
effective means is available.

EZ/EC and RC Programs Share Similar Goals and Objectives, but Features 
Vary: 

Although the EZ/EC and RC programs have similar goals and objectives, 
several features of the programs vary within the EZ/EC program by round 
and between the EZ/EC and RC programs. The EZ/EC and RC programs share 
the goal of improving conditions in distressed communities by reducing 
unemployment and fostering investment in designated areas. However, 
certain administrative mechanisms, eligibility requirements, selection 
criteria, and benefits vary among EZ/EC rounds and between the EZ/EC 
and RC programs.

EZ/EC and RC Programs Have Similar Goals and Objectives: 

Although the legislation that created the EZ/EC and RC programs does 
not explicitly state the goals for these programs, HUD's and USDA's 
performance plans suggest that the goals of the programs are similar. 
According to HUD's Annual Performance Plan for Fiscal Year 2004, the 
EZ/EC and RC programs are contained within its strategic goal to 
strengthen communities. Similarly, in its Fiscal Year 2004 Annual 
Performance Plan and Revised Plan for Fiscal Year 2003, USDA includes 
the EZ/EC program under the strategic goal to "support increased 
economic opportunities and improved quality of life in rural America.": 

HUD's and USDA's implementing regulations for the EZ/EC program include 
a statement of their "objective and purpose," each of which generally 
states that the EZ/EC program is intended to reduce unemployment and 
promote the revitalization of economically distressed areas. HUD's 
regulations implementing the RC program do not have an objective and 
purpose statement; however, HUD's guidance states that the RC program 
is intended "to foster investment in the designated areas, which are 
some of the most severely distressed and development-resistant areas in 
the Nation."[Footnote 10] Further, HUD program officials have stated 
that they regard the RC program as pursuing the same objective and 
purpose as the EZ/EC program, but relying on different methods.

EZ/EC Program Rounds I and II and the RC Program Received 
Administrative Assistance: 

Certain features designed to help in the administration of the EZ/EC 
and RC programs varied by round in the EZ/EC program and between the 
EZ/EC and RC programs. To facilitate federal interagency coordination 
in the EZ/EC program, a 26-member Community Empowerment Board was 
established in 1993, with the U.S. Vice President as its chair and 
cabinet secretaries and other high-ranking federal officials as 
members. The board's function was to consult in the designation of 
Round I and II EZs and ECs and coordinate the various federal agency 
resources that EZs and ECs would use to implement their strategic 
plans. For example, the Community Empowerment Board encouraged other 
agencies to provide preference points to EZs and ECs in selection 
competitions for other federal programs. The Community Empowerment 
Board was disbanded prior to Round III of the EZ program.

In 2000, the legislation creating the RC program established a seven-
member Advisory Council on Community Renewal to advise the HUD 
Secretary on the selection of designees and the operation of the RC 
program. Unlike the Community Empowerment Board, the Advisory Council 
does not have federal interagency membership. Instead, the members of 
the Advisory Council include individuals from nonprofit and for-profit 
organizations who are appointed by the HUD Secretary. The legislation 
that created it required the Advisory Council to hold hearings "as 
appropriate," obtain data from federal agencies, and submit a report 
containing a detailed statement of the council's findings and 
conclusions and any recommendations to the HUD Secretary by September 
30, 2003. HUD officials expect an interim report from the Advisory 
Council to be released sometime in February 2004 and the final report 
in October 2004.

The EZ/EC and RC Programs Have Had Different Eligibility Requirements: 

Communities nominated for EZ/EC or RC designations have been required 
to meet certain eligibility requirements based largely on the 
socioeconomic characteristics of the residents living in the nominated 
areas. Specifically, nominated census tracts have been required to meet 
statutory or regulatory requirements for (1) poverty in each census 
tract, (2) overall unemployment, (3) total population, (4) total area 
in square miles (in the case of the EZ/EC program), and (5) general 
distress.[Footnote 11] In most cases, these requirements were based on 
1990 census data. The levels required for eligibility differed by 
round, by program, and between urban and rural nominees. For example, 
the statutory requirements for poverty differed between Round I and 
subsequent rounds of the EZ/EC program, and between the EZ/EC program 
and the RC program. In the absence of statutory guidelines, HUD and 
USDA regulations defined other eligibility requirements differently 
(see table 2). For example, the requirements for unemployment differed 
between urban and rural nominees and between the EZ/EC program and the 
RC program.[Footnote 12] The population requirements also differed 
between urban and rural nominees and by program. Finally, communities 
nominated for the EZ/EC program were required to meet area 
requirements, while RC nominees were not. [Footnote 13]

Table 2: Some Eligibility Requirements Differ among Rounds of the EZ/EC 
Program and between the EZ/EC and RC Programs: 

Minimum required poverty level in nominated census tracts[A]; 
Urban EZ/ EC: Round I: 35% in 50% of tracts and 25% in 90% of tracts 
and 20% in all tracts[B]; 
Urban EZ/EC: Rounds II and III: 25% in 90% of tracts and 20% in all 
tracts[B]; 
Rural EZ/EC: Round I: 35% in 50% of tracts and 25% in 90% of tracts and 
20% in all tracts[B]; 
Rural EZ/ EC: Rounds II and III: 25% in 90% of tracts and 20% in all 
tracts[B]; 
RC: 20% in all tracts[C].

Minimum required unemployment rate; 
Urban EZ/EC: Round I: 6.3%[A,D]; 
Urban EZ/EC: Rounds II and III: 6.3%[A,D]; 
Rural EZ/EC: Round I: No minimum specified; could be demonstrated by 
several different indicators; 
RC: 9.45%[A,E].

Required population[A]; 
Urban EZ/EC: Round I: 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: Maximum: 30,000; Minimum: None; 
Rural EZ/EC: Rounds II and III: Maximum: 30,000; Minimum: None; 
RC: Maximum: 200,000 Minimum: 4,000 if any portion is within a metro 
area, 1,000 otherwise[F].

Maximum required area[A]; 
Urban EZ/EC: Round I: 20 square miles[G]; 
Urban EZ/EC: Rounds II and III: 20 square miles, with up to 3 
developable sites[G,H]; 
Rural EZ/EC: Round I: 1,000 square miles[G]; 
Rural EZ/EC: Rounds II and III: 1,000 square miles, with up to 3 
developable sites[G,H]; 
RC: None[I]. 

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 were not able to 
include census tracts containing central business districts in the 
nominated area unless those areas have a poverty level of 35 percent or 
greater. The authorizing legislation also established special 
requirements for nominated census tracts with low or no population.

[C] In urban areas, at least 70 percent of households must have incomes 
below 80 percent of local median.

[D] The 1990 national average unemployment rate was 6.3 percent. 
Evidence of especially severe economic conditions could also be used to 
meet the unemployment test.

[E] This number is 1.5 times the 1990 national unemployment rate.

[F] No population restriction exists if nominated area is entirely 
within an Indian reservation.

[G] Nominated communities may include up to three noncontiguous 
parcels.

[H] A developable site is a parcel of land in a nominated area that may 
be developed for commercial or industrial purposes. The developable 
site can be no more than 2,000 acres and can be noncontiguous to other 
nominated areas.

[I] Although the legislation did not impose any maximum area 
requirements for the RC program, it did stipulate that the area 
boundary be continuous.

[End of table]

Nominated communities were also required to show conditions of general 
distress. Because the legislation did not define the term "general 
distress," HUD and USDA each provided communities with lists of 
potential indicators containing criteria that could be used to meet 
this requirement. HUD provided Round I urban EZs and ECs with a list of 
six indicators and communities in Rounds II and III of the EZ/EC 
program and the RC program with a list of 17 indicators.[Footnote 14] 
USDA provided Round I, II, and III rural EZs and ECs with a list of 14 
indicators.[Footnote 15] For example, USDA's Round I list included 
indicators not included in HUD's Round I list, such as a below-average 
or declining per capita income, earnings per worker, per capita 
property tax base, and average years of school completed. USDA, in 
turn, did not include homelessness as an indicator of general distress, 
while HUD included homelessness.

As a part of the EZ/EC eligibility requirements, nominated communities 
were also required to submit a strategic plan. The strategic plan had 
to follow the four key principles of the EZ/EC program, which were 
established by HUD and USDA in their regulations: 

* Economic opportunity--including job creation within the community; 
supporting entrepreneurship; small business expansion; and job 
training, job readiness, and job support services.

* Sustainable community development--advancing the creation of livable 
and vibrant communities through comprehensive approaches that 
coordinate economic, physical, environmental, community, and human 
development.

* Community-based partnerships--involving the participation of all 
segments of the community, including the political leadership, 
community groups, the private and nonprofit sectors, and individual 
citizens.

* Strategic vision for change--coordinating a response to community 
needs in a comprehensive fashion and setting goals and performance 
measures.

HUD's and USDA's regulations implemented legislative requirements 
regarding community participation in the development of their strategic 
plans. Nominees were to obtain community input to identify their 
communities' needs and to develop plans for addressing them according 
to the four principles. Nominees were also required to describe the 
role citizens would play in the implementation of the plans.

To be eligible for the RC program, nominees were required to submit a 
"course of action," in which they committed to carry out four of six 
specific legislatively mandated activities: 

* A reduction of tax rates or fees applying within the RC;

* An increase in the level of efficiency of local services within the 
RC;

* Certain crime reduction strategies;

* Actions to reduce, remove, simplify, or streamline governmental 
requirements applying within the RC;

* Involvement in economic development activities by private entities, 
organizations, neighborhood organizations, and community groups; and: 

* The gift or sale at below fair-market value of surplus real property 
in the RC held by state or local governments to neighborhood 
organizations, community development corporations, or private 
companies.

In addition, communities nominated for RC designation had to certify 
that they would meet four of five legislatively specified economic 
growth promotion requirements, such as repealing or reducing some 
occupational licensing requirements, zoning restrictions, permit 
requirements, or franchise and other business restrictions. The 
designees were also responsible for submitting plans within 6 months of 
designation for promoting the use of the tax benefits and for carrying 
out other state and local commitments. RCs were required to certify 
that they had solicited community input but not that community 
representatives had been involved in developing the course of action.

EZ/EC and RC Selection Criteria Differ: 

The selection criteria contained in the authorizing legislation for the 
EZ/EC and RC programs differed substantially. For the EZ/EC program, 
HUD and USDA were required to rank nominees based on the effectiveness 
of their strategic plans, the nominees' assurances that the plans would 
be implemented, and additional criteria specified by the respective 
Secretary.[Footnote 16] In Round I of the EZ/EC program, the 
legislation also reserved designation for nominees with certain 
characteristics.[Footnote 17] In contrast, the RC selection process did 
not require a review of the effectiveness of the planning documents, 
such as the course of action, that communities submitted to meet 
eligibility requirements. Instead, the legislation authorizing the 
program required HUD to select the highest average ranking nominees 
based on poverty, unemployment, and, in urban areas, income statistics. 
HUD was also required to consider the extent of crime in the area and 
whether the nominated area contained any tracts that were identified in 
one of our reports as being distressed.[Footnote 18] For the first 20 
designations, HUD was to give preference to existing EZs and ECs that 
had been nominated and met the eligibility requirements for designation 
as an RC; the remaining designations went to the next-highest scorers.

EZ, EC, and RC Benefits Differed by Round and by Program: 

As discussed earlier, the authorizing legislation provided EZ/EC and RC 
program participants with grants, tax benefits, or both. Over the 
course of the three rounds of the EZ/EC program, however, the amount of 
the grants available to EZs declined, and the number of tax benefits 
increased. In Rounds I and II, ECs received much smaller grant benefits 
than EZs. Businesses in Round I ECs were eligible for one tax benefit; 
however, businesses in Round II ECs were not eligible for any tax 
benefits. RCs did not receive grants, but businesses operating in RCs 
were eligible to receive tax benefits. In addition, HUD and USDA 
provided designated communities with other benefits. For example, HUD 
and USDA provided Round II EZ/ECs with grant funds from their annual 
appropriations. See appendix III for a table summarizing the benefits 
provided to the designated communities.

Grants Were Available to Round I and II EZs/ECs and to Some Rural Round 
III EZs: 

Congress appropriated a total of $1 billion in Social Services Block 
Grants for the benefit of Round I EZs and ECs (see table 3). These 
funds were to be used to (1) prevent, reduce, or eliminate dependency; 
(2) achieve or maintain self-sufficiency; and (3) prevent neglect, 
abuse, or exploitation of children and adults. In addition, the 
legislation required that the funds be used to benefit EZ/EC residents 
and in accordance with designees' strategic plans. Like other Social 
Services Block Grant funds, those allotted for the EZ/EC program were 
granted to the states, which were given fiscal responsibility for them. 
The legislation authorizing the EZ/EC program requires that the states 
obligate these grants for specific EZ or EC community-based 
organizations in accordance with state laws and procedures and within 2 
years of the date that HHS awarded the funds. These block grant funds 
remain available to finance qualified projects until December 21, 2004, 
after which time the grants are subject to state close-out procedures, 
and all amounts reported as unspent must be returned to the federal 
government.[Footnote 19]

Table 3: Social Services Block Grant Funds Authorized for Round I EZs 
and ECs: 

Designation: Round I urban EZs; 
Total amount of block grants authorized: $600 million; 
Amount per designee: $100 million.

Designation: Round I rural EZs; 
Total amount of block grants authorized: $120 million; 
Amount per designee: $40 million.

Designation: Round I ECs (urban and rural); 
Total amount of block grants authorized: $280 million; 
Amount per designee: $2.95 million.

Total; 
Total amount of block grants authorized: $1 billion. 

Source: P.L. 103-66 and GAO analysis.

[End of table]

As stated previously, HUD created the Supplemental Empowerment Zone and 
Enhanced Enterprise Community designations at the same time as the 
Round I EZ/EC designations. HUD awarded $300 million in Economic 
Development Initiative grants to the two Supplemental Empowerment Zones 
and four Enhanced Enterprise Communities (see table 4).[Footnote 20] 
These grants were designed to enhance the feasibility of certain 
economic development or revitalization projects by paying for certain 
project costs or providing additional security for loans that finance 
such projects. The government entities were required to use these 
grants in accordance with the community's strategic plan and Community 
Development Block Grant regulations.

Table 4: Economic Development Initiative Grants for Supplemental 
Empowerment Zones and Enhanced Enterprise Communities: 

Supplemental Empowerment Zones; 
Local government entity: Los Angeles, Calif. (city); 
Amount in allocated Economic Development Initiative grants: $100 
million; 

Supplemental Empowerment Zones; 
Local government entity: Los Angeles, Calif. (county); 
Amount in allocated Economic Development Initiative grants: $25 
million.

Supplemental Empowerment Zones; 
Local government entity: Cleveland, Oh; 
Amount in allocated Economic Development Initiative grants: $87 
million.

Enhanced Enterprise Communities; 
Local government entity: Boston, Mass; 
Amount in allocated Economic Development Initiative grants: $22 
million.

Enhanced Enterprise Communities; 
Local government entity: Oakland, Calif; 
Amount in allocated Economic Development Initiative grants: $22 
million.

Enhanced Enterprise Communities; 
Local government entity: Houston, Tex; 
Amount in allocated Economic Development Initiative grants: $22 
million.

Enhanced Enterprise Communities; 
Local government entity: Kansas City, Mo; 
Amount in allocated Economic Development Initiative grants: $14.2 
million.

Enhanced Enterprise Communities; 
Local government entity: Kansas City, Kans; 
Amount in allocated Economic Development Initiative grants: $7.8 
million.

Total; 
Amount in allocated Economic Development Initiative grants: $300 
million. 

Source: HUD.

[End of table]

Initially, the administration planned to provide the Round II EZ 
designees with the same level of funding as Round I designees. Instead, 
Round II EZ/EC designees received funding through annual appropriations 
for HUD and USDA in fiscal years 1999 through 2003 (see tables 5 and 
6).[Footnote 21] According to HUD's annual appropriations legislation, 
program grants for Round II urban designees are to be used in 
conjunction with economic development activities consistent with 
designees' strategic plans.[Footnote 22] The USDA appropriations 
language did not impose these requirements on Round II rural designees; 
however, in March 2002, USDA issued regulations limiting the allowable 
uses of Round II grants to those for Round I EZ/EC Social Services 
Block Grants. Unlike Round I funds, which pass through a state agency, 
Round II EZs and ECs access their grants directly from HUD or USDA. In 
most cases, these funds are available to communities until 
expended.[Footnote 23]

Table 5: HUD Appropriations for Round II Urban Designees, Fiscal Years 
1999-2003 (Dollars in thousands): 

Fiscal year: 1999; 
Total appropriations to Round II urban EZs: $45,000; 
Appropriations per EZ: $3,000.

Fiscal year: 2000; 
Total appropriations to Round II urban EZs: $55,000; 
Appropriations per EZ: $3,667.

Fiscal year: 2001[A,B]; 
Total appropriations to Round II urban EZs: $184,593; 
Appropriations per EZ: $12,306.

Fiscal year: 2002; 
Total appropriations to Round II urban EZs: $45,000; 
Appropriations per EZ: $3,000.

Fiscal year: 2003[B]; 
Total appropriations to Round II urban EZs: $29,805; 
Appropriations per EZ: $1,987.

Total; 
Total appropriations to Round II urban EZs: $359,398; 
Appropriations per EZ: $23,960.

Source: P.L. 105-277, P.L. 106-74, P.L. 106-377, P.L. 106-554, P.L.107-
73, P.L. 108-7, and GAO analysis.

[A] In fiscal year 2001, funds were appropriated in two separate pieces 
of legislation.

[B] Appropriations in these years were affected by rescissions.

[End of table]

Table 6: USDA Allocation of Appropriations for Round II Rural 
Designees, Fiscal Years 1999-2003 (Dollars in thousands): 

Fiscal year: 1999; 
Total allocations to Round II rural EZs[A]: $10,000; 
Allocation per EZ: $2,000; 
Total allocations to Round II rural ECs[A]: $5,000; 
Allocation per EC: $250.

Fiscal year: 2000; 
Total allocations to Round II rural EZs[A]: $10,000; 
Allocation per EZ: $2,000; 
Total allocations to Round II rural ECs[A]: $5,000; 
Allocation per EC: $250.

Fiscal year: 2001[B]; 
Total allocations to Round II rural EZs[A]: $9,978; 
Allocation per EZ: $1,996; 
Total allocations to Round II rural ECs[A]: $4,989; 
Allocation per EC: $249.

Fiscal year: 2002; 
Total allocations to Round II rural EZs[A]: $9,978; 
Allocation per EZ: $1,996; 
Total allocations to Round II rural ECs[A]: $4,989; 
Allocation per EC: $249.

Fiscal year: 2003[B]; 
Total allocations to Round II rural EZs[A]: $9,913; 
Allocation per EZ: $1,983; 
Total allocations to Round II rural ECs[A]: $4,957; 
Allocation per EC: $248.

Total; 
Total allocations to Round II rural EZs[A]: $49,869; 
Allocation per EZ: $9,975; 
Total allocations to Round II rural ECs[A]: $24,935; 
Allocation per EC: $1,247.

Source: P.L. 105-277, P.L. 106-74, P.L. 106-377, P.L. 106-554, P.L. 
107-73, P.L. 108-7, and GAO analysis.

[A] Only the fiscal year 1999 bill distinguished between appropriations 
to the rural EZs and rural ECs. For other years, Congress appropriated 
funds for the rural EZ/EC program, and USDA allocated the 
appropriations between the EZs and ECs.

[B] Appropriations in these years were affected by rescissions.

[End of table]

As of September 30, 2003, no direct funding was available for Round III 
EZs or RCs. However, the Consolidated Appropriations Act of 2004 
appropriated $994,100 for Round III rural EZs.[Footnote 24] It did not 
appropriate funding for Round III urban EZs or any RCs.

Tax Benefits Have Increased Since the EZ/EC Program Began: 

Businesses operating in or employing residents of EZs and RCs are 
eligible for a number of federal tax benefits designed to encourage 
business investment (see table 7). Businesses operating in ECs are 
generally ineligible for the tax benefits, although state and local 
governments can issue tax-exempt bonds for businesses in Round I ECs. 
Since the initial legislation authorizing the EZ/EC program, the number 
of federal tax benefits has grown.[Footnote 25] For example, businesses 
operating in Round I EZs were originally eligible for three tax 
benefits: (1) a credit for wages paid to employees who both live and 
work in an EZ, (2) an increased expensing deduction for depreciable 
property, and (3) tax-exempt bonds.[Footnote 26] By 2002, businesses 
operating in EZs were eligible for several additional tax benefits, 
including capital gains exclusions, and more generous tax-exempt bond 
and expensing provisions. In addition to some of the same tax benefits 
available in EZs, businesses operating in RCs were also eligible for a 
deduction on commercial property and a different type of capital gains 
exclusion. These benefits are generally available until 2009, when the 
EZ and RC designations expire.

Table 7: Federal Tax Benefits Specifically Available to Businesses 
Operating in EZs, ECs, and RCs: 

Tax benefit: EZ Employment Credit; 
Effective year: 1994[A]; 
Expiration year: 2009; 
Applicable zones: EZs; 
Provisions: Businesses can claim a 20-percent credit on the first 
$15,000 paid in wages to EZ residents who perform substantially all of 
their work in the EZ.

Tax benefit: Increased Section 179 Deduction; 
Effective year: 1994; 
Expiration year: 2009; 
Applicable zones: EZs and RCs; 
Provisions: Qualified businesses can deduct $35,000 more than the 
maximum allowable deduction under section 179 of the Internal Revenue 
Code for certain qualifying property in the year the property was 
placed in service.[B].

Tax benefit: Enterprise Zone Facility Bonds; 
Effective year: 1994; 
Expiration year: 2009[C]; 
Applicable zones: EZs and Round I ECs; 
Provisions: State and local governments can issue tax-exempt bonds to 
provide loans to qualified businesses to finance certain property. A 
business cannot receive more than $3 million in bond proceeds for 
activities in any EZ or Round I EC or more than $20 million for 
activities in all EZs and Round I ECs nationwide. These bonds are also 
subject to state volume caps, which limit the amount of tax-exempt debt 
that state and local government entities can issue.

Tax benefit: EZ Facility Bonds; 
Effective year: 1998[D]; 
Expiration year: 2009; 
Applicable zones: EZs[E]; 
Provisions: State and local governments can issue tax-exempt bonds to 
provide loans to qualified businesses to finance certain property.[F] 
State and local government entities can issue up to $60 million for 
each rural EZ, $130 million for each urban EZ with a population of less 
than 100,000, and $230 million for each urban EZ with a population 
greater than or equal to 100,000. These bonds are not subject to state 
volume caps.

Tax benefit: Nonrecognition of Gains on the Sale of EZ Assets; 
Effective year: 2000[G]; 
Expiration year: 2009; 
Applicable zones: EZs; 
Provisions: Taxpayers that incur capital gains on the sale of qualified 
assets may elect to postpone those gains from tax liability if they 
purchase a replacement asset within 60 days.

Tax benefit: Partial Exclusion of Gain on the Sale of EZ Stock; 
Effective year: 2000[H]; 
Expiration year: 2009; 
Applicable zones: EZs; 
Provisions: Taxpayers that hold stock for more than 5 years in 
corporations with assets under $50 million incur a tax liability on 
only 40 percent of their capital gains, provided the company offering 
the stock is a qualified zone business.

Tax benefit: RC Employment Credit; 
Effective year: 2002; 
Expiration year: 2009; 
Applicable zones: RCs; 
Provisions: Businesses can claim a 15-percent credit on the first 
$10,000 paid in wages to RC residents who perform substantially all of 
their work in the RC.

Tax benefit: Commercial Revitalization Deduction; 
Effective year: 2002; 
Expiration year: 2009; 
Applicable zones: RCs; 
Provisions: Businesses that receive an allocation from an agency 
authorized by the state for costs associated with new construction or 
renovation of nonresidential commercial property can either deduct half 
of the qualifying expense for the year in which a building is placed in 
service or amortize all of the expenses over a 10-year period.

Tax benefit: Zero Percent Capital Gains Rate for RC Assets; 
Effective year: 2002[I]; 
Expiration year: 2009; 
Applicable zones: RCs; 
Provisions: Investments in qualified RC businesses purchased after 2001 
and before 2010 and held for more than 5 years are not subject to tax 
liability on capital gains. 

Source: GAO summary of HUD and IRS publications; P.L. 103-66, P.L. 105-
34, P.L. 105-277, and P.L. 106-554.

[A] Businesses in Round II EZs did not become eligible until 2002.

[B] The term "placed in service" indicates the year in which the 
business began using the property for which it is claiming the 
deduction. Between 1994 and 2001, businesses could deduct $20,000 more 
than the maximum allowable section 179 deduction.

[C] State and local governments can issue these bonds for the benefit 
of EZs through 2009. However, these bonds can be issued for the benefit 
of Round I ECs only through 2004.

[D] State and local governments could issue these bonds for qualified 
EZs beginning in December 1998, the month of Round II designation. 
However, no EZ Facility Bonds were issued until 1999.

[E] Businesses in Round I EZs did not become eligible until 2002.

[F] Purchasers of tax-exempt bonds incur no federal tax liability on 
interest income.

[G] Taxpayers have to purchase the asset after December 21, 2000, and 
before 2010 and hold it for more than a year to be eligible for this 
benefit.

[H] Taxpayers have to make the investment after December 21, 2000, and 
before 2010 and hold it for more than 5 years to be eligible for this 
benefit.

[I] Taxpayers have to make the investment after 2001 and before 2010 
and hold it for more than 5 years to be eligible for this benefit.

[End of table]

Taxpayers Can Claim Other Benefits Not Specific to Federal 
Designations: 

Taxpayers operating businesses in or employing residents of EZs, ECs, 
or RCs can also claim other tax benefits not specific to the federal 
designations. Some federal tax benefits are aimed at businesses that 
operate or invest in a distressed community or that employ or provide 
housing for low-income persons. For example, certain banks, insurance 
companies, and corporations that lend money may purchase Qualified Zone 
Academy Bonds, which raise funds for public schools located in low-
income areas, such as those located in EZs or ECs. Purchasers of these 
bonds receive a tax credit in lieu of interest payments. (See app. IV 
for examples of federal tax benefits aimed at distressed communities 
and low-income individuals.) In addition to the federal tax benefits, 
businesses operating in federally designated EZs, ECs, and RCs may also 
be eligible for tax benefits from the state when a federal designation 
overlaps with a state-designated Enterprise Zone. While the specific 
tax benefits provided to businesses operating in state Enterprise Zones 
vary from state to state, they can include credits on state taxes 
against withholdings, property tax reductions, and sales tax 
exemptions.

Other Benefits Were Also Available to Certain Designees: 

In addition to grant monies and tax benefits, certain designees have 
also been eligible for other benefits. In Round I of the EZ/EC program, 
HUD and USDA guidance invited nominees to request, as an addendum to 
their applications, waivers from federal programmatic, statutory, or 
regulatory requirements to facilitate their ability to conduct 
revitalization efforts. Also, communities designated by HUD as 
Supplemental Empowerment Zones or Enhanced Enterprise Communities were 
provided with a total of $653 million in Section 108 Loan Guarantees to 
provide security for loans that finance economic development and 
revitalization projects.[Footnote 27] Finally, HUD and USDA expect EZs, 
ECs, and RCs to use their designations to attract additional 
investment. In some cases, EZ, EC, and RC designees were provided with 
a competitive priority in other federal programs to help them meet this 
expectation. Appendix V provides details on these benefits.

The EZ/EC and RC Programs Are Well Under Way, but Data on the Use of 
Some Benefits Are Limited: 

To date, the federal agencies have selected three rounds of EZs, two 
rounds of ECs, and one round of RCs; provided program benefits, 
outreach, and technical assistance; and established oversight 
procedures. Available data indicate that community organizations and 
businesses are using the program benefits; however, certain limitations 
with tax benefit data will, among other things, make it difficult to 
audit or evaluate the programs and limit the ability of designated 
communities to report on their activities.

HUD and USDA Have Selected Communities for the EZ/EC and RC Programs: 

HUD and USDA have implemented three rounds of selection for the EZ/EC 
program, and HUD has implemented one round of selection for the RC 
program. Following the authorizing legislation for each round, HUD and 
USDA released interim rules for designation and formally invited 
community nominations through a notice inviting applications or notice 
of funding availability. Figure 1 shows a timeline of the selection 
process for each of the programs.

Figure 1: Timeline of Events in the Selection of EZ/EC and RC Program 
Participants: 

[See PDF for image]

[End of figure]

The implementation of the selection process varied by round of the EZ/
EC program and between the EZ/EC and RC programs. In Round I of the EZ/
EC program, HUD and USDA used several interagency review teams to rank 
nominees based on their strategic plans' effectiveness and alignment 
with the program's four principles. As a part of their review of 
nominees for Rounds II and III of the EZ/EC program, the interagency 
review teams assigned point values based on the quality of various 
characteristics of the nominees' strategic plans. In Rounds I and II, 
nominees that had applied for an EZ designation but had not been chosen 
were added to the list of eligible nominations for EC 
designations.[Footnote 28] For the RC program, HUD used a statistical 
formula that was based on the eligibility criteria to identify the 
eligible nominees with the highest scores. Figure 2 shows the 
geographic locations of the designated communities by round.

Figure 2: Geographic Distribution of Designees By Round: 

[See PDF for image]

[End of figure]

Communities that had received designations in prior rounds of the EZ/EC 
program were permitted to apply for subsequent rounds. Within the EZ/EC 
program, communities that had received EC designations in Rounds I and 
II were permitted to apply for EZ status in subsequent rounds.[Footnote 
29] If an EC was chosen to receive an EZ designation, it maintained 
both designations, along with the associated benefits. The five Round I 
ECs that also received Enhanced Enterprise Community or Supplemental 
Empowerment Zone designations maintained their EC status as well. In 
addition, ECs and EZs were encouraged to apply for RC designations. 
However, in contrast to the EZ program, the authorizing legislation for 
the RC program required that the communities forfeit prior designations 
when they received RC designation.[Footnote 30] Table 8 provides more 
information on the number of nominations, communities selected in each 
round, and the number of designations retained as of September 30, 
2003. Figure 3 shows the geographic locations of the designated 
communities by designation status as of September 30, 2003.

Table 8: Number of EZ/EC and RC Nominations and Designations: 

Urban; Round I EZ; 
Number of communities nominated[A]: 74[B]; 
Number of nominations selected for designation: 8[C]; 
Number of designations as of September 30, 2003: 7[C,D].

Urban; Round I EC; 
Number of communities nominated[A]: 219; 
Number of nominations selected for designation: 65; 
Number of designations as of September 30, 2003: 49[D].

Urban; Round I Supplemental Empowerment Zones; 
Number of communities nominated[A]: Not applicable; 
Number of nominations selected for designation: 2; 
Number of designations as of September 30, 2003: 2.

Urban; Round I Enhanced Enterprise Communities; 
Number of communities nominated[A]: Not applicable; 
Number of nominations selected for designation: 4; 
Number of designations as of September 30, 2003: 4.

Urban; Round II EZ; 
Number of communities nominated[A]: 119; 
Number of nominations selected for designation: 15; 
Number of designations as of September 30, 2003: 15.

Urban; Enterprise Zone; 
Number of communities nominated[A]: Not applicable[E]; 
Number of nominations selected for designation: 1; 
Number of designations as of September 30, 2003: 1.

Urban; Round III EZ; 
Number of communities nominated[A]: 36; 
Number of nominations selected for designation: 8[F]; 
Number of designations as of September 30, 2003: 8.

Urban; RC; 
Number of communities nominated[A]: 62; 
Number of nominations selected for designation: 28; 
Number of designations as of September 30, 2003: 28.

Rural; Round I EZ; 
Number of communities nominated[A]: 88[B]; 
Number of nominations selected for designation: 3; 
Number of designations as of September 30, 2003: 3.

Rural; Round I EC; 
Number of communities nominated[A]: 139; 
Number of nominations selected for designation: 30; 
Number of designations as of September 30, 2003: 28[D].

Rural; Round II EZ; 
Number of communities nominated[A]: 160; 
Number of nominations selected for designation: 5; 
Number of designations as of September 30, 2003: 5.

Rural; Round II EC; 
Number of communities nominated[A]: Not applicable[G]; 
Number of nominations selected for designation: 20; 
Number of designations as of September 30, 2003: 20.

Rural; Round III EZ; 
Number of nominations selected for designation: 2; 
Number of designations as of September 30, 2003: 2.

Rural; RC; 
Number of communities nominated[A]: 41; 
Number of nominations selected for designation: 12; 
Number of designations as of September 30, 2003: 12.

Total; 
Number of communities nominated[A]: 993; 
Number of nominations selected for designation: 203; 
Number of designations as of September 30, 2003: 184[H]. 

Source: HUD and USDA program documents.

[A] Communities not selected in earlier rounds could apply for 
subsequent rounds.

[B] Nominations for Round I EZs that did not receive an EZ designation 
were added to the list of eligible nominations for ECs. Some ECs that 
were designated had originally been nominated for EZ designation.

[C] Six urban communities originally received EZ status in Round I, and 
the two Supplemental Empowerment Zones were later given full Round I EZ 
status.

[D] One urban Round I EZ and 16 urban and 2 rural Round I ECs lost 
their prior EZ or EC designations when part or all of the former 
community area received RC designation.

[E] The Washington, D.C. Enterprise Zone designation was awarded 
directly by the Taxpayer Relief Act of 1997.

[F] The legislation authorizing the third round of the EZ program 
authorized seven urban EZs. When the Atlanta EZ became an RC, HUD used 
its statutory authority to designate an additional Round III EZ.

[G] Selection of ECs made out of the pool of 160 nominations for Round 
II rural EZ designation.

[H] This figure represents the number of designations that are 
maintained as of September 30, 2003. Because communities did not lose 
prior designations when they subsequently received EZ, Supplemental 
Empowerment Zone, Enhanced Enterprise Community, or Enterprise Zone 
designations, 19 communities are counted more than once in this total.

[End of table]

Figure 3: Geographic Location of All Designated Communities as of 
September 30, 2003: 

[See PDF for image]

[End of figure]

The average characteristics of the designated geographic areas in the 
three rounds of the EZ/EC program and the RC program had slightly 
different poverty and unemployment levels, but their average 
population, area, and population density statistics differed more 
greatly. As noted earlier, with some exceptions, nominees were directed 
to use 1990 census data to qualify for poverty, unemployment, 
population, and area criteria; however, the levels required for 
eligibility varied among rounds of the EZ/EC program and between the 
EZ/EC program and RC program. According to 1990 census data, a total of 
about 8 million people lived in EZs, ECs, and RCs. Among urban EZs, 
each round had somewhat lower average percentages of poverty, but 
similar percentages of unemployed.[Footnote 31] The poverty and 
unemployment rates of rural EZs were relatively constant, although 
unemployment was higher in Round I. ECs did not vary greatly between 
rounds in terms of poverty and unemployment. The RCs' average 
percentages in poverty and unemployed are comparable to those of EZ 
designees in rounds II or III. However, the average population of the 
rural communities designated as RCs was much higher than that of rural 
EZs or ECs, and the average population for urban communities was 
highest in Round I EZs and in RCs. The average area of the communities 
varied among the rounds and between the two programs. The population 
density for urban communities remained much higher than that of rural 
communities, with urban communities ranging from about 4,000 persons 
per square mile to over 10,000 persons per square mile and rural 
communities ranging from less than 10 persons per square mile to about 
45 persons per square mile. Figure 4 shows the average characteristics 
of the communities by designation, round, and urban or rural location.

Figure 4: Variation in Average Characteristics of EZs, ECs, and RCs 
(Based on 1990 census data): 

[See PDF for image]

Note: All poverty and unemployment percentage estimates have 95 percent 
confidence intervals of plus or minus 1.2 percentage points or less. 
See appendix I for the confidence intervals for each estimate. Round I 
EZ averages include the Supplemental Empowerment Zone data, and Round I 
EC averages include the Enhanced Enterprise Community data.

[A] Percent based on individuals for whom poverty status has been 
determined.

[B] Percent based on individuals 16 years of age and older.

[C] The actual area of these communities could be smaller, because 
areas nominated for Round II and III rural EZ/ECs were not required to 
adhere to census tract boundaries if they were wholly within an Indian 
reservation and could exclude land owned by federal, state, or local 
governments from their calculation of the maximum area requirement.

[End of figure]

Designees Are Drawing Down Grant Funds: 

As of September 30, 2003, (1) state agencies had drawn down about 71 
percent of the Social Services Block Grants authorized for the EZ/EC 
program, (2) the eight local government entities that received Economic 
Development Initiative grants as part of the Supplemental Empowerment 
Zone and Enhanced Enterprise Community designations had drawn down 
about 55 percent of the $300 million in Economic Development Initiative 
funds that HUD had awarded, and (3) Round II EZs and ECs had drawn down 
42 percent in HUD and USDA program grants appropriated between fiscal 
years 1999 and 2003 (see table 9).[Footnote 32]

Table 9: Amount of Grant Funds Awarded and Drawn Down, as of September 
30, 2003 (Dollars in thousands): 

Round I; Urban EZs; 
Type of funds awarded: Social Services Block Grants; 
Amount awarded: $600,000; 
Amount drawn down: $362,737; 
% Drawn down: 60.5%.

Round I; Rural EZs; 
Type of funds awarded: Social Services Block Grants; 
Amount awarded: $120,00; 
Amount drawn down: $95,521; 
% Drawn down: 79.6%.

Round I; Urban ECs; 
Type of funds awarded: Social Services Block Grants; 
Amount awarded: $191,579; 
Amount drawn down: $172,663; 
% Drawn down: 90.1%.

Round I; Rural ECs; 
Type of funds awarded: Social Services Block Grants; 
Amount awarded: $88,421; 
Amount drawn down: $80,575; 
% Drawn down: 91.1%.

Round I; Total; 
Amount awarded: $1,000,000; 
Amount drawn down: $711,496; 
% Drawn down: 71.1%.

Round I; Supplemental Empowerment Zones[A]; 
Type of funds awarded: Economic Development Initiative Grants; 
Amount awarded: $212,000; 
Amount drawn down: $122,267; 
% Drawn down: 57.7%.

Round I; Enhanced Enterprise Communities[B]; 
Type of funds awarded: Economic Development Initiative Grants; 
Amount awarded: $88,000; 
Amount drawn down: $41,613; 
% Drawn down: 47.3%.

Round I: Total; 
Amount awarded: $300,000; 
Amount drawn down: $163,880; 
% Drawn down: 54.6%.

Round II; Urban EZs; 
Type of funds awarded: HUD Appropriations; 
Amount awarded: $359,398; 
Amount drawn down: $155,293; 
% Drawn down: 43.2%.

Round II; Rural EZs; 
Type of funds awarded: USDA Appropriations; 
Amount awarded: $49,869; 
Amount drawn down: $18,169; 
% Drawn down: 36.4%.

Round II; Rural ECs; 
Type of funds awarded: USDA Appropriations; 
Amount awarded: $24,935; 
Amount drawn down: $9,084; 
% Drawn down: 36.4%.

Total; 
Amount awarded: $434,202; 
Amount drawn down: $182,546; 
% Drawn down: 42.0%. 

Source: GAO analysis of HUD, USDA, and HHS data.

[A] Three government entities received these grants as part of the 
Supplemental Empowerment Zone designations.

[B] Five government entities received these grants as part of Enhanced 
Enterprise Community designations. Only one local government entity, 
Kansas City, Kansas, has drawn down all of its awarded Economic 
Development Initiative funds.

[End of table]

Little Information Is Available on the Use of Some EZ-and RC-Specific 
Tax Benefits: 

IRS maintains two principal sources of tax data. The first is an 
electronic master file system, which includes a business master file 
and an individual master file, each of which contains selected line-
item data from business and individual tax filings. In addition, IRS's 
Statistics of Income Division maintains a second set of data files that 
are generally based on a sample of tax returns.[Footnote 33] IRS 
maintains selected information on the EZ/EC and RC programs' tax 
benefits in the master file data sets for tax years 1996 through 2002 
and the Statistics of Income data set for tax years 1994 through 
2001.[Footnote 34] In addition, the contractor preparing the HUD 
Interim Assessment performed a survey of businesses to determine their 
use of tax incentives, but these findings are limited to Round I 
designees.[Footnote 35]

IRS Collects Some Data on the EZ and RC Employment Credit, but 
Limitations Exist: 

Currently, IRS can report on the use of the EZ Employment Credit at the 
national level. The most readily available IRS data from the Statistics 
of Income Division indicate that taxpayers are making some use of this 
credit. Nationally, corporations and individuals claimed an estimated 
total of $251 million in EZ Employment Credits between 1995 and 2001 
(see figs. 5 and 6).[Footnote 36]

Figure 5: Corporate Returns with EZ Employment Credit: 

[See PDF for image]

Note: This figure includes employment credits claimed in the D.C. 
Enterprise Zone. However, data do not include credits claimed against 
the Alternative Minimum Tax or credits claimed by regulated investment 
companies, real estate investment trusts, or S corporations. Data from 
1995 through 1997 and for 2001 are estimates based on a sample of tax 
returns. The 95 percent confidence intervals for these estimates can be 
large, sometimes exceeding +/-50 percent. See appendix I for these 
values. 1998 through 2000 data are based on the population of returns.

[End of figure]

Figure 6: Individual Returns with EZ Employment Credit: 

[See PDF for image]

Note: This figure includes employment credits claimed in the D.C. 
Enterprise Zone. However, data do not include credits claimed against 
the Alternative Minimum Tax. Data from individual tax returns are based 
on a sample. The 95 percent confidence intervals for these estimates 
can be large, sometimes exceeding +/-50 percent. See appendix I for 
these values.

[End of figure]

Businesses were able to begin claiming the RC Employment Credit in 
2002, using the same form they use to claim the EZ Employment Credit. 
IRS will be able to report on taxpayers' use of the RC Employment 
Credit when some data becomes available in mid-2004.[Footnote 37] 
However, because the same line is used to record the amount claimed for 
both the RC Employment Credit and the EZ Employment Credit, IRS will 
not be able to distinguish between the amount claimed for RC Employment 
Credits and the amount claimed in EZ Employment Credits.

In addition, according to IRS officials, the agency cannot reliably 
link businesses claiming the employment credit with specific EZs or RCs 
due to two factors. First, according to IRS officials the addresses 
business owners list on tax forms do not necessarily correspond with 
the location of their business operations, but may be a residence or 
the address where the business is incorporated. Second, the IRS form 
used to claim the EZ and RC Employment Credits does not require the 
taxpayer to identify the EZ(s) or RC(s) where the business operations 
eligible for the credit are located.

To identify the amount of employment credits claimed by businesses in 
specific EZs or RCs, taxpayers would have to identify the EZs or RCs 
where they had business operations. One way to collect this information 
would be for IRS to amend its form to request additional information. 
Senior IRS officials cited several reasons why amending its tax forms 
is not a high priority for the agency. First, they said that IRS's role 
is to administer tax laws, and that collecting more comprehensive data 
on the use of these benefits does not help the agency to acheive this 
objective. Second, the officials indicated that requesting taxpayers to 
provide more information would add to taxpayer burden and IRS workload. 
Third, IRS officials told us that they allocate their resources based 
on the potential effect of abuse on federal revenue and noted that 
these tax benefits are not considered high risk, since the amount 
claimed is small compared with revenues collected from other tax 
provisions or the amount of potential losses from abusive tax schemes.

National Use of Tax-Exempt Bonds Has Grown: 

Between 1995 and 2001, state and local governments issued a total of 36 
different series of tax-exempt bonds with an aggregate issue price of 
$315 million explicitly for the benefit of businesses operating in EZs 
and Round I ECs, as well as the D.C. Enterprise Zone.[Footnote 38] 
Figure 7 shows the number and aggregate issue price of tax-exempt bonds 
issued for the benefit of businesses operating in these communities 
between fiscal years 1995 and 2001.[Footnote 39] The dramatic increase 
in the amount of bonds issued since 1999 can be attributed to the 
issuance of EZ Facility Bonds, which are not subject to state volume 
caps and can be issued for generally larger amounts than the original 
Enterprise Zone Facility Bonds, and the issuance of D.C. Enterprise 
Zone Facility Bonds.

Figure 7: Number and Amount of Enterprise Zone, D.C. Enterprise Zone, 
and EZ Facility Bonds Issued 1995 through 2001: 

[See PDF for image]

Note: These figures include bonds issued to refund previously issued 
debt. These figures represent the issue price of these bonds, not the 
actual savings to businesses in EZs or ECs. These bonds were issued to 
provide loans to businesses at a lower interest rate than through 
conventional financing arrangements. Bond purchasers are willing to 
accept a lower interest rate because the interest income is not subject 
to federal income taxes. The actual savings to businesses in EZs or ECs 
are the lower interest rates at which they repay their loans.

[End of figure]

Amount of Other Tax Benefits Claimed by EZs and RCs Is Unknown: 

IRS cannot report on the extent to which businesses operating in an EZ 
or RC are claiming the increased expensing deduction, the Commercial 
Revitalization Deduction, or the Nonrecognition of Gain on the Sale of 
EZ Assets, because taxpayers do not report these benefits as separate 
items on their returns. In addition, two benefits, the Zero Percent 
Capital Gains Rate for RC Assets and the Partial Exclusion of Gain on 
the Sale of EZ Stock cannot be claimed until 2007 and 2005, 
respectively. Table 10 provides a summary of the data available on all 
nine tax benefits.

Table 10: Limitations with Data on EZ, EC, and RC Tax Benefits: 

Tax benefit: EZ Employment Credit; 
Does IRS have national level data? Yes[A]; 
Can IRS reliably link data to a designated community? No[E].

Tax benefit: RC Employment Credit; 
Does IRS have national level data? Yes[B]; 
Can IRS reliably link data to a designated community? No[E].

Tax benefit: Enterprise Zone Facility Bonds; 
Does IRS have national level data? Yes; 
Can IRS reliably link data to a designated community? No[F].

Tax benefit: EZ Facility Bonds; 
Does IRS have national level data? Yes; 
Can IRS reliably link data to a designated community? No[F].

Tax benefit: Increased Section 179 Deduction; 
Does IRS have national level data? No; 
Can IRS reliably link data to a designated community? Not applicable.

Tax benefit: Commercial Revitalization Deduction; 
Does IRS have national level data? No; 
Can IRS reliably link data to a designated community? Not applicable.

Tax benefit: Zero Percent Capital Gains Rate for RC Assets; 
Does IRS have national level data? No[C]; 
Can IRS reliably link data to a designated community? Not applicable.

Tax benefit: Nonrecognition of Gains on the Sale of EZ Assets; 
Does IRS have national level data? No; 
Can IRS reliably link data to a designated community? Not applicable.

Tax benefit: Partial Exclusion of Gain on the Sale of EZ Stock; 
Does IRS have national level data? No[D]; 
Can IRS reliably link data to a designated community? Not applicable. 

Source: GAO analysis.

[A] Some Statistics of Income data are based on statistical samples and 
may not accurately represent the population of filers. For tax years 
after 2001, IRS data cannot distinguish between this benefit and the RC 
Employment Credit.

[B] The first Statistics of Income data will become available in 2004 
when the 2002 individual return data become available. However, IRS 
will not be able to distinguish between taxpayers claiming this credit 
and the EZ Employment Credit.

[C] This benefit cannot be claimed until 2007.

[D] This benefit cannot be claimed until 2005.

[E] Taxpayers do not identify the EZ or RC where the business 
operations are located.

[F] IRS collects data on tax-exempt bonds issued by state and local 
governments. However, if a city or state government entity with more 
than one EZ/EC located in its jurisdiction issues these bonds, IRS data 
cannot identify which EZ or EC benefited from the bond issue.

[End of table]

Lack of Data Limits Ability to Determine Use of Tax Benefits in 
Individual EZs and RCs: 

The lack of data on the use of some of the tax benefits available to 
businesses in EZs and RCs limits the ability of HUD and USDA to 
administer the programs. For example, HUD requires EZs and RCs to 
report on the extent to which businesses are using certain tax 
benefits, such as the EZ or RC Employment Credit, to demonstrate 
progress in meeting program outputs. However, EZ and RC officials have 
had difficulty in obtaining tax information directly from businesses. 
As a result, the lack of data on the use of these benefits limits the 
ability of the designated communities to comply with this requirement. 
Also, the lack of data on these tax benefits limits the ability of EZs 
and RCs to use their designations to attract additional resources, 
which is a program expectation. For example, according to tax and 
community development specialists, the inability to report on the 
extent to which some existing tax benefits are being used limits the 
ability of EZs and RCs to demonstrate the effectiveness of their 
revitalization programs. Moreover, the lack of data on these benefits 
limits the ability of HUD, USDA, or others to audit or evaluate the 
programs[Footnote 40].: 

Some Businesses Face Obstacles in Using the Tax Benefits: 

Although available data show that businesses are using some tax 
benefits in EZs, ECs, or RCs, we found that some businesses might face 
obstacles in using the tax benefits. In 1999, we reported that 
businesses cited several reasons for not taking advantage of the tax 
benefits, including not knowing about them, finding them too 
complicated, not qualifying for them, and not having federal tax 
liability.[Footnote 41] During our current audit work, research results 
showed and tax experts expressed similar concerns. For example, a HUD-
sponsored report noted that in 2000 many businesses did not know about 
the tax benefits available to them.[Footnote 42] In addition, one tax 
expert noted that businesses must make several complicated calculations 
about their business activities to determine whether they satisfy the 
requirements for using the tax benefits. IRS officials suggested that 
the complexities of the tax code and changes in it over time might 
prevent smaller businesses from taking advantage of the EZ or RC 
benefits, because smaller businesses may not have access to tax 
professionals.[Footnote 43] Also, one tax expert noted that some 
businesses, such as farms with assets greater than $500,000, do not 
qualify for the tax benefits. Moreover, businesses can only claim the 
tax credits against their reported profits. Since small companies and 
start-up businesses may not have federal tax liabilities, they may not 
be able to claim the EZ or RC credits to the same degree as larger or 
more profitable businesses.

Participating Federal Agencies Have Conducted Outreach and Provided 
Technical Assistance: 

HUD, USDA, IRS, and HHS have provided outreach for the EZ/EC and RC 
programs through conferences, training, and other resources. HUD and 
USDA have sponsored conferences to educate nominated and designated 
communities on a variety of subjects. HHS has provided information on 
its EZ/EC Web site and has participated in HUD and USDA conferences. 
Both IRS and HUD have made efforts to educate businesses about the tax 
benefits available to them through educational workshops. HUD sponsors 
satellite broadcasts on a semiannual basis on issues pertaining to 
performance, tax benefits, availability of funds, regulatory changes, 
and other issues. To aid in the designees' outreach to businesses, HUD 
has provided communities with lists of local businesses.

The agencies have also provided technical assistance through a variety 
of means, including Web sites, published guidance, and desk officers. 
HUD, USDA, and HHS each have Web sites dedicated to the programs that 
include links to resources, such as relevant audit guidance, best 
practices from designated communities, and online training materials. 
HUD also provides an EZ/EC/RC address locator on its Web site that 
enables taxpayers to determine whether businesses or employees are 
located within a zone and therefore eligible for tax benefits. USDA 
worked with HUD to ensure that their rural EZs and ECs were included in 
this tool. In addition, HUD, IRS, USDA, and HHS have provided guidance 
to designated zones, community groups, and businesses about available 
benefits.[Footnote 44] HUD and USDA have also prepared application 
guides that explain the application process and benefits of 
designation. HUD and USDA have each published strategic planning 
guidebooks to help communities through the required strategic planning 
process, as well as guidebooks on program implementation and 
benchmarking.[Footnote 45] HUD and USDA also have a group of desk and 
field officers available to respond to community inquiries about the 
program.

Participating Federal Agencies Have Developed Oversight Procedures: 

HUD and USDA are responsible for overseeing the progress of the urban 
and rural EZs and ECs, and HUD is responsible for overseeing the 
progress of the RCs.[Footnote 46] The legislated role of HUD and USDA 
in both the EZ/EC and RC programs is to ensure that a community (1) 
does not modify the boundaries of the designated area and (2) is 
complying with or making progress toward the benchmarks of the EZ's or 
EC's strategic plan or, in the case of HUD, the RC's course of action 
and economic growth promotion requirements. HUD or USDA can revoke a 
community's designation if either of these two provisions is not met.

To implement their oversight responsibility for the EZ/EC program, HUD 
and USDA rely on Memorandums of Agreement, benchmark tracking, and 
annual progress reports. The Memorandum of Agreement that is signed by 
the state and local governments and HUD or USDA states the 
responsibilities of the parties for compliance with federal 
requirements.[Footnote 47] HUD and USDA require designees to report 
annually on the steps they have taken in conjunction with their 
strategic plans. RC designees do not sign Memorandums of Agreement but 
do have to certify that they will take certain actions as part of the 
course of action and economic growth promotion requirements submitted 
with the application.

HUD and USDA make determinations as to the progress of the EZs or ECs 
in implementing their strategic plans and, when necessary, send warning 
letters to the designated communities based on data reported in the 
performance management systems. In 1997, HUD issued warning letters to 
five EZs and ECs. These warning letters ultimately did not result in 
any de-designations. As of late 2003, USDA has not sent warning letters 
to any rural EZs or ECs.

HUD and USDA Have Set Up Systems for Reporting Performance Data: 

Beginning with the Round II designations in 1998, HUD and USDA began 
using Internet-based performance management systems--the Performance 
Management System and the Benchmark Management System, respectively--to 
track the communities' performance. These systems allow each community 
to enter baseline and benchmark data on funding and results. Although 
designated communities update the systems constantly, an annual 
reporting deadline exists to provide a firm date at which a community 
should have all of its information up to date.

HUD's Round III EZ and RC annual reporting requirements are less 
stringent than those of prior rounds. Since Round III urban EZs and RCs 
do not receive grant funds, HUD officials do not expect Round III EZs 
to have as many projects as Round II EZs to include in their annual 
reporting. The RCs use a much simpler report template that includes 
sections on required goals and actions, economic growth promotion 
requirements, tax incentive utilization, and other accomplishments. HUD 
officials have also said that the use of tax benefits in the Round III 
EZ and RC programs makes it difficult to design and execute a way of 
tracking the programs. HUD is exploring the idea of developing a data 
collection method on the use of the tax benefits. This data collection 
effort would require approval from the Office of Management and Budget. 
HUD officials noted that one concern in developing a data collection 
procedure is that potentially the additional paperwork burden could 
discourage businesses from using the benefits. USDA has the same 
reporting requirements for Round III EZs as it does for Rounds I and 
II.

To assess the reliability of the performance data, field staff from HUD 
and USDA verify some of the community-reported data in the performance 
management systems. As part of its oversight role, HUD also provides 
field offices with a grant monitoring checklist, that requires 
determining whether (1) the documentation matches the information in 
the performance management system, (2) spending is reasonable in 
relation to progress, (3) the program and funds serve eligible 
purposes, (4) the activity took place within the EZ, (5) the resident 
benefit data are accurate, and (6) the EZ has appropriate accounting 
records and procedures. USDA state field staff check the reliability of 
the data entered by communities, and headquarters staff check for 
inconsistencies and outliers. In addition, every 2 years USDA has a 
"Management Control Review," in which headquarters staff verify the 
accuracy of the state-level reviews.

Recent Audits Have Raised Some Concerns About EZ/EC Program Oversight 
and Data Reliability: 

In our previous reports, we found weaknesses in program oversight. In 
1996, we reported that HUD and the EZs had not yet (1) described 
measurable outcomes for the program's key principles or (2) indicated 
how the outputs anticipated from one or more benchmarks would help to 
achieve those outcomes.[Footnote 48] A HUD official reported that the 
agency implemented its Internet-based performance measurement system in 
response to a recommendation contained in our report. In 1997, we 
reported that rural EZ/ECs were not consistently reporting their 
progress to USDA and that USDA's EZ/EC state coordinators were not 
providing systematic reporting on the progress of rural EZ/
ECs.[Footnote 49] In response, USDA officials told us that they 
addressed this deficiency by adopting a nationwide community 
development field training program.

Both HUD's and USDA's IGs have raised concerns about the accuracy of 
the performance management systems and the adequacy of EZ/EC program 
oversight. For example, in a 2003 audit the HUD IG found that some 
Round II activities were benefiting people who did not live in the 
zones. They also found that 76 percent of the activities in the 
performance management system selected for their audit contained 
inaccurate data.[Footnote 50] HUD noted in response that it had 
developed revised monitoring procedures and that it was developing 
regulations to clarify the requirements for resident benefits. During 
audits it conducted in 1999 and 2001, USDA's IG found that data 
pertaining to a Round I rural EZ and a Round II rural EC were not 
accurate or had not been updated as required. In response to the 2001 
audit, USDA officials stated that the agency would initiate immediate 
actions to increase training efforts to community personnel in the 
areas of reporting, using the performance management system, 
maintaining proper accountability, and preparing annual budgetary 
reports. In another 2001 audit, which focused on one EZ, the USDA IG 
found that USDA staff had not looked at the performance and progress of 
any EZ-funded projects and provided little oversight of how the EZ used 
program funds. In addition, the audit noted that one funded project was 
located outside of the EZ and did not serve the required number of EZ 
residents. In response to the audit, USDA stated that the EZ tracking 
system would be amended to ensure that residents within the EZ were 
benefiting from EZ services but that the EZ was authorized to waive the 
resident benefit requirement if the project was deemed important to the 
community. USDA officials informed us that limited resources prevented 
the agency from performing a 100-percent verification of data contained 
in the performance management system.

Among the Few EZ/EC Evaluations That Have Been Conducted, Research 
Methods and Results Have Varied: 

The few evaluations that have systematically collected and analyzed 
data on the effectiveness of the EZ/EC program involved a variety of 
research methods and reported results that varied depending upon the 
aspect of the program studied.[Footnote 51] In some cases, the methods 
researchers used depended on the data available to them. The most 
comprehensive of these evaluations--the HUD Interim Assessment--found, 
among other things, that employment of Round I EZ residents had 
increased from 1995 to 2000, that larger businesses were more likely to 
use tax benefits than smaller businesses, and that resident 
participation in EZ or EC governance had been uneven.[Footnote 52] As 
with all evaluations of community development programs, these 
evaluations were also subject to some limitations. In particular, the 
researchers faced challenges demonstrating what would have happened in 
the communities in the absence of the program.[Footnote 53]

Relatively Few Evaluations Have Been Conducted on the EZ/EC Program: 

Although 10 years have passed since the first round of communities were 
designated, we found only 11 evaluations that systematically collected 
and analyzed data on EZ/EC program effectiveness.[Footnote 54] We found 
that none of these evaluations had assessed the effect of the EZ/EC 
program on poverty, one had assessed the effects of the EZ/EC program 
on resident employment, and three had assessed the effects of the EZ/EC 
program on aspects of economic growth in the distressed communities. 
Further, most of the evaluations examined the first few years of 
implementation by Round I designees. We found only one evaluation that 
assessed the effectiveness of Round II EZ/EC designees and no 
evaluations of the Round III EZs. In addition, we found that nine 
evaluations had assessed the implementation of the EZ/EC program's 
community participation and governance processes. Only the HUD Interim 
Assessment attempted to assess on a national scale the effect of the 
early stages of Round I EZ/EC implementation on unemployment and 
aspects of economic growth. Although USDA, IRS, and HHS each published 
studies of some aspect of the Round I EZ/EC designees, we did not find 
that these agencies had sponsored or conducted a comparable evaluation. 
A summary of the 11 evaluations we reviewed, listing the purpose and 
scope, primary research methods and data sources, major findings, and 
major limitations, appears in appendix VI.

A Variety of Methods Have Been Used to Evaluate EZs and ECs: 

Quantitative research methods were generally used to assess the 
effectiveness of the EZ/EC program in increasing employment and 
promoting economic growth, while qualitative research methods were 
generally used to determine the program's effectiveness in 
incorporating community participation and developing governance 
structures.[Footnote 55] Statistical analysis of survey data and 
existing data (e.g., census data) were the most common research methods 
used to assess the effect of the EZ/EC program on employment and 
economic growth. Document reviews, interviews, and comparative analysis 
were the most frequent type of methods used to examine site governance 
structures and community participation. When multiple program 
objectives were evaluated, researchers generally used both quantitative 
and qualitative methods. For example, the HUD Interim Assessment used 
multiple methods and analytical approaches, such as regression 
analysis, surveys, and document reviews, to assess the effectiveness of 
the federal EZ/EC program in the first 5 years after the first round of 
EZ/EC designation.[Footnote 56]

In some instances, neither qualitative nor quantitative data were 
available, requiring researchers to collect original data. For example, 
because IRS data on tax benefits cannot be reliably linked to 
individual designated communities, some researchers were required to 
collect data on tax usage through qualitative methods. According to a 
HUD official, the HUD Interim Assessment relied on commercial data and 
surveys to collect information on the use of the EZ Employment Credit, 
because existing IRS data could not be attributed to individual EZs. He 
added that without the ability to attribute the credits to particular 
EZs, researchers cannot establish the connection between the 
businesses' use of the employment credit and observable changes in the 
EZ communities. Some evaluations, such as the HUD Interim Assessment 
and our 1998 report, also used surveys of business owners to assess 
their attitudes toward the tax benefits and to gauge the potential 
influence of the tax benefits on businesses.[Footnote 57] To collect 
qualitative information on the strategic planning process or community 
participation, researchers reviewed documents and conducted 
interviews. Lastly, several evaluations reported results from agency 
performance data on the EZ/EC program; however, both the HUD IG and 
USDA IG reported concerns about the reliability of these data.

Early Evaluations Reported A Variety of Findings: 

The HUD Interim Assessment found that resident employment within five 
of the six Round I EZs had generally increased between 1995 and 
2000.[Footnote 58] Researchers also found that the employment of 
residents of four of the six EZs had grown faster than in similar 
neighborhoods. In addition, these researchers found that EZ residents 
owned an increasing number of the EZ businesses and that these 
businesses were more likely to hire other EZ residents.

Several evaluations reported factors that affected economic 
growth.[Footnote 59] For example, the HUD Interim Assessment found that 
a variety of factors influenced the success of businesses (one measure 
of economic growth) in a designated community, with the central 
location of zones in their metropolitan areas cited as a positive 
influence and crime and poor public safety cited as the worst problems. 
In addition, GAO and the HUD Interim Assessment found that larger 
businesses were more likely to use available tax benefits than smaller 
businesses.

Results of some evaluations concluded that citizen participation and 
influence were greatest during the planning phase of the EZ/EC 
initiative and tapered off as the initiative moved into the 
implementation phase.[Footnote 60] Researchers suggested that the 
decline in citizen participation might have occurred for several 
reasons, including a lack of federal supervision during implementation, 
the difficulty of implementing projects in reasonable time frames, and 
the technical nature of implementation activities, such as benchmarking 
reports.[Footnote 61] Two evaluations concluded that citizen 
participation in the EZ/EC program was higher than participation in 
similar types of federal initiatives.[Footnote 62] However, the HUD 
Interim Assessment found that local attention to resident participation 
in zone governance has been uneven.

Evaluations of EZs and ECs Were Subject to Some Limitations: 

The findings of these evaluations provide valuable descriptions of the 
early progress of Round I EZ/ECs. However, because of the difficulty of 
proving what would have happened in the absence of the program, these 
evaluations cannot be used to conclude that the program actually caused 
the observed changes. For example, the evaluations found that resident 
employment levels had increased, but it is possible that factors other 
than EZ/EC designation and the program benefits influenced employment 
levels. Although the HUD Interim Assessment attempted to control for 
these other factors by comparing EZ/EC employment to employment in both 
adjacent and nonadjacent comparison neighborhoods, the authors could 
not say conclusively what the employment levels in the zones might have 
been if these areas had not been designated as EZs or ECs. If, for 
example, the communities selected for the EZ/EC program were those with 
the most potential for development from among the eligible areas within 
a city, it is possible that these analyses overstated the program 
effects.

Many evaluations were unable to make generalizations about all EZ/ECs 
because their conclusions were limited to the specific communities that 
they studied. For example, the large number of EC sites makes it 
relatively difficult to fully investigate the effectiveness of programs 
in all sites. Authors of the HUD Interim Assessment and others have 
noted that creating an evaluation of the EZ/EC program and its four 
principles is difficult, because the program is based on the idea that 
effective community revitalization occurs when the strategy is tailored 
to the local site.[Footnote 63] This type of program requires an 
evaluation design, such as a case study, that is able to capture 
changes that result from each site's specific strategic plan, but 
generalizing the results of such evaluations to a larger population may 
not be possible. For example, the diverse nature of the Round I EZ/ECs-
-in which each EZ/EC may differ in terms of objective, size of the 
targeted areas, type of designation, governance structure, projects 
used, and strategies for implementation--made it difficult for 
researchers to generate general conclusions for the early stages of 
Round I implementation.

Conclusions: 

HUD, USDA, HHS, and IRS have implemented the EZ/EC and RC programs. As 
part of the implementation, HUD and USDA expect designated communities 
to report on how program benefits are being used, both directly and as 
a method of attracting additional resources. However, because of the 
limited amount of data on the use of EZ and RC tax benefits--which the 
Joint Committee on Taxation estimates will reduce federal tax revenue 
by about $11 billion between 2001 and 2010--EZs and RCs cannot reliably 
report on their use by local businesses. In addition, Congress has 
requested that we audit and evaluate the programs. Acquiring additional 
data that can attribute the use of the tax benefits to particular EZs 
and RCs would provide information to facilitate an audit of these 
programs. Also, additional tax data would be necessary to evaluate 
certain aspects of the programs, such as the use of the tax benefits. 
While it is difficult to isolate the effects of these programs on 
improving conditions in distressed communities, without the ability to 
attribute the tax benefits to particular EZs and RCs, researchers 
cannot begin to establish the connection between the businesses' use of 
the tax benefits and observable changes in the communities. Such data 
could potentially come from a variety of sources, including IRS forms, 
surveys of businesses, or commercial databases.

Recommendation: 

To facilitate the administration, audit, and evaluation of the EZ/EC 
and RC programs, we recommend 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 their analysis; and, if necessary, (4) seek the authority to collect 
the data, if a cost-effective means is available.

Agency Comments: 

We provided copies of a draft of this report for review and comment to 
HUD, IRS, USDA, and HHS. These agencies' written replies are reproduced 
in appendixes VII through X, respectively. HUD and IRS agreed with the 
report's descriptions of the EZ/EC and RC programs as well as the 
recommendation. HUD generally agreed with our descriptions of the 
features of the EZ/EC and RC programs, and the status of their 
implementation at the national level. IRS stated that the data they 
provided us on the tax benefits available to businesses operating in 
EZs, ECs, and RCs were accurately reflected in our report. USDA raised 
several concerns about our discussion of the EZ/EC program. In 
particular, the Acting Under Secretary for Rural Development stated 
that our focus on grants and tax incentives neglected the broader 
purpose of empowering impoverished communities to plan for and achieve 
their own goals through "holistic means." HHS's Administration for 
Children and Families had no comments. HUD, IRS, and USDA also provided 
technical comments, which we have incorporated into this report where 
appropriate.

According to HUD's Deputy Assistant Secretary for Economic Development, 
HUD agrees with the report's recommendation that HUD, USDA, and IRS 
collaborate to examine options for collecting data on the use of tax 
benefits available to businesses operating in EZs, ECs, and RCs. He 
noted that HUD concurs with the report's findings, including the 
finding that data on the use of the tax benefits is limited at this 
time, and added that HUD is currently developing a strategy to use 
available federal agency resources to develop the data needed to assess 
the use of the EZ/EC and RC tax incentives. In addition, he noted that 
IRS had assisted HUD in answering technical questions and participating 
in HUD training conferences and workshops. He stated that HUD would 
continue its efforts to work with IRS to gather the data needed to 
measure businesses' use of tax benefits in designated communities. In 
response to findings from its Office of Inspector General, HUD's Deputy 
Assistant Secretary indicated that HUD was taking action to improve 
program oversight, including developing guidance on eligible uses of EZ 
funds and instructions for reporting on the progress of EZ activities.

The Commissioner of Internal Revenue agreed with our recommendation to 
work with HUD and USDA to identify the data needed to assess the use of 
the tax benefits and the costs of collecting that data.

The Acting Under Secretary of Rural Development for USDA raised a 
number of concerns with our discussion of the EZ/EC program. While he 
indicated that USDA welcomed the opportunity to collaborate with IRS 
and HUD, he raised concerns that responding to the report's 
recommendation could stretch the agency's already scarce resources to 
produce data of possibly marginal utility and potentially invade 
taxpayers' privacy. We believe that the lack of data on the usage of 
EZ/EC tax benefits limits the ability of USDA and HUD to administer the 
EZ/EC program, and limits the ability of these agencies and others to 
evaluate such programs. We stated in our report that data on the use of 
the tax benefits could come from a variety of sources, such as IRS 
forms, surveys of businesses, or commercial databases. As a result, 
collecting such information may not necessarily have a significant 
impact on USDA's resources. Moreover, the recommendation calls for HUD, 
USDA, and IRS to determine the cost effectiveness of collecting these 
data. Any data that are collected on the use of the tax benefits should 
be done according to IRS rules for protecting taxpayer privacy.

In his letter, the Acting Under Secretary also stated that our report 
addresses only two program tools (grants and tax incentives) and, by 
doing so, neglects the broader purpose behind the program of 
"empowering impoverished communities to plan for and achieve their own 
goals through holistic means." To the contrary, the report describes a 
variety of program features including, but not limited to, grant and 
tax benefits. In particular, the report discusses the programs' stated 
goals and objectives and the key principles nominated communities were 
required to include in their strategic plans, including the need for 
community-based partnerships that involve all segments of the 
community. However, because the report is largely descriptive, it does 
not examine the extent to which the objectives and purposes of the EZ/
EC program have been met.

In addition, the USDA Acting Under Secretary indicated that our 
statement that the lack of data on tax benefits is a limiting factor in 
communities' ability to attract additional resources presumes that 
these data are the only tool that designated communities have to 
attract additional resources. We agree with the Acting Under 
Secretary's statement that such data are not the only means that 
communities can use to attract additional resources. However, 
representatives of EZs and RCs we spoke with stated that their ability 
to attract additional resources was limited by not being able to report 
on the extent to which the programs' tax benefits were being used in 
their communities.

The Acting Under Secretary also raised concerns about our description 
of the agency's online performance management system. Our purpose in 
discussing the system was to describe the efforts USDA has made to 
oversee the EZ/EC program. We described the purpose of the system and 
the steps USDA takes to verify data contained in it. We also reported 
the findings of the USDA IG audits concerning the system and actions 
USDA officials reported that the agency had taken in response to the 
audits. We did not use data from the system in our report, nor did we 
evaluate the reliability of the data contained in it.

Finally, the Acting Under Secretary also noted that our report did not 
include all federal programs that provided benefits to communities 
designated in the EZ/EC program, such as the AmeriCorps program 
benefits that Round I rural EZs and ECs received in the first two years 
of the program. As we reported in appendix V, we found that several 
federal programs offered preferences to applicants located in EZs, ECs, 
and RCs. However, the extent to which these applicants have taken 
advantage of these preferences is not known.

We are sending copies of this report to the Secretary of Housing and 
Urban Development, the Secretary of Treasury, the Commissioner of the 
Internal Revenue Service, the Secretary of Agriculture, the Secretary 
of Health and Human Services, and other interested Members of Congress. 
We will make copies of this report available to others upon request. In 
addition, this report will be available at no charge on the GAO Web 
site at http: //www.gao.gov.

Please call me on (202) 512-8678 if you or your staff have any 
questions about this report. Key contributors to this report are listed 
in appendix XI.

Signed by: 

William Shear: 
Director, Financial Markets and Community Investment: 

[End of section]

Appendix I: Scope and Methodology: 

The objectives of this study were to describe (1) the features of the 
Empowerment Zone and Enterprise Community (EZ/EC) program and Renewal 
Community (RC) program; (2) the extent to which the programs have been 
implemented; and (3) the methods that have been used and the results 
that have been found in evaluations of the programs' effectiveness, 
especially on poverty, unemployment, and economic growth in the 
participating communities. While our descriptions included analyses of 
the data that have been and could be used to address these three 
topics, we did not evaluate the effectiveness of the programs or their 
implementation in this report. We addressed the activities of federal 
programs in both rural and urban areas in all three rounds of the EZ/EC 
program and the RC program.

To describe the features of each round of the program, we relied on a 
review of congressional legislation related to the EZ/EC and RC 
programs; the Department of Housing and Urban Development (HUD), the 
U.S. Department of Agriculture (USDA), and the Department of Health and 
Human Services (HHS) regulations; and HUD, USDA, the Internal Revenue 
Service (IRS), and HHS publications. To supplement our understanding of 
these documents, we interviewed a number of program officials at these 
agencies. We put the available program data and descriptions into data 
matrices and spreadsheets in order to summarize, compare, and contrast 
the features of the program in each of the rounds.

To describe the implementation of the programs at the national level, 
we relied on reviews of legislation, regulations, program publications, 
Web sites, and existing Inspector General (IG) studies and interviews 
with program officials and other area experts. We analyzed 1990 census 
data to report on some characteristics of the designated communities. 
We also obtained and analyzed data from HUD, USDA, HHS, and IRS on the 
utilization of grants, tax benefits, and loan guarantees. To assess the 
data's reliability, we searched for missing data and values outside an 
expected range and assessed the relationship of data elements to each 
other. As appropriate, we analyzed a sample of some financial data to 
confirm their reliability by comparing the agencies' financial data 
with original source documents. We interviewed knowledgeable agency 
officials from IGs' offices, divisions of payment management, and 
program offices regarding the work they had done to assess the data's 
integrity and the results of that work. We determined that the data 
were sufficiently reliable for use in this report. This report does not 
include data from HUD's or USDA's performance management systems.

To determine the average characteristics of designated communities, we 
used data from the 1990 census. Because census estimates of poverty and 
unemployment rates for EZs, ECs, and RCs are estimates based on 
probability samples, each estimate is based on just one of a large 
number of samples that could have been drawn. Since each sample could 
have produced different estimates, we express our confidence in the 
precision of our particular sample's results as a 95 percent confidence 
interval. For example, the estimated poverty rate is 45.23 percent for 
urban Round I EZ communities, and the 95 percent confidence interval 
for this estimate ranges from 44.86 to 45.59 percent. This is the 
interval that would contain the actual population value for 95 percent 
of the samples that could have been drawn. As a result, we are 95 
percent confident that each of the confidence intervals in this report 
will include the true values in the study population. All poverty and 
unemployment percentage estimates have 95 percent confidence intervals 
of plus or minus 1.2 percentage points or less, as summarized in table 
11.

Table 11: Variation in Census Statistics for EZs, ECs, and RCs: 

Description: Percent in poverty; 
Communities: Round I EZ: Urban; 
Estimate: 45.23%; 
95 percent confidence interval: From: 44.86%; 
95 percent confidence interval: To: 45.59%.

Description: Percent in poverty; 
Communities: Round I EZ: Rural; 
Estimate: 44.75%; 
95 percent confidence interval: From: 43.70%; 
95 percent confidence interval: To: 45.80%.

Description: Percent in poverty; 
Communities: Round II EZ: Urban; 
Estimate: 42.84%; 
95 percent confidence interval: From: 42.42%; 
95 percent confidence interval: To: 43.27%.

Description: Percent in poverty; 
Communities: Round II EZ: Rural; 
Estimate: 35.60%; 
95 percent confidence interval: From: 34.57%; 
95 percent confidence interval: To: 36.64%.

Description: Percent in poverty; 
Communities: Round III EZ: Urban; 
Estimate: 42.92%; 
95 percent confidence interval: From: 42.37%; 
95 percent confidence interval: To: 43.48%.

Description: Percent in poverty; 
Communities: Round III EZ: Rural; 
Estimate: 31.02%; 
95 percent confidence interval: From: 29.83%; 
95 percent confidence interval: To: 32.20%.

Description: Percent in poverty; 
Communities: Round I EC: Urban; 
Estimate: 41.12%; 
95 percent confidence interval: From: 40.92%; 
95 percent confidence interval: To: 41.33%.

Description: Percent in poverty; 
Communities: Round I EC: Rural; 
Estimate: 35.79%; 
95 percent confidence interval: From: 35.40%; 
95 percent confidence interval: To: 36.17%.

Description: Percent in poverty; 
Communities: Round II EC: Rural; 
Estimate: 37.67%; 
95 percent confidence interval: From: 37.15%; 
95 percent confidence interval: To: 38.20%.

Description: Percent in poverty; 
Communities: RC: Urban; 
Estimate: 41.33%; 
95 percent confidence interval: From: 41.10%; 
95 percent confidence interval: To: 41.57%.

Description: Percent in poverty; 
Communities: RC: Rural; 
Estimate: 38.23%; 
95 percent confidence interval: From: 37.89%; 
95 percent confidence interval: To: 38.57%.

Description: Percent unemployed; 
Communities: Round I EZ: Urban; 
Estimate: 20.75%; 
95 percent confidence interval: From: 20.37%; 
95 percent confidence interval: To: 21.12%.

Description: Percent unemployed; 
Communities: Round I EZ: Rural; 
Estimate: 13.05%; 
95 percent confidence interval: From: 12.22%; 
95 percent confidence interval: To: 13.88%.

Description: Percent unemployed; 
Communities: Round II EZ: Urban; 
Estimate: 15.40%; 
95 percent confidence interval: From: 15.04%; 
95 percent confidence interval: To: 15.76%.

Description: Percent unemployed; 
Communities: Round II EZ: Rural; 
Estimate: 12.26%; 
95 percent confidence interval: From: 11.46%; 
95 percent confidence interval: To: 13.07%.

Description: Percent unemployed; 
Communities: Round III EZ: Urban; 
Estimate: 15.36%; 
95 percent confidence interval: From: 14.87%; 
95 percent confidence interval: To: 15.84%.

Description: Percent unemployed;
Communities: Round III EZ: Rural; 
Estimate: 13.37%; 
95 percent confidence interval: From: 12.41%; 
95 percent confidence interval: To: 14.33%.

Description: Percent unemployed; 
Communities: Round I EC: Urban; 
Estimate: 15.73%; 
95 percent confidence interval: From: 15.55%; 
95 percent confidence interval: To: 15.91%.

Description: Percent unemployed; 
Communities: Round I EC: Rural; 
Estimate: 13.12%; 
95 percent confidence interval: From: 12.80%; 
95 percent confidence interval: To: 13.43%.

Description: Percent unemployed; 
Communities: Round II EC: Rural; 
Estimate: 15.39%; 
95 percent confidence interval: From: 14.94%; 
95 percent confidence interval: To: 15.84%.

Description: Percent unemployed; 
Communities: RC: Urban; 
Estimate: 18.62%; 
95 percent confidence interval: From: 18.39%; 
95 percent confidence interval: To: 18.84%.

Description: Percent unemployed; 
Communities: RC: Rural; 
Estimate: 13.57%; 
95 percent confidence interval: From: 13.29%; 
95 percent confidence interval: To: 13.85%. 

Source: GAO analysis of HUD, USDA, and Census data.

[End of table]

In addition to sampling errors, census data (both sampled and 100 
percent data) are subject to nonsampling errors, which may occur during 
the operations used to collect and process census data. Examples of 
nonsampling errors are not enumerating every housing unit or person in 
the sample, failing to obtain all required information from a 
respondent, obtaining incorrect information, and recording information 
incorrectly. Operations such as field review of enumerators' work, 
clerical handling of questionnaires, and electronic processing of 
questionnaires also may introduce nonsampling errors in the data. The 
Census Bureau discusses sources of nonsampling errors and attempts to 
control them in detail.

To address businesses' use of the EZ Employment Credit, we obtained 
information from IRS's Statistics of Income databases of corporate and 
individual tax returns for 1995 through 2001. Although there were some 
data available for 1994, we excluded it from our analysis because the 
sample was based on a small number of returns in this year and yielded 
unreliable confidence intervals. All reported individual return 
statistics and the corporate return statistics for years 1995 to 1997 
and 2001 are estimates based on probability samples. Using IRS's 
Statistics of Income Division sampling weights, we estimated confidence 
intervals for the estimated number and amount of total credits. These 
estimates and their confidence intervals are summarized in table 12.

Table 12: Confidence Intervals for EZ Employment Credit Estimates: 

Description: Corporate returns; 
Number of returns claiming the EZ Employment Credit; 
Year: 1995; 
Estimate: 193; 
95 percent confidence interval: From: 88; 
95 percent confidence interval: To: 366.

Description: Corporate returns; 
Number of returns claiming the EZ Employment Credit;
Year: 1996; 
Estimate: 464; 
95 percent confidence interval: From: 176; 
95 percent confidence interval: To: 989.

Description: Corporate returns; 
Number of returns claiming the EZ Employment Credit;
Year: 1997; 
Estimate: 630; 
95 percent confidence interval: From: 409; 
95 percent confidence interval: To: 927.

Description: Corporate returns; 
Number of returns claiming the EZ Employment Credit;
Year: 1998; 
Estimate: 402; 
95 percent confidence interval: From: [A]; 
95 percent confidence interval: To: [A].

Description: Corporate returns; 
Number of returns claiming the EZ Employment Credit;
Year: 1999; 
Estimate: 420; 
95 percent confidence interval: From: [A]; 
95 percent confidence interval: To: [A].

Description: Corporate returns; 
Number of returns claiming the EZ Employment Credit; 
Year: 2000; 
Estimate: 479; 
95 percent confidence interval: From: [A]; 
95 percent confidence interval: To: [A].

Description: Corporate returns; 
Number of returns claiming the EZ Employment Credit; 
Year: 2001; 
Estimate: 559; 
95 percent confidence interval: From: 555; 
95 percent confidence interval: To: 562.

Description: Corporate returns; 
Amount claimed in EZ Employment Credit; 
Year: 1995; 
Estimate: $7,409,228; 
95 percent confidence interval: From: $3,574,947; 
95 percent confidence interval: To: $11,243,510.

Description: Corporate returns; 
Amount claimed in EZ Employment Credit; 
Year: 1996; 
Estimate: $9,382,387; 
95 percent confidence interval: From: $6,612,327; 
95 percent confidence interval: To: $12,152,448.

Description: Corporate returns; 
Amount claimed in EZ Employment Credit; 
Year: 1997; 
Estimate: $13,222,819; 
95 percent confidence interval: From: $10,432,042; 
95 percent confidence interval: To: $16,013,595.

Description: Corporate returns; 
Amount claimed in EZ Employment Credit; 
Year: 1998; 
Estimate: $19,117,527; 
95 percent confidence interval: From: [A]; 
95 percent confidence interval: To: [A].

Description: Corporate returns; 
Amount claimed in EZ Employment Credit; 
Year: 1999; 
Estimate: $21,645,271; 
95 percent confidence interval: From: [A]; 
95 percent confidence interval: To: [A].

Description: Corporate returns; 
Amount claimed in EZ Employment Credit; 
Year: 2000; 
Estimate: $23,527,478; 
95 percent confidence interval: From: [A]; 
95 percent confidence interval: To: [A].

Description: Corporate returns; 
Amount claimed in EZ Employment Credit; 
Year: 2001; 
Estimate: $23,401,274; 
95 percent confidence interval: From: $23,037,765; 
95 percent confidence interval: To: $23,764,782.

Description: Individual returns; 
Number of returns claiming the EZ Employment Credit; 
Year: 1995; 
Estimate: 239; 
95 percent confidence interval: From: 126; 
95 percent confidence interval: To: 412.

Description: Individual returns; 
Number of returns claiming the EZ Employment Credit; 
Year: 1996; 
Estimate: 460; 
95 percent confidence interval: From: 176; 
95 percent confidence interval: To: 975.

Description: Individual returns; 
Number of returns claiming the EZ Employment Credit; 
Year: 1997; 
Estimate: 686; 
95 percent confidence interval: From: 291; 
95 percent confidence interval: To: 1,368.

Description: Individual returns; 
Number of returns claiming the EZ Employment Credit; 
Year: 1998; 
Estimate: 3,100; 
95 percent confidence interval: From: 1,904; 
95 percent confidence interval: To: 4,698.

Description: Individual returns; 
Number of returns claiming the EZ Employment Credit; 
Year: 1999; 
Estimate: 4,752; 
95 percent confidence interval: From: 3,571; 
95 percent confidence interval: To: 6,199.

Description: Individual returns; 
Number of returns claiming the EZ Employment Credit; 
Year: 2000; 
Estimate: 5,074; 
95 percent confidence interval: From: 3,744; 
95 percent confidence interval: To: 6,722.

Description: Individual returns; 
Number of returns claiming the EZ Employment Credit; 
Year: 2001; 
Estimate: 6,745; 
95 percent confidence interval: From: 5,199; 
95 percent confidence interval: To: 8,606.

Description: Individual returns; 
Amount claimed in EZ Employment Credit; 
Year: 1995; 
Estimate: $8,497,429; 
95 percent confidence interval: From: $3,142,915; 
95 percent confidence interval: To: $13,851,942.

Description: Individual returns; 
Amount claimed in EZ Employment Credit; 
Year: 1996; 
Estimate: $10,810,233; 
95 percent confidence interval: From: $1,901,366; 
95 percent confidence interval: To: $19,719,099.

Description: Individual returns; 
Amount claimed in EZ Employment Credit; 
Year: 1997; 
Estimate: $19,090,668; 
95 percent confidence interval: From: $5,670,794; 
95 percent confidence interval: To: $32,510,542.

Description: Individual returns; 
Amount claimed in EZ Employment Credit; 
Year: 1998; 
Estimate: $22,088,019; 
95 percent confidence interval: From: $10,360,890; 
95 percent confidence interval: To: $33,815,148.

Description: Individual returns; 
Amount claimed in EZ Employment Credit; 
Year: 1999; 
Estimate: $26,728,435; 
95 percent confidence interval: From: $14,596,766; 
95 percent confidence interval: To: $38,860,105.

Description: Individual returns; 
Amount claimed in EZ Employment Credit; 
Year: 2000; 
Estimate: $21,948,244; 
95 percent confidence interval: From: $12,826,922; 
95 percent confidence interval: To: $31,069,565.

Description: Individual returns; 
Amount claimed in EZ Employment Credit; 
Year: 2001; 
Estimate: $24,274,141; 
95 percent confidence interval: From: $17,115,109; 
95 percent confidence interval: To: $31,433,173. 

Source: GAO analysis of IRS data.

[A] These data do not require confidence intervals because the total 
amounts are based on the population of tax returns.

[End of table]

To identify the methods that have been used and the results that have 
been found in assessments of the effectiveness of the EZ/EC and RC 
programs, we conducted searches of the literature and interviewed 
agency personnel and community development experts. We reviewed more 
than 1,100 article and report abstracts to identify outcomes-focused 
evaluations of the federal EZ/EC and RC programs. We included 
evaluations that met the following criteria: (1) they focused on the 
federal EZ/EC or RC program; (2) they were research evaluations that 
systematically collected and analyzed empirical data (as opposed to 
reports of Best Practices/Lessons Learned or policy discussions of the 
program); and either (3) they evaluated the program in terms of its 
effect on poverty, unemployment, and/or economic growth consistent with 
our congressional mandate; or (4) they evaluated the program's 
effectiveness in any of the other program goal areas. The remaining 11 
evaluations, on which we focused our work, were program evaluations or 
described the process of implementation that affected how the program 
operated.

We conducted our work in Washington, D.C., from April 2003 through 
February 2004 in accordance with generally accepted government auditing 
standards.

[End of section]

Appendix II: List of Designated Communities: 

To date, Congress has authorized the designation of three rounds of 
EZs, two rounds of ECs, and one round of RCs. In addition, at the same 
time that HUD and USDA announced the Round I designations, HUD created 
two additional designations--Supplemental Empowerment Zones and 
Enhanced Enterprise Communities. See table 13 for a complete list of 
designated communities.

Table 13: List of Designated Communities: 

Round I Urban EZs (6): 
Atlanta, Georgia[A]; 
Baltimore, Maryland; 
Chicago, Illinois; 
Detroit, Michigan; 
New York, New York; 
Philadelphia, Pennsylvania/Camden, New Jersey. 

Round I Rural EZs (3): 
Kentucky Highlands, Kentucky; 
Mid-Delta, Mississippi; 
Rio Grande Valley, Texas. 

Round I Urban ECs (65): 
Akron, Ohio; 
Albany, Georgia; Albany/Schenectady[A]/Troy, New York; 
Albuquerque, New Mexico; 
Birmingham, Alabama; 
Boston, Massachusetts; 
Bridgeport, Connecticut; 
Buffalo, New York[A]; 
Burlington, Vermont[A]; 
Charleston, South Carolina[A]; 
Charlotte, North Carolina; 
Cleveland, Ohio; 
Columbus, Ohio; 
Dallas, Texas; 
Denver, Colorado; 
Des Moines, Iowa; 
East St. Louis, Illinois; 
El Paso, Texas; 
Flint, Michigan; 
Harrisburg, Pennsylvania; 
Houston, Texas; 
Huntington, West Virginia; 
Indianapolis, Indiana; 
Jackson, Mississippi; 
Kansas City, Missouri/Kansas City, Kansas; 
Las Vegas, Nevada; 
Little Rock/Pulaski, Arkansas; 
Los Angeles, California[A]; 
Louisville, Kentucky; 
Lowell, Massachusetts; 
Manchester, New Hampshire; 
Memphis, Tennessee[A]; 
Miami/Dade County, Florida; 
Milwaukee, Wisconsin[A]; 
Minneapolis, Minnesota; 
Muskegon, Michigan; 
Nashville/Davidson, Tennessee; 
New Haven, Connecticut; 
New Orleans, Louisiana[A]; 
Newark, New Jersey[A]; 
Newburgh/Kingston, New York; 
Norfolk, Virginia; 
Oakland, California; 
Ogden, Utah; 
Oklahoma City, Oklahoma; 
Omaha, Nebraska; 
Ouachita Parish, Louisiana[A]; 
Phoenix, Arizona; 
Pittsburgh, Pennsylvania; 
Portland, Oregon; 
Providence, Rhode Island; 
Rochester, New York[A]; 
San Antonio, Texas; 
San Diego, California[A]; 
San Francisco, California[A]; 
Seattle, Washington; 
Springfield, Illinois; 
Springfield, Massachusetts; 
St. Louis, Missouri; 
St. Paul, Minnesota; 
Tacoma, Washington[A]; 
Tampa, Florida; 
Waco, Texas; 
Washington, District of Columbia; 
Wilmington, Delaware; 

Round I Supplemental Empowerment Zones (2): 
Cleveland, Ohio[B, C]; 
Los Angeles, California[C]; 

Round I Enhanced Enterprise Communities (4): 
Boston, Massachusetts[B]; 
Houston, Texas[B]; 
Kansas City, Missouri/Kansas City, Kansas[B]; 
Oakland, California[B]. 

Round I Rural ECs (30): 
Accomack and Northampton County, Virginia; 
Arizona Border Region, Arizona; 
Beadle/Spink Counties, South Dakota; 
Central Appalachia, West Virginia; 
Central Savannah River Area, Georgia; 
Chambers County, Alabama; 
City of East Prairie, Missouri; 
City of Lock Haven, Pennsylvania; 
City of Watsonville, California; 
Crisp/Dooly County, Georgia; 
East Arkansas, Arkansas; 
Fayette/Haywood County, Tennessee; 
Greater Portsmouth, Ohio; 
Greene- Sumter, Alabama[A]; 
The Halifax/Edgecombe/Wilson Empowerment Alliance, North Carolina; 
Imperial County, California; 
Jackson County, Florida; 
Josephine County, Oregon; 
La Jicarita, New Mexico; 
Lake County, Michigan; 
Lower Yakima County, Washington; 
Macon Ridge, Louisiana[A]; 
McDowell County, West Virginia; 
Mississippi County, Arkansas; 
North Delta Mississippi, Mississippi; 
Northeast Louisiana Delta, Louisiana; 
Robeson County, North Carolina; 
Scott, Tennessee/McCreary, Kentucky; 
Southeast Oklahoma, Oklahoma; 
Williamsburg- Lake City, South Carolina. 

Round II Urban EZs (15): 
Boston, Massachusetts; 
Cincinnati, Ohio; 
Columbia/Sumter, South Carolina; 
Columbus, Ohio; 
Cumberland County, New Jersey; 
El Paso, Texas; 
Gary/Hammond/East Chicago, Indiana; 
Ironton, Ohio/Huntington, West Virginia; 
Knoxville, Tennessee; 
Miami/Dade County, Florida; 
Minneapolis, Minnesota; 
New Haven, Connecticut; 
Norfolk/Portsmouth, Virginia; 
Santa Ana, California; 
St. Louis, Missouri/East St. Louis, Illinois. 

Round II Rural EZs (5): 
Desert Communities, California; 
Griggs- Steele, North Dakota; 
Oglala Sioux Tribe, South Dakota; 
Southernmost Illinois Delta, Illinois; 
Southwest Georgia United, Georgia. 

Round II Rural ECs (20): 
Allendale ALIVE, South Carolina; 
Bowling Green, Kentucky; 
City of Deming, New Mexico; 
Clare County, Michigan; 
Clinch- Powell, Tennessee; 
Empower Lewiston, Maine; 
Empowerment Alliance of Southwest Florida, Florida; 
Fayette, Pennsylvania; 
Five Star, Washington; 
Fort Peck Assiniboine & Sioux Tribe, Montana; 
Four Corners, Arizona; 
FUTURO Communities, Texas; 
Huron-Tule, California[A]; 
Metlakatla Indian Community, Alaska; 
Molokai, Hawaii; 
Northwoods NiiJii, Wisconsin; 
Town of Austin, Indiana; 
Tri-County Indian Nations, Oklahoma; 
Upper Kanawha, West Virginia; 
Wichita County, Kansas. 

Round III Urban EZs (8): 
Fresno, California; 
Jacksonville, Florida; 
Oklahoma City, Oklahoma; 
Pulaski County, Arkansas; 
San Antonio, Texas; 
Syracuse, New York; 
Tucson, Arizona; 
Yonkers, New York. 

Round III Rural EZs (2): 
Aroostook County, Maine; 
FUTURO, Texas. 

Urban RCs (28): 
Atlanta, Georgia; 
Buffalo- Lackawanna, New York; 
Camden, New Jersey; 
Charleston, South Carolina; 
Chattanooga, Tennessee; 
Chicago, Illinois; 
Corpus Christi, Texas; 
Detroit, Michigan; 
Flint, Michigan; 
Hamilton, Ohio; 
Lawrence, Massachusetts; 
Los Angeles, California; 
Lowell, Massachusetts; 
Memphis, Tennessee; 
Milwaukee, Wisconsin; 
Mobile, Alabama; 
New Orleans, Louisiana; 
Newark, New Jersey; 
Niagara Falls, New York; 
Ouachita Parish, Louisiana; 
Philadelphia, Pennsylvania; 
Rochester, New York; 
San Diego, California; 
San Francisco, California; 
Schenectady, New York; 
Tacoma, Washington; 
Yakima, Washington; 
Youngstown, Ohio. 

Rural RCs (12): 
Burlington, Vermont; 
Central Louisiana, Louisiana; 
Eastern Kentucky, Kentucky; 
El Paso County, Texas; 
Greene- Sumter, Alabama; 
Jamestown, New York; 
Northern Louisiana, Louisiana; 
Orange Cove, California; 
Parlier, California; 
Southern Alabama, Alabama; 
Turtle Mountain Band of Chippewa, North Dakota; 
West-Central Mississippi, Mississippi; 

Source: HUD and USDA.

[A] Later received RC designation.

[B] During Round I, these communities were also designated as Round I 
ECs.

[C] These communities received Round I EZ status on January 1, 2000.

[End of table]

[End of section]

Appendix III: Federal Benefits Available to EZs, ECs, and RCs at the 
Time of Designation and as of September 30, 2003: 

The authorizing legislation for the EZ/EC and RC programs provided 
participants with grant and/or tax benefits. A prominent feature of the 
EZ/EC program--the Social Services Block Grant--was only offered to 
Round I EZ and EC participants. However, Round II EZs and ECs received 
grant funds from HUD's and USDA's annual appropriations. In addition, 
the number of tax benefits increased over the course of the three 
rounds of the EZ/EC program and was the main benefit available to RCs. 
(See table 14.): 

Table 14: Summary of Benefits Provided to EZs, ECs, and RCs at the Time 
of Designation and as of September 30, 2003: 

Round I EZs; 1994; 
At time of designation: 
* EZ/EC Social Services Block Grants; 
* EZ Employment Credit; 
* Increased Section 179 Deduction; 
* Enterprise Zone Facility Bonds; 
* Regulatory waivers[A]; 
* Preference points for other federal programs; 
* Earmarked grants and loans; 
As of September 30, 2003[B]: 
* EZ/EC Social Services Block Grants; 
* EZ Employment Credit; 
* Increased Section 179 Deduction; 
* Enterprise Zone Facility Bonds; 
* EZ Facility Bonds; 
* Nonrecognition of Gains on the Sale of EZ Assets; 
* Partial Exclusion of Gain on the Sale of EZ Stock; 
* Preference points for other federal programs; 
* Earmarked grants and loans.

Round I ECs; 1994; 
At time of designation: 
* EZ/EC Social Services Block Grants; 
* Enterprise Zone Facility Bonds; 
* Regulatory waivers[A]; 
* Preference points for other federal programs; 
* Earmarked grants and loans; 
* Economic Development Initiative Grants (Supplemental Empowerment 
Zones and Enhanced Enterprise Communities); 
* Section 108 Loan Guarantees (Supplemental Empowerment Zones and 
Enhanced Enterprise Communities)[C]; 
As of September 30, 2003[B]: 
* EZ/ EC Social Services Block Grants; 
* Enterprise Zone Facility Bonds; 
* Preference points for other federal programs; 
* Earmarked grants and loans; 
* Economic Development Initiative Grants (Supplemental Empowerment 
Zones and Enhanced Enterprise Communities); 
* Section 108 Loan Guarantees (Supplemental Empowerment Zones and 
Enhanced Enterprise Communities).

Round II EZs; 1998; 
At time of designation: 
* Increased Section 179 Deduction; 
* Enterprise Zone Facility Bonds; 
* EZ Facility Bonds; 
* Preference points for other federal programs; 
* Earmarked grants and loans; 
As of September 30, 2003[B]: 
* Annual Appropriations, Fiscal Years 1999-2004; 
* EZ Employment Credit; 
* Increased Section 179 Deduction; 
* Enterprise Zone Facility Bonds; 
* EZ Facility Bonds; 
* Nonrecognition of Gains on the Sale of EZ Assets; 
* Partial Exclusion of Gain on the Sale of EZ Stock; 
* Preference points for other federal programs; 
* Earmarked grants and loans.

Round II ECs; 1998; 
At time of designation: 
* Preference points for other federal programs; 
* Earmarked grants and loans; 
As of September 30, 2003[B]: 
* Annual Appropriations, Fiscal Years 1999-2004; 
* Preference points for other federal programs; 
* Earmarked grants and loans.

Round III EZs; 2002; 
At time of designation: 
* EZ Employment Credit; 
* Increased Section 179 Deduction; 
* Enterprise Zone Facility Bonds; 
* EZ Facility Bonds; 
* Nonrecognition of Gains on the Sale of EZ Assets; 
* Partial Exclusion of Gain on the Sale of EZ Stock; 
* Preference points for other federal programs; 
* Earmarked grants and loans; 
As of September 30, 2003[B]: 
* EZ Employment Credit; 
* Increased Section 179 Deduction; 
* Enterprise Zone Facility Bonds; 
* EZ Facility Bonds; 
* Nonrecognition of Gains on the Sale of EZ Assets; 
* Partial Exclusion of Gain on the Sale of EZ Stock; 
* Preference points for other federal programs; 
* Earmarked grants and loans; 
* Annual Appropriations, Fiscal Year 2004 (rural only).

RCs; 2002; 
At time of designation: 
* Increased Section 179 Deduction; 
* RC Employment Credit; 
* Commercial Revitalization Deduction; 
* Zero Percent Capital Gains Rate for RC Assets; 
* Preference points for other federal programs; 
As of September 30, 2003[B]: 
* Increased Section 179 Deduction; 
* RC Employment Credit; 
* Commercial Revitalization Deduction; 
* Zero Percent Capital Gains Rate for RC Assets; 
* Preference points for other federal programs. 

Source: GAO summary of HUD and USDA program documents.

[A] Following Round I, the EZ/EC program de-emphasized the waiver 
feature, but communities could still request waivers on a more informal 
basis.

[B] Some new benefits provided to later rounds of designation were also 
provided to earlier designees. Thus, in some instances, the number of 
benefits as of September 30, 2003, exceeds the number of benefits for 
which a community was originally eligible.

[C] According to a HUD official, these Section 108 Loan Guarantees were 
awarded between May and July, 1995.

[End of table]

[End of section]

Appendix IV: Other Tax Benefits Available to Businesses Serving 
Distressed Communities and Low-Income Individuals: 

In addition to federal tax benefits that have been specifically 
available for businesses in EZs, ECs, and RCs, taxpayers who engage in 
business in these communities are typically eligible for other federal 
tax benefits not specifically designed for such communities. These 
benefits include tax credits and deductions intended to encourage 
taxpayers to invest in distressed communities, employ low-income 
people, and provide housing for low-income people. (Table 15 provides a 
list of other federal tax benefits intended to assist distressed 
communities.): 

Table 15: Other Tax Benefits Available to Businesses Serving Distressed 
Communities and Low-Income Individuals: 

Tax benefit: Low Income Housing Tax Credit; 
Effective year: 1987; 
Expiration year: none; 
Provisions: Owners of newly constructed or renovated rental housing who 
set aside a specified percentage or units for low-income persons for a 
minimum of 15 years are eligible for a tax credit over a 10-year 
period. The taxpayer must receive an allocation of these credits from a 
state agency to qualify.

Tax benefit: Indian Employment Credit; 
Effective year: 1994; 
Expiration year: 2004; 
Provisions: Businesses that hire certain individuals who live on or 
near an Indian reservation may be eligible for a credit of 20 percent 
on certain wages and benefits paid to qualified employees.

Tax benefit: Depreciation of Property Used on Indian Reservations; 
Effective year: 1994; 
Expiration year: 2004; 
Provisions: Businesses can use shorter recovery periods to depreciate 
certain qualified property that is used predominantly in the active 
conduct of a trade or business on an Indian reservation.

Tax benefit: Work Opportunity Tax Credit; 
Effective year: 1996; 
Expiration year: 2003[A]; 
Provisions: Businesses can claim up to $2,400 in tax credits for first-
year wages paid to targeted employees, such as ex-felons, food stamp 
recipients, and employees between 18 and 24 who live in an EZ, EC or 
RC.

Tax benefit: Environmental Cleanup Cost Deduction; 
Effective year: 1997; 
Expiration year: 2003; 
Provisions: Businesses that clean up certain sites contaminated with 
hazardous substances can deduct their cleanup costs in the year that 
the businesses incur those costs. Businesses may deduct these costs in 
1 year instead of taking depreciation deductions over a specified 
period of time.

Tax benefit: Welfare-to-Work Tax Credit; 
Effective year: 1998; 
Expiration year: 2003[A]; 
Provisions: Businesses can claim credits for wages paid to long-term 
family assistance recipients in the first 2 years of employment. The 
allowable credit limit is $3,500 for wages paid in the first year and 
$5,000 for wages paid in the second.

Tax benefit: Qualified Zone Academy Bonds; 
Effective year: 1998; 
Expiration year: 2003[B]; 
Provisions: State and local governments can issue bonds at a zero-
percent interest rate to finance certain public school programs, such 
as building renovation, teacher training, and educational materials and 
equipment. Certain businesses, such as banks and insurance companies, 
that purchase these bonds are eligible for tax credits equal to the 
market taxable interest rate in lieu of interest payments. Schools that 
benefit from these bonds must be located in an EZ or EC, or have at 
least 35 percent of their students eligible for free or reduced cost 
lunches.

Tax benefit: New Markets Tax Credit; 
Effective year: 2001; 
Expiration year: 2007[C]; 
Provisions: Investors in qualified Community Development Entities can 
claim tax credits over a 7-year period. The credit is 5 percent in the 
first 3 years of the investment, and 6 percent for the remaining 4 
years, for a total of 39 percent. The Community Development Entitity 
must receive an allocation of credits through the Treasury Department 
for investors to be eligible. 

Source: GAO summary of HUD and IRS publications; P.L. 99-514, P.L. 103-
66, P.L. 104-188, P.L. 105-34, P.L. 106-554, and P.L. 107-147.

[A] Expires for individuals who begin work after December 31, 2003.

[B] No new credits are authorized after 2003. However, unused credits 
may be carried forward through 2006.

[C] Congress authorized $15 billion in New Markets Tax Credits and 
provided a schedule limiting the amount of allocations for each 
calendar year beginning in 2001 through 2007. Congress also allowed for 
a carryover of unused credits to the next calendar year, increasing the 
amount of credits available by that amount; however, no amount may be 
carried to any calendar year after 2014.

[End of table]

[End of section]

Appendix V: Other Benefits Available to Certain Designees: 

In addition to grants and federal tax benefits, EZs, ECs, and RCs were 
eligible to seek waivers from federal programmatic, statutory, or 
regulatory requirements to facilitate their revitalization efforts. 
However, nominees made limited use of the waiver initiative and, 
although still available to designees, it is no longer considered a 
primary feature. Also, communities designated by HUD as Supplemental 
Empowerment Zones or Enhanced Enterprise Communities were provided with 
Section 108 Loan Guarantees to provide security for loans that finance 
economic development and revitalization projects. Finally, in some 
cases, EZs, ECs, and RCs received a preference in receiving assistance 
under a variety of federal programs. However, the extent to which 
communities have received these preferences is unknown.

Round I EZs and ECs Made Limited Use of the Waiver Initiative: 

In Round I of the EZ/EC program, both HUD and USDA guidance invited 
nominees to request, as an addendum to their applications, waivers from 
federal programmatic, statutory, or regulatory requirements to 
facilitate their ability to conduct revitalization efforts. This 
feature was not established in the EZ/EC program legislation or 
regulations; rather, it was an administrative initiative. In response 
to a request, HUD and USDA would offer to work with the communities to 
seek statutory authority for broader flexibility of federal programs. 
For example, nominees could ask for exemptions, increased 
flexibilities, or changes in eligibility requirements for other federal 
programs.

Available data indicate that Round I designees made limited use of the 
available waivers from programmatic and regulatory requirements to 
facilitate their ability to conduct revitalization efforts. Program 
officials said that many of the nominees requested waivers of statutory 
requirements, which HUD and USDA could not provide. The HUD Interim 
Assessment examined 244 waiver requests made by 18 urban Round I EZ/
ECs. The HUD Interim Assessment found that the most commonly requested 
waivers included requests such as exemption from Davis-Bacon Act 
requirements; flexibility in using block grant funds; and changes in 
eligibility for federal programs, such as Aid to Families with 
Dependent Children, Food Stamps, and Medicaid. The report found that 
federal agencies fully or partially approved 5 percent of the requests 
and denied 33 percent of the requests either because the agencies 
lacked the authority to grant them or for other reasons. In addition, 
21 percent of the waiver requests asked for flexibilities that already 
existed, and the remaining requests either required more information or 
the agency reached some other disposition. Although USDA officials did 
not quantify the disposition of waiver requests through an independent 
study, a USDA official estimated that fewer than 10 waiver requests had 
been approved annually.

Because of the Round I experience, both HUD and USDA de-emphasized the 
waiver initiative. In the application materials for HUD Round II and 
III, and for the RCs, no mention is made of encouraging requests for 
waivers. In the USDA Round II application materials, the waiver request 
initiative is retained, but in the Round III application, no mention is 
made of the opportunity for nominees to request waivers. HUD and USDA 
officials told us that designees could still request waivers, but that 
there was no longer a formal initiative such as was used in Round I.

HUD Designees Have Begun to Use Loan Guarantees: 

After HUD designated the Supplemental Empowerment Zones and Enhanced 
Enterprise Communities in Round I, the agency provided them with a 
total of $653 million in Section 108 Loan Guarantees (See table 
16).[Footnote 64] Like the Economic Development Initiative Grants also 
offered to these designees, these loan guarantees are to provide 
security for loans that finance economic development and revitalization 
projects. A Section 108 loan guarantee allows local governments to 
obtain loans for economic development projects that (1) benefit low and 
moderate income families; (2) prevent or eliminate slums or blight; or 
(3) meet other urgent community development needs. These loans are 
secured by a community's current and future Community Development Block 
Grant allocations for up to five years and carry the full faith and 
credit of the U.S. government in the event of a default. This benefit 
allows a local government entity to reduce its borrowing costs. The 
local government entities can also provide additional security for 
their section 108 loan repayments or enhance the feasibility of certain 
projects by paying directly for certain project expenses with its 
Economic Development Initiative grants.

Table 16: Section 108 Loan Guarantees for Supplemental Empowerment 
Zones and Enhanced Enterprise Communities: 

Supplemental Empowerment Zones; Local government entity: Los Angeles, 
Calif. (City); 
Amount in allocated Section 108 Loan Guarantees: $300 million. 

Supplemental Empowerment Zones; Local government entity: Los Angeles, 
Calif. (County); 
Amount in allocated Section 108 Loan Guarantees: $25 million.

Supplemental Empowerment Zones; Local government entity: Cleveland, 
Ohio; 
Amount in allocated Section 108 Loan Guarantees: $87 million.

Enhanced Enterprise Communities; Local government entity: Boston, Mass; 
Amount in allocated Section 108 Loan Guarantees: $22 million.

Enhanced Enterprise Communities; Local government entity: Oakland, 
Calif; 
Amount in allocated Section 108 Loan Guarantees: $22 million.

Enhanced Enterprise Communities; Local government entity: Houston, Tex; 
Amount in allocated Section 108 Loan Guarantees: $175 million.

Enhanced Enterprise Communities; Local government entity: Kansas City, 
Mo; 
Amount in allocated Section 108 Loan Guarantees: $14.2 million. 

Enhanced Enterprise Communities; Local government entity: Kansas City, 
Kans; 
Amount in allocated Section 108 Loan Guarantees: $7.8 million.

Total; 
Amount in allocated Section 108 Loan Guarantees: $653 million. 

Source: HUD.

[End of table]

As of September 30, 2003, the eight local government entities that 
received Section 108 Loan Guarantees as part of the Supplemental 
Empowerment Zone and Enhanced Enterprise Community designations had 
used about 36 percent of the loan guarantees that HUD awarded (see 
table 17).

Table 17: Amount of Section 108 Loan Guarantees Awarded and Used as of 
September 30, 2003 (Dollars in thousands): 

Supplemental Empowerment Zones; 
Amount awarded: $241,000; 
Amount used: $86,560; 
% Drawn down: 35.9%.

Enhanced Enterprise Communities; 
Amount awarded: $412,000; 
Amount used: $151,741; 
% Drawn down: 36.8%.

Total; 
Amount awarded: $653,000; 
Amount used: $238,301; 
% Drawn down: 36.5%.

Source: GAO analysis of HUD data.

[End of table]

Designees' Use of Competitive Preferences Is Unknown: 

HUD and USDA expect EZs, ECs, and RCs to use their designations to 
attract additional investment. Businesses and community organizations 
in these communities can seek grants and loans from for-profit 
corporations, nonprofit entities, foundations, state and local 
governments, and other federal agencies. For example, a bank might help 
capitalize a community lending institution or a private foundation 
might contribute to a recreational facility for youths. In some cases, 
organizations or individuals operating or residing in EZs, ECs, or RCs 
receive competitive priority for federal grants, loans, or technical 
assistance based solely on their EZ, EC, or RC designations. HUD and 
USDA officials said that during Round I of the EZ/EC program the 
Community Empowerment Board encouraged federal agencies to provide 
preferences to applicants from EZs or ECs in competition for federal 
funds. For example, communities designated as federal EZs, ECs, or RCs 
could receive a competitive preference for the Environmental Protection 
Agency's 2003 National Brownfields Assessment, Revolving Loan Fund, and 
Cleanup Grants.[Footnote 65] In addition, in 2003, the U.S. Department 
of Education's Teacher Quality Enhancement Grants program provided a 
competitive priority to applicants who proposed to carry out activities 
in EZs or ECs.[Footnote 66] In addition, Congress has regularly 
earmarked federal funds, such as grants for low-income housing repair 
or direct loans for rural development projects, to projects located in 
EZs and ECs.

The extent to which EZs, ECs, and RCs have taken advantage of 
competitive preferences is not known. Although HUD and USDA maintain 
data in their performance management systems on EZs', ECs', and RCs', 
use of other sources of funding, these systems do not differentiate 
whether the funding source included a preference for applicants located 
in EZs, ECs, or RCs. However, officials from HUD and USDA told us that 
their perception was that many federal agencies that provided 
competitive preferences to applicants located in EZ/ECs in Round I no 
longer offer these preferences. For example, one HUD official told us 
that the Department of Justice's Weed and Seed program, which provides 
assistance to communities for reducing crime and drug abuse and 
bringing in human services, no longer offers bonus points to applicants 
located in EZs, ECs, or RCs. One HUD official noted that the number of 
preferences offered might have decreased because the Community 
Empowerment Board disbanded.

[End of section]

Appendix VI: Summary of Evaluations of the EZ/EC Program: 

Author/Title: Aigner, Stephen M., Cornelia B. Flora, and Juan M. 
Hernandez; "The Premise and Promise of Citizenship and Civil Society 
for Renewing Democracies and Empowering Sustainable Communities;" 
Sociological Inquiry 71, no. 4 (2001): 493-507;

Purpose and scope:

* To investigate the usefulness of several concepts (e.g., empowerment 
paradigm, citizen participation, and inclusion, civil society) in local 
sites' ability to leverage dollars for sustainable development;

* 33 Round I rural EZ/ECs;

Primary methods and data used:

* Collected data through existing data sources (e.g., educational and 
banking administrations) and USDA performance management system data;

* Performed descriptive statistical analysis;

Major findings:

* As the percent of individual citizens involved on a governing board 
increased, so did the number of women board members (in this study, 
women served as a proxy for how "inclusive" boards were in representing 
diverse groups);

* Findings related to dollars leveraged relied heavily on the USDA 
performance management system data;

Major limitations:

* The study findings are not generalizable outside of the sample 
studied;

* Reviews by USDA's Inspector General stated that they had little 
confidence in the accuracy of the performance data. Therefore, such 
findings are not reported here;

Author/Title: Chaskin, Robert J. and Clark M. Peters; Governance in 
Empowerment Zone Communities: A Preliminary Examination of Governance 
in Fifteen Empowerment Zone Communities; Chicago, IL: University of 
Chicago, Chapin Hall Center for Children, 1997;

Purpose and scope:

* To examine the engagement of local actors in a process of planning 
and governance, and their place within the broader governance structure 
in the EZ/EC program;

* Round I urban, rural, EZs, ECs, Supplemental Empowerment Zones, and 
Enhanced Enterprise Communities;

Primary methods and data used:

* Collected data through open-ended interviews and document reviews;

* Prepared case studies;

Major findings:

* Community participation in governance structures was greater during 
the planning phase than during the implementation phase, because of 
difficulties of implementing projects in reasonable time frames;

Major limitations:

* The study examined only the first year of the functioning of the Ezs.

Author/Title: Community Partnership Center; Rural Empowerment Zones/ 
Enterprise Communities: Lessons from the Learning Initiative. Findings 
and Recommendations of the Community Partnership Center EZ/EC Learning 
Initiative; Knoxville, TN: Community Partnership Center, University of 
Tennessee, 1998;

Purpose and scope:

* To assess, primarily from the perspective of local residents, how 
effectively the EZ/EC Program is carrying out the key principles;

* Round I rural EZ and ECs;

Primary methods and data used:

* Collected data through participant observation of Learning Initiative 
Team workshops and document reviews of 1996 Annual Reports and 
executive summaries;

Major findings:

* All but one of the rural sites had made progress on at least some of 
their benchmark activities;

* Citizen participation was identified as the most important aspect of 
the EZ/EC Program; however, recruiting and sustaining citizen 
participation over the long term is an on-going challenge in rural 
communities;

* Sustained community participation seems to be influenced by the 
capacity of existing community-based organizations;

* Effective EZ/EC boards are those that represent low-income 
communities and lessen the role of typical political players;

Major limitations:

* Findings are not generalizable to other EZ/EC rural or urban sites;

* Annual report and executive summary data were self-reported and were 
not independently verified. A lack of consistency across sites was 
observed;

Author/Title: Gittell, Marilyn, Kathe Newman, and Francois Pierre-
Louis; Empowerment Zones: An Opportunity Missed: A Six City Comparative 
Study; New York, NY: The City University of New York, The Howard 
Samuels State Management and Policy Center, 2001;

Purpose and scope:

* To determine the extent to which the EZ program achieved its goal of 
increased citizen participation through community organization;

* Round I urban EZs;

Primary methods and data used:

* Collected data through open-ended interviews and document reviews;

* Prepared case studies;

Major findings:

* Although the EZ program was specifically designed to support the 
participation of local groups, that process was enforced only in the 
initial planning phase of the program;

* During the implementation of the EZ program in designated cities, 
federal supervision diminished and local elites asserted their control;

Major limitations:

* Time frames of the study are not completely clear;

Author/Title: Gittell, Marilyn, and others; "Expanding Civic 
Opportunity: Urban Empowerment Zones;" Urban Affairs Review 33, no. 4 
(1998): 530-58;

Purpose and scope:

* To assess the degree to which the participation of community-based 
organizations in the EZ strategic planning process has expanded 
community capacity;

* Round I urban EZs;

Primary methods and data used:

* Collected data through open-ended interviews and document reviews;

* Prepared case studies;

Major findings:

* Community groups were underrepresented in EZ governance structures;

* One year into the EZ process, there was little evidence that the 
program had contributed significantly to the development of community 
capacity;

Major limitations:

* The study examined only the first year of the functioning of the EZs;

Author/Title: Hebert, Scott, and others; Interim Assessment of the 
Empowerment Zones and Enterprise Communities (EZ/EC) Program: A 
Progress Report; Prepared for the U.S. Department of Housing and Urban 
Development Washington, D.C.: November 2001;

Purpose and scope:

* To present an initial assessment of how the four EZ/EC principles 
have been interpreted and implemented and how the application of these 
principles may be contributing to the revitalization of the targeted 
communities[A];

* Round I urban EZ/ECs;

Primary methods and data used:

* Acquired commercially provided employment data;

* Performed longitudinal analysis of employment data during the 5 years 
before and the 5 years after designation;

* Collected data on business employment levels and attitudes toward the 
tax incentives through a telephone survey of zone businesses;

* Performed multiple regression models on survey data to determine 
whether use of the zone's financial incentives was associated with 
change in resident employment;

* Collected data using document reviews, open-ended interviewing, and 
comparative analysis to determine site resident participation in 
program governance, reinvention of government, and diversity of 
partnerships;

* Used agency performance management system data;

* Performed descriptive statistical analysis on performance data to 
examine the programs and activities that sites used to address physical 
and human development;

Major findings:

* Between 1995 and 2000, employment of EZ residents grew faster in 
zones than in demographically similar neighborhoods in four of the six 
cities and in the six-city total;

* Larger business establishments reported using tax incentives more 
frequently than smaller businesses;

* Many small businesses were not aware of the tax incentives;

* The number of business establishments owned by zone residents 
increased;

* Both zone-resident owned businesses and small businesses located in 
zones were more likely to hire local zone residents;

* There was a significant relationship between use of the EZ Wage Tax 
Credit and Section 179 Expensing Provision and the percentage change in 
the number of residents employed;

* Local attention to building the capacity of zone residents to 
participate in zone governance has been extremely uneven;

* Residents and community-based organization representatives combined 
constitute typically 50 percent of board memberships;

* Program partnerships took many forms from temporary, loosely-
organized associations, to long-term formalized alliances;

* Reported findings on program activities relied entirely on the HUD 
performance management system data;

Major limitations:

* It is not possible to determine whether zone designation caused 
employment rates to increase or whether rates increased for other 
reasons, such as general economic conditions or local initiatives;

* Because of the low response rate, survey responses might be biased 
toward firms that favor the EZ;

* Because the survey found that most small zone businesses were unaware 
of financial incentives, it is not plausible that these businesses 
could have been motivated by the financial incentives of which they 
were not aware;

* Findings regarding ECs are based on a nonprobability sample and 
cannot be generalized to ECs that were not studied;

* Particular cases in the analysis are identified as successes or 
failures, but the criteria for determining success or failure are not 
specified;

* Zone governance was difficult to monitor;

* Reviews by HUD's Inspector General stated that they had little 
confidence in the accuracy of the performance data. Therefore, such 
findings are not reported here;

Author/Title: Nathan, Richard P., and others; Investing in a New 
Future: Special Report on Community Development Financing in Selected 
Empowerment Zone/Enterprise Community Sites; Albany, NY: The Nelson A. 
Rockefeller Institute of Government, 1997;

Purpose and scope:

* To compare commercial and residential lending activities and 
characteristics of these lending activities with respect to the 
Metropolitan Statistical Areas where the sites are located;

* 18 Round I urban EZs, ECs, Supplemental Empowerment Zones, and 
Enhanced Enterprise Communities;

* To determine the character of community input and governance in EZ/
EC-funded community development activities;

Primary methods and data used:

* Used loan data constructed by aggregating 1995 Home Mortgage 
Disclosure Act census tract-level data into 18 EZ/EC geographic areas;

* Conducted and analysis of residential lending activities;

* Used Small Business Administration data on commercial loans, which 
were constructed by apportioning and summing all the zip-code level 
data into 18 EZ/ECs and their respective geographical areas;

* Conducted and analysis of commercial lending activities;

* Collected data through document reviews;

* Prepared case studies;

Major findings:

* Home loans, measured as the loan activities per 1000 dwellings, were 
almost half as prevalent in the 18 EZs/ECs as in their corresponding 
Metropolitan Statistical Areas;

* Citizens in most communities were able to play a moderate to 
substantial role in the governance of their community's EZ/ EC 
Initiative;

* In all 18 study cities, citizens had some opportunity to advise local 
EZ/EC governing bodies and community development finance entities;

* In 11 of the study cities, including all six EZs, citizens were 
provided with some means of citizen participation and involvement in 
the governance of various community development initiatives;

* There were few instances in which zone residents and stakeholders 
actually controlled the allocation of EZ/EC resources;

Major limitations:

* No discussion of Home Mortgage Disclosure Act reliability was 
included in the report; however, GAO work has found these data to be 
sufficiently reliable for similar purposes.[B];

* Report findings on commercial lending relied on Small Business 
Administration data, for which there is no knowledge about the 
reliability of the data. Therefore, such findings are not reported 
here;

* The researchers did not control for other factors influencing the 
differences in lending activities in the 18 EZ/ECs when comparing with 
corresponding Metropolitan Statistical Areas;

* Findings regarding ECs are based on a nonprobability sample and 
cannot be generalized to ECs that were not studied;

* Because the study covered only the years 1994-1997, insufficient time 
had passed when the study was published to draw definitive conclusions;

Author/Title: Nathan, Richard P., and others; Empowerment Zone 
Initiative: Building a Community Plan for Strategic Change. Findings 
from the First Round Assessment of the Empowerment Zone/Enterprise 
Community Initiative; Albany, NY: The Nelson A. Rockefeller Institute 
of Government, 1997;

Purpose and scope:

* To summarize community participation in the strategic planning, 
governance, and benchmarking processes for the beginning of the 
program;

* 18 Round I urban EZs, ECs, Supplemental Empowerment Zones, and 
Enhanced Enterprise Communities;

Primary methods and data used:

* Collected data through document reviews of site descriptions of the 
strategic planning;

* Performed a comparative analysis of types of program strategies 
across sites;

Major findings:

* The strategic planning process often began as a city-government 
process and evolved into a more community-directed process headed by 
steering committees of 20 to 100 members;

* The most common governance structure was at least moderately 
integrated into the city government and used one central structure to 
oversee the Initiative;

* Cities with considerable community control over plan development 
tended to have an existing citizen participation structure that could 
be used as a foundation to initiate planning efforts;

* Citizen influence was greatest in determining site strategies and 
program activities;

* Citizen participation decreased as the initiative moved from planning 
to implementation;

* Citizen participation was reported to be higher in the EZ/EC 
Initiative than in other similar federal initiatives;

* Most cities did not have grassroots participation;

* Community participation was greater in the early phases of the 
benchmarking process;

Major limitations:

* Findings regarding ECs are based on a nonprobability sample and 
cannot be generalized to ECs that were not studied;

* Local sites provided self-reported data to the authors, which were 
not independently verified.

Author/Title: Reid, J. Norman and Karen Savoie Murray; "Empowering 
Rural Communities: A Perspective at the Five-Year Point;" Paper 
presented at the annual meeting of the Rural Sociological Society, 
Washington, D.C., August 2000;

Purpose and scope:

* To make a preliminary exploration of performance data on program 
implementation;

* Round I and Round II rural EZ/ECs;

Primary methods and data used:

* Collected data through document reviews and site visits;

* Used USDA performance data;

* Performed descriptive statistical analysis of data;

Major findings:

* Reported findings relied heavily on the USDA performance management 
system data;

Major limitations:

* Reviews by USDA's Inspector General stated that they had little 
confidence in the accuracy of the performance data. Therefore, such 
findings are not reported here;

Author/Title: U.S. General Accounting Office; Community Development: 
Businesses' Use of Empowerment Zone Tax Incentives; GAO/RCED-99-253, 
(Washington, D.C.: September 30, 1999);

Purpose and scope:

* To examine the extent to which businesses used the program's three 
initial tax incentives and other tax incentives, and determine reasons 
why in some cases the incentives were not used;

* Round I urban and rural EZs;

Primary methods and data used:

* Surveyed 2,380 businesses located in nine federal designated EZs. 
Surveys were mailed to 513 large businesses and 744 small businesses in 
urban EZs, and 1,123 to businesses in rural EZs;

* Analyzed the results of the surveys;

Major findings:

* The employment credit was the most frequently used tax incentive, 
especially by the larger businesses;

* Businesses that used the employment credit cited it as somewhat 
important in their hiring decisions;

* The most frequently cited reason for not using the credit was that 
their employees lived out of the zones or that they did not know about 
the credit;

Major limitations:

* Because more than half of the large urban businesses and rural 
businesses did not respond to the surveys, the survey results only 
reflect actual usage of the incentives;

* The estimates based on the surveys might be imprecise because of the 
sampling error associated with estimate.

Author/Title: Fahui Wang and Joseph A. Van Loo; "Citizen Participation 
in the North Delta Mississippi Community Development Block Grants, 
Empowerment Zones and Enterprise Communities;" Planning Practice and 
Research 13, no. 4 (1998): 443-51;

Purpose and scope:

* To examine citizen participation in the EC catchment area compared 
with the community development block grant catchment area;

* North Delta Mississippi EC;

Primary methods and data used:

* Collected data through participant observation and document reviews.

Major findings:

* Citizen participation outreach efforts were more extensive in the EC 
program than in the community development block grant program;

* Citizen involvement was more extensive and more meaningful (i.e., 
participation in strategic planning and decision making) in the EC 
program than in the community development block grant program;

* Major limitations:

* The findings are specific to this EC site and cannot be generalized 
to ECs that were not studied;

* The authors could not determine to what extent citizen participants 
in each program were representative of the larger population living in 
the target areas, and therefore, to what extent key factors, such as 
socioeconomic status, might have influenced citizen participation.

[A] The four key principles of the EZ/EC program are strategic vision, 
economic opportunity, community-based partnerships, and sustainable 
community development.

[B] U.S. General Accounting Office, Public Housing: HOPE VI Resident 
Issues and Changes in Neighborhoods Surrounding Grant Sites, GAO-04-
109, (Washington, D.C.: November 2003).

[End of table]

[End of section]

Appendix VII: Comments from the Department of Housing and Urban 
Development: 

U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT 
WASHINGTON, DC 20410-7000:

OFFICE OF COMMUNITY PLANNING AND DEVELOPMENT:

FEB 17 2004:

Mr. Charles Wilson 
Assistant Director 
Financial Markets and Community Investment Team 
U.S. General Accounting Office:

441 G Street, NW 
Washington, DC 20548-0001:

Dear Mr. Wilson:

The purpose of this letter is to provide our comments to the General 
Accounting Office's (GAO) draft report, GAO-04-306 entitled "Community 
Development Federal Revitalization Programs Are Being Implemented, but 
Data on the Use of Tax Benefits Are Limited that was transmitted to us 
on February 3, 2004.

The Office of Community Planning and Development (CPD) concurs with the 
findings of GAO that the Empowerment Zone/Enterprise Community (EZ/EC) 
and Renewal Community (RC) programs are well under way, yet qualitative 
benefit data, from which an analysis may be 
ascertained, are limited at this time. HUD agrees that the benefit of 
the tax incentives authorized by the Community Renewal Tax Relief Act 
of 2000 is still unknown.

The following considerations should be added to the GAO report when it 
is issued to Congress and the public:

1. HUD's Office of Community Renewal (OCR), which administers the EZ 
and RC program, is developing a strategy to use available federal 
agency resources to develop the data needed to assess current 
utilization of the tax incentives by the 329,000 businesses in the HUD 
designated RCs and EZs. This effort will include reaching out to OCR's 
counterparts in the Office of Policy Development and Research in HUD, 
the Department of Agriculture (USDA), and the Internal Revenue Service 
(IRS).

2. To respond to findings and recommendations of HUD's Office of 
Inspector General (OIG) and as part of CPD's ongoing effort to improve 
the quality of information on the programs we administer, OCR has 
developed the following:

* A proposed rule on resident benefit and eligible uses of Round II EZ 
funds, to be published in the Federal Register this spring;

* A Round 11 EZ Desk Officer guidebook with instructions for reporting 
on the progress assessments in the on-line Performance Measurement 
System (PERMS);

* Policy and guidance on third-party contracts as it relates to Round 11 
EZs;

* Improved and refined financial procedures and controls on the Round II 
EZ funds drawdown system (LOCCS); and:

* Improved risk assessment and monitoring guidance, which is provided to 
both grantees and HUD field offices.

3. The Internal Revenue Service (IRS) has assisted CPD/OCR in answering 
technical questions on the RC and EZ tax incentives and participated in 
HUD's training conferences and workshops along with other events to 
educate community leaders, accountants, and businesses on the tax 
incentives. We will continue in our efforts to work with IRS in 
compiling the necessary data to measure the tax benefits that have been 
realized.

4. The progress assessments using information from PERMS are pursuant to 
statutory requirements for HUD to determine if the EZ/ECs and RCs are 
making adequate progress in implementing their strategic plans and tax 
incentive utilization plans. The procedures to verify the data in PERMS 
and perform the progress assessments are different from the procedures 
that CPD follows when we monitor grants, including the HUD EZ grants, 
because the purpose of grant monitoring is for funds control and to 
enforce other federal legal requirements.

5. Based on the HUD OIG's 2003 audit recommendations, OCR is taking 
steps to improve data accuracy in PERMS, as noted above.

If you have any questions concerning the above comments, please call 
Ms. Pamela Glekas Spring, Director, Office of Community Renewal, on 
(202) 708-6339.

Sincerely,

Signed by: 

Donald P. Mains:

Deputy Assistant Secretary for Economic Development:

[End of section]

Appendix VIII: Comments from the Internal Revenue Service: 

DEPARTMENT OF THE TREASURY 
INTERNAL REVENUE SERVICE 
WASHINGTON, D.C. 20224:

COMMISSIONER:

February 19, 2004:

Mr. William Shear:

Director, Financial Markets and Community Investment 
United States General Accounting Office:

441 G Street, NW 
Washington, DC 20548:

Dear Mr. Shear:

The Internal Revenue Service reviewed your draft report, Federal 
Revitalization Programs are Being Implemented, but Data on the Use of 
Tax Benefits are Limited (GAO-04-306).	The Statistics of Income Division 
provided data on the available tax benefits to the General Accounting 
Office and these data are accurately reflected in the draft report.

We concur with the recommendation that the IRS work with the Department 
of Housing and Urban Development and the Department of Agriculture to 
identify the data needed to assess the use of the tax benefits of 
revitalization programs and estimate the cost of collecting these data. 
The Service will also consult with Treasury's Office of Tax Policy to 
see if the recommendation's benefits would outweigh its costs 
(including the increased taxpayer burden to collect the data).

Thank you for the opportunity to comment on this draft report. If you 
have any questions, or would like to discuss this response in more 
detail, please contact Floyd Williams, Director of Legislative Affairs, 
at (202) 622-4725.

Sincerely,

Signed for: 

Mark W. Everson: 

[End of section]

Appendix IX: Comments from the U.S. Department of Agriculture: 

DEPARTMENT OF AGRICULTURE 
OFFICE OF THE SECRETARY 
WASHINGTON, D.C. 20250:

FEB 17 2004:

TO: William Shear:

Director, Financial Markets and Community Investment: 
United States General Accounting Office: 

FROM: Gilbert G. Gonzalez 
Acting Under Secretary 
Rural Development:

THROUGH: Sherie Hinton Henry 
Deputy Administrator for Operations and Management Division:

Signed by Gilbert G. Gonzales and Sherie Hinton Henry: 

SUBJECT: Community Development: Federal Revitalization Programs Are 
Being Implemented, but Data on the Use of Tax Benefits Are Limited,

Audit Number GAO-04-306:

Thank you for providing the United States Department of Agriculture 
(USDA) and Rural Development with your draft report, "Community 
Development: Federal Revitalization Programs are Being Implemented, but 
Data on the Use of Tax Benefits are Limited." I would like to offer the 
following comments for your consideration, and ask that a copy of this 
response be included in your final report.

The Renewal Community (RC) program is entirely under the purview of the 
United States Department of Housing and Urban Development (HUD). This 
response is, therefore, limited to the portion dealing with the 
Empowerment Zone and Enterprise Community (EZ/EC) program.

The GAO report addresses only two program tools (grants and tax 
incentives) and focuses primarily on the latter. In so doing, it 
neglects the broader purpose behind the EZ/EC program: empowering 
impoverished communities to plan for and achieve their own goals 
through holistic means. This type of community development is designed 
to employ many actors and use a wide array of tools. Tax incentives 
were simply one of those tools that communities could choose to use to 
help draw businesses into Zones and to prompt businesses to hire Zone 
residents.

The report concludes on pages 32 and 43 that a lack of data on the use 
of tax incentives limits the ability of the communities to attract 
additional resources. This conclusion assumes that the only way 
communities can successfully leverage their resources is by using the 
tool upon which the report primarily focuses. The data generated from 
the communities themselves show that the EZ/ECs, on average, leveraged 
every program dollar with 16 other dollars brought in from other 
sources.

Those data are generated from Rural Development's Benchmark Management 
System (BMS). The BMS is an online reporting system that collects EZ/EC 
performance data submitted by the communities themselves. The report 
notes, however, that the USDA Inspector General's office has raised 
concerns about the reliability of those data, suggesting the 
reliability of BMS data is wholly dependent upon the communities 
themselves. In reality, the BMS information is monitored and verified 
by Rural Development staff in our State Offices and at the National 
Office. Moreover, the statements regarding the BMS do not accurately 
reflect its appropriate use or utility. BMS is employed not as an audit 
or accounting tool of the EZ/EC program but as a management instrument 
and, as such, does an effective job at capturing the successes and 
trend lines for the program.

On page 19, the report briefly outlines some of the other benefits that 
accrued to "certain designees." This short list is focused on grants, 
loans, or ways to further facilitate grants or loans. The report does 
not mention that for the first two years of the program, USDA funded an 
effective AmeriCorps program within EZ/EC and Champion communities.

This resource provided community capacity-building early in the rural 
EZ/EC program. The AmeriCorps members reached out to the disadvantaged 
and disenfranchised in communities. Their work provided much of the 
backbone of continuing citizen participation in the program. USDA's 
AmeriCorps members were largely responsible for local program 
penetration into rural neighborhoods, which is where the projects 
outlined in the strategic plan had to come to fruition. The report 
passed over this and other human-to-human aspects of the program in 
favor of more typical quantitative measurements, such as how many grant 
dollars were distributed.

The report's conclusions and recommendations on page 43 focus on only a 
small portion of the overall EZ/EC program. Furthermore, even though 
USDA would welcome the opportunity to further collaborate with its 
Federal partners in the Internal Revenue Service (IRS) and HUD, we are 
concerned about suggestions that would stretch USDA's already scarce 
resources to produce data of possibly marginal utility. There is also 
real concern about taking steps that could invade taxpayers' privacy.

There are also a few technical details that need correction or further 
explanation:

* Page 9, first paragraph - The Community Empowerment Board was indeed 
disbanded prior to Round III of the EZ program, but no explanation is 
included as to why this occurred.

* Page 13, Footnote 14 - The text leads the reader to the conclusion 
that the Secretary of Agriculture unilaterally decided that 
outmigration should be a selection criteria. In fact, the legislation 
authorizing Round 11 provided this opportunity.

* Page 15, Footnote 18 - This same appropriations legislation also 
provided $1 million for the two rural Round III Zones.

* Page 16, Table 6 - The allocations per EZ in 2000 was $2,000,000 and 
in 2002 was $1,996,000.

* Page 26, Figure 4 - The average area of the Round Il rural Empowerment 
Zones is incorrect. The correct figure is 725.2.

* Page 36, second paragraph - Round III rural EZ reporting requirements 
are exactly the same as the other EZ/EC communities, not less 
stringent.

* Page 37, second paragraph - The statement "In 1997 we reported that 
EZ/EC were not consistently reporting their progress to USDA, and 
USDA's EZ/EC state coordinators did not provide systematic reporting on 
the progress of rural EZ/EC" is accurate. It fails, however, to mention 
that we addressed this deficiency by adopting a nationwide community 
development field training program. In addition, there is no mention of 
the newly adopted Rural Development Field Structure Consistency Plan 
that has devolved many EZ/EC administration duties to our State 
Offices.

Thank you for this opportunity to comment on the report. If you have 
any questions, please contact John M. Purcell, Director, Financial 
Management Division, at (202) 692-0080.

[End of section]

Appendix X: Comments from the Department of Health and Human Services: 

DEPARTMENT OF HEALTH AND HUMAN SERVICES:

ADMINISTRATION FOR CHILDREN AND FAMILIES 
Office of the Assistant Secretary, Suite 600 
370 L'Enfant Promenade, S.W.
Washington, D.C. 20447:

DATE: FEB 18 2004

TO: William Shear:

Director, Financial Markets and Community Investment:

FROM: Wade F. Horn, Ph.D. Assistant Secretary for Children and 
Families:

Signed by Wade F. Horn: 

SUBJECT: GAO Draft Report, "Community Development: Federal 
Revitalization Programs Are Being Implemented, but Data on the Use of 
Tax Benefits Are Limited," (GAO-04-306):

The Administration for Children and Families' Office of Community 
Services has no comments on the above-referenced report.

If you have any questions, please contact Robert Mott, Deputy Director, 
Office of Community Services, at (202) 401-5291.

Attachment:

COMMENTS OF THE ADMINISTRATION FOR CHILDREN AND FAMILIES ON THE GENERAL 
ACCOUNTING OFFICE'S DRAFT REPORT, "COMMUNITY DEVELOPMENT: FEDERAL 
REVITALIZATION PROGRAMS ARE BEING IMPLEMENTED, BUT DATA ON THE USE OF 
TAX BENEFITS ARE LIMITED," (GAO-04-306):

The Administration for Children and Families' (ACF) Office of Community 
Services (OCS) appreciates the opportunity to comment on this draft 
report.

GAO Recommendations:

To facilitate the administration, audit, and evaluation of the 
Empowerment Zone and Enterprise Zone programs and Renewable Communities 
programs, we recommend that the Department of Housing and Urban 
Development, the United States Department of Agriculture, and the 
Internal Revenue Service 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 their analysis; and, if 
necessary (4) seek the authority to collect the data, if a cost-
effective means is available.

ACF Comments:

ACF's OCS has reviewed this draft report and has no comments at this 
time.

[End of section]

Appendix XI: GAO Contacts and Staff Acknowledgments: 

GAO Contacts: 

William Shear (202) 512-8678 Charles Wilson, Jr. (202) 512-6891: 

Acknowledgments: 

In addition to those individuals named above, Jonathan Altshul, Susan 
Baker, Daniel Blair, Mark Braza, Emily Chalmers, Patricia Farrell 
Donahue, David Dornisch, DuEwa Kamara, Terence Lam, Alison Martin, 
Grant Mallie, John McGrail, John Mingus, Marc Molino, Gretchen Maier 
Pattison, Minette Richardson, and Michael Simon made key contributions 
to this report.

[End of section]

Bibliography: 

Aigner, Stephen M., Cornelia B. Flora, and Juan M. Hernandez. "The 
Premise and Promise of Citizenship and Civil Society for Renewing 
Democracies and Empowering Sustainable Communities." Sociological 
Inquiry 71, no. 4 (2001): 493-507.

Chaskin, Robert J. and Clark M. Peters. Governance in Empowerment Zone 
Communities: A Preliminary Examination of Governance in Fifteen 
Empowerment Zone Communities. (Chicago, IL: University of Chicago, 
Chapin Hall Center for Children, 1997).

Community Partnership Center. Rural Empowerment Zones/Enterprise 
Communities: Lessons from the Learning Initiative. Findings and 
Recommendations of the Community Partnership Center EZ/EC Learning 
Initiative. (Knoxville, TN: Community Partnership Center, University of 
Tennessee, 1998).

Gittell, Marilyn, and others. "Expanding Civic Opportunity: Urban 
Empowerment Zones." Urban Affairs Review 33 no. 4 (1998): 530-58.

Gittell, Marilyn, Kathe Newman, and Francois Pierre-Louis. Empowerment 
Zones: An Opportunity Missed: A Six City Comparative Study. (New York, 
NY: The City University of New York, The Howard Samuels State 
Management and Policy Center, 2001).

Hebert, Scott and others. Interim Assessment of the Empowerment Zones 
and Enterprise Communities (EZ/EC) Program: A Progress Report, prepared 
for the U.S. Department of Housing and Urban Development. (Washington, 
D.C.: November 2001).

Nathan, Richard P. and others. Investing in a New Future: Special 
Report on Community Development Financing in Selected Empowerment Zone/
Enterprise Community Sites. (Albany, NY: The Nelson A. Rockefeller 
Institute of Government, 1997).

----Empowerment Zone Initiative: Building a Community Plan for 
Strategic Change: Findings from the First Round of Assessment. (Albany, 
NY: State University of New York, The Nelson A. Rockefeller Institute 
of Government, 1997).

Reid, J. Norman and Karen Savoie Murray. "Empowering Rural Communities: 
A Perspective at the Five-Year Point." Paper presented at the annual 
meeting of the Rural Sociological Society, Washington, D.C., August 
2000.

U.S. General Accounting Office. Community Development: Businesses' Use 
of Empowerment Zone Tax Incentives. GAO/RCED-99-253. (Washington, D.C.: 
September 30, 1999).

Wang, Fahui, and Joseph A. Van Loo. "Citizen Participation in the North 
Delta Mississippi Community Development Block Grants, Empowerment Zones 
and Enterprise Communities." Planning Practice and Research 13, no. 4 
(1998): 443-51.

[End of section]

Related GAO Products: 

Community Development: Businesses' Use of Empowerment Zone Tax 
Incentives. GAO/RCED-99-253 (Washington, D.C.: September 1999).

Community Development: Progress on Economic Development Activities 
Varies Among the Empowerment Zones. GAO/RCED-99-29 (Washington, D.C.: 
November 1998).

Community Development: Information on the Use of Empowerment Zone and 
Enterprise Community Tax Incentives. GAO/RCED-98-203 (Washington, 
D.C.: June 1998).

Community Development: Identification of Economically Distressed 
Areas. GAO/RCED-98-158R (Washington, D.C.: May 1998).

Economic Development Activities: Overview of Eight Federal Programs. 
GAO/RCED-97-193 (Washington, D.C.: August 1997).

Rural Development: New Approach to Empowering Communities Needs 
Refinement. GAO/RCED-97-75 (Washington, D.C.: March 1997).

Community Development: Status of Urban Empowerment Zones. GAO/RCED-97-
21. (Washington, D.C.: December 1996).

(250131)

FOOTNOTES: 

[1] An area can also meet this nomination requirement if it is nominated 
by an economic development corporation chartered by the state.

[2] Social Services Block Grant funds, administered by the Department 
of Health and Human Services (HHS), have been available to state 
governments since 1981 to address the social service needs of their 
residents.

[3] Businesses in Round I ECs are eligible only for the tax-exempt bond 
benefit.

[4] One Supplemental Empowerment Zone and all four Enhanced Enterprise 
Communities had also received Round I EC designations. 

[5] HHS does not participate in the administration of Rounds II and III 
of the EZ/EC program or in the RC program, because Congress only 
authorized these grants in Round I of the EZ/EC program. 

[6] At the same time as Round I EZ/EC designations, HUD also designated 
two Supplemental Empowerment Zones and four Enhanced Enterprise 
Communities.

[7] HUD and USDA expect EZs, ECs, and RCs to use their designations to 
attract additional investment.

[8] None of the evaluations we reviewed analyzed the RC program.

[9] Scott Hebert and others, Interim Assessment of the Empowerment 
Zones and Enterprise Communities (EZ/EC) Program: A Progress Report, 
prepared for U.S. Department of Housing and Urban Development 
(Washington, D.C.: November 2001). 

[10] U.S. Department of Housing and Urban Development, "Renewal 
Communities: Urban and Rural Application Guide" (Washington, D.C.: 
2001).

[11] In Rounds II and III of the EZ/EC program, nominated communities 
located in Alaska or Hawaii could also use income criteria instead of 
criteria for poverty, size, and general distress.

[12] In the EZ/EC program, the legislation required that the nominated 
area have "pervasive" unemployment, but did not define this term. In 
its regulations, HUD defined unemployment as not less than the national 
average rate of unemployment in the 1990 census. In contrast, USDA 
specified that unemployment could be demonstrated by a combination of 
information on the unemployed, underemployed, discouraged workers, 
plant or military base closings, or "other relevant unemployment 
indicators," but did not specify the required level of unemployment. In 
Rounds II and III, the legislation also allowed nominees in rural areas 
to use outmigration criteria as an alternative to poverty criteria.

[13] Also, while Round I EZ/EC nominees could not include any area on 
an Indian reservation, nominees for other rounds of the EZ/EC program 
and for the RC program could.

[14] 24 C.F.R. 597.102(c), 24 C.F.R. 598.110(c), 24 C.F.R. 
599.105(e)(2)(iii).

[15] 7 C.F.R. 25.102(c).

[16] The secretarial criteria used by HUD and USDA differed in each 
round of the EZ/EC program. For example, in Round I, HUD included 
geographic diversity. USDA also considered the diversity within and 
among the nominated areas in Round I, but did not limit it to the 
geographic diversity used in HUD regulations. In Round II, HUD removed 
the secretarial criteria used for Round I. 

[17] It specified that one urban EZ be designated in an area where the 
most populous city had a population of 500,000 or less and that one 
urban EZ be designated in an area that included two states and had a 
combined population of 50,000 or less. 

[18] U.S. General Accounting Office, Community Development: 
Identification of Economically Distressed Areas, RCED-98-158R 
(Washington, D.C.: May 12, 1998).

[19] According to an HHS official, HHS is currently establishing 
policies for granting extensions to EZs and ECs with unspent Social 
Services Block Grant funds.

[20] HUD awarded separate Economic Development Initiative grants to 
overlapping or adjacent government entities in the city and county of 
Los Angeles, California, and in Kansas City, Missouri and Kansas City, 
Kansas. As a result, HUD awarded Economic Development Initiative grants 
to eight government entities.

[21] The data in this report are as of September 30, 2003. However, in 
January 2004, the Consolidated Appropriations Act of 2004 appropriated 
an additional $14.9 million for Round II urban EZs and $11.6 million 
for Round II rural EZs and ECs. 

[22] According to HUD officials, HUD is currently developing 
regulations that would clarify "economic development activities." In 
lieu of an explicit rule, HUD has advised Round II urban EZs that 
acceptable economic development activities include job creation and 
training, entrepreneurial activities, small business expansion, and job 
support services such as affordable child care and transportation 
services that would help zone residents gain employment in jobs that 
offer upward mobility.

[23] However, fiscal year 2003 appropriations for Round II urban EZs 
will remain available only until September 30, 2005.

[24] P.L. 108-199. We did not include these funds in our analysis 
because the data in this report are as of September 30, 2003.

[25] In 1993, the Joint Committee on Taxation estimated that the tax 
benefits available to businesses in Round I communities would result in 
a $2.5 billion reduction in tax revenues between 1994 and 1998. In 
2000, this committee estimated that the EZ and RC tax benefits 
contained in the Community Renewal Tax Relief Act of 2000 would reduce 
tax revenues by a total of about $3.9 billion between 2001 and 2005, 
and about $10.9 billion between 2001 and 2010.

[26] A deduction for depreciable property reduces a taxpayer's taxable 
income for assets that could be used for over 1 year.

[27] A Section 108 Loan Guarantee allows local governments to obtain 
loans for economic development projects that (1) benefit low and 
moderate income families, (2) prevent or eliminate slums or blight, or 
(3) meet other urgent community development needs.

[28] Rural nominees that did not receive EZ or EC status from USDA were 
offered Champion Community status. Champion communities are eligible 
for technical assistance from USDA and preferences for other government 
programs. There are currently 118 Champion Communities.

[29] Enhanced Enterprise Communities were also permitted to apply for 
EZ status. One Enhanced Enterprise Community, Boston, Mass., received 
an EZ designation.

[30] One exception occurred, in which an EC dissociated itself from the 
part of its area that had applied for RC status prior to that area 
receiving designation. 

[31] Census poverty and unemployment data are estimates based on a 
sample of the population. All poverty and unemployment percentage 
estimates have 95 percent confidence intervals of plus or minus 1.2 
percentage points or less. See appendix I for details.

[32] A "draw down" occurs when a grantee accesses awarded funds.

[33] While IRS's Statistics of Income Division maintains data on the 
use of the EZ Employment Credit for all corporate tax returns from 1998 
through 2000, it maintains sampled data on this tax credit from 
individual returns from 1995 through 2001 and from corporate returns 
from 1995 through 1997 and for 2001.

[34] Because it is not possible to compute a reliable estimate for 1994 
returns, we are reporting only on the years from 1995 through 2001.

[35] See Hebert and others, Interim Assessment. 

[36] With the exception of 1998 through 2000 corporate data, this 
number is based on sampled data. We calculated the 95 percent 
confidence interval for the total EZ Employment Credits claimed at 
between $224 million and $278 million. The 95 percent confidence 
intervals for all estimates are included in appendix I.

[37] The 2002 data from individual taxpayers will be available in mid-
2004. The 2002 data from corporate taxpayers will be available in 2005.

[38] D.C. Enterprise Zone Facility Bonds are subject to a $15 million 
per borrower limit and are subject to the state volume cap. These bonds 
became available in 1998.

[39] This figure includes bonds issued to refund previously issued 
debt.

[40] Even if these data were available, federal officials raised 
concerns regarding whether IRS could legally disclose taxpayer data to 
EZ or RC representatives. Under section 6103 of the Internal Revenue 
Code, IRS cannot release taxpayer information to unauthorized persons. 
Taxpayer information is generally defined as information that would 
reveal a taxpayer's identity or financial position.

[41] U.S. General Accounting Office, Community Development: Businesses' 
Use of Empowerment Zone Tax Incentives, GAO/RCED-99-253 (Washington, 
D.C.: September 1999). Our report was based on a survey of businesses 
operating in the original nine Round I EZs to determine the extent to 
which they took advantage of tax benefits available at that time.

[42] See Hebert and others, Interim Assessment.

[43] HUD recommends that businesses contact a tax attorney or certified 
public accountant before claiming these benefits.

[44] IRS is currently preparing guidance for professional tax 
preparers. 

[45] As used by HUD and USDA, "benchmarking" refers to specific tasks 
and timetables necessary to implement the strategic plan.

[46] HHS administers the use of Round I EZ/EC Social Services Block 
Grants. As set out in its regulations covering block grants, HHS 
provides maximum fiscal and administrative discretion to the states and 
relies fully on state laws and procedures. 

[47] HHS also signs grant agreements with the recipients of Round I 
block grant funds. 

[48] U.S. General Accounting Office, Community Development: Status of 
Urban Empowerment Zones, GAO/RCED-97-21 (Washington, D.C.: December 20, 
1996).

[49] U.S. General Accounting Office, Rural Development: New Approach to 
Empowering Communities Needs Refinement, GAO/RCED-97-75 (Washington, 
D.C.: March 31, 1997).

[50] HUD IG's sample was not randomly selected, but was based on the 
projects' reported expenditures.

[51] None of the evaluations we reviewed analyzed the RC program.

[52] See Hebert and others, Interim Assessment. 

[53] This research challenge is often referred to as testing for the 
counterfactual.

[54] We reviewed more than 1,100 article and report abstracts to 
identify outcomes-focused evaluations of the federal EZ/EC and RC 
programs. We included evaluations that met the following criteria: (1) 
they focused on the federal EZ/EC or RC program; (2) they were research 
evaluations that systematically collected and analyzed empirical data 
(as opposed to reports of Best Practices/Lessons Learned or policy 
discussions of the program); and either (3) they evaluated the program 
in terms of its effect on poverty, unemployment, and/or economic growth 
consistent with our congressional mandate; or (4) they evaluated the 
program's effectiveness in any of the other program goal areas. 

[55] Quantitative methods are methods of analysis that use data in the 
form of numbers. Qualitative methods analyze data in the form of words.

[56] Regression analysis is a method for determining the association 
between a dependent variable and one or more independent variables.

[57] Hebert and others, Interim Assessment; GAO/RCED-99-253.

[58] Hebert and others, Interim Assessment.

[59] Hebert and others, Interim Assessment; GAO/RCED-99-253; Richard P. 
Nathan and others, Investing in a New Future: Special Report on 
Community Development Financing in Selected Empowerment Zone/
Enterprise Community Sites (Albany, NY: The Nelson A. Rockefeller 
Institute of Government, 1997). 

[60] Robert J. Chaskin and Clark M. Peters, Governance in Empowerment 
Zone Communities: A Preliminary Examination of Governance in Fifteen 
Empowerment Zone Communities (Chicago, IL: University of Chicago, 
Chapin Hall Center for Children, 1997); Marilyn Gittell, Kathe Newman, 
and Francois Pierre-Louis, Empowerment Zones: An Opportunity Missed: A 
Six City Comparative Study (New York, NY: The City University of New 
York, The Howard Samuels State Management and Policy Center, 2001); 
Nathan, and others, Empowerment Zone Initiative: Building a Community 
Plan for Strategic Change (Albany, NY: The Nelson A. Rockefeller 
Institute of Government, 1997). 

[61] Gittell, Newman, Pierre-Louis, Empowerment Zones; Chaskin and 
Peters, Governance in Empowerment Zone Communities; Nathan and others, 
Empowerment Zone Initiative.

[62] Nathan and others, Empowerment Zone Initiative; Fahui Wang and 
Joseph A. Van Loo, "Citizen Participation in the North Delta 
Mississippi Community Development Block Grants, Empowerment Zones and 
Enterprise Communities," Planning Practice and Research 13, no. 4 
(1998), pp. 443-51.

[63] Hebert and others, Interim Assessment; N. T. Jenkins and M. I. J. 
Bennett, "Toward an Empowerment Zone Evaluation," Economic Development 
Quarterly 13, no. 1(1999), pp. 23-28. 

[64] HUD awarded separate Section 108 Loan Guarantees to overlapping or 
adjacent government entities in the city and county of Los Angeles, 
California, and in Kansas City, Missouri and Kansas City, Kansas.

[65] This program is intended to help recipients clean up brownfield 
sites.

[66] This program provides grants to promote improvements in the 
quality of new teachers with the ultimate goal of increasing student 
achievement in the nation's classrooms.

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