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Compliance with Restrictions on Funding Employer Relocations' which was 
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Report to the Chairman, Subcommittee on Interstate Commerce, Trade, and 
Tourism, Committee on Commerce, Science, and Transportation, U.S. 
Senate: 

United States Government Accountability Office: 

GAO: 

September 2007: 

Economic Development: 

Formal Monitoring Approaches Needed to Help Ensure Compliance with 
Restrictions on Funding Employer Relocations: 

Restricting Federal Funds for Employer Relocation: 

GAO-07-1005: 

GAO Highlights: 

Highlights of GAO-07-1005, a report to the Chairman, Subcommittee on 
Interstate Commerce, Trade, and Tourism, Committee on Commerce, 
Science, and Transportation, U.S. Senate. 

Why GAO Did This Study: 

Congress imposed restrictions on some federal programs to prevent 
funding of business relocations. You expressed concerns about state and 
local governments using federal funds to attract jobs to one community 
at a loss of jobs to another and about compliance with relocation 
restrictions. This report (1) identifies large federal economic 
development programs that state and local governments can use as 
incentives, (2) identifies which programs contain statutory 
prohibitions on funding relocations, and (3) assesses whether federal 
agencies had established and implemented procedures to help ensure 
compliance with prohibitions. To address these objectives, GAO searched 
federal databases, reviewed relevant statutes and regulations, and 
conducted limited testing of agency procedures. 

What GAO Found: 

GAO identified 17 large federal economic development programs that 
offer financial assistance and services that state and local 
governments can use as incentives to attract and retain jobs. While 
academic studies indicate that it is difficult to quantify the funds 
used as incentives, particularly given differing definitions of 
incentives, the use of federal funds for such purposes appears to be 
more limited than the use of state and local funds. Although academic 
studies question the overall role and significance of incentives in 
firms’ decisions to (re)locate, researchers with whom GAO spoke noted 
that incentives could influence firms that already had narrowed their 
choices. 

Nine of the 17 large federal economic development programs restrict the 
use of program funds to support employer relocation. Seven are grant 
programs, and two are loan guarantee programs. In many grant programs, 
initial recipients of funds (states and local governments) provide 
funds to others (e.g., businesses) to facilitate economic development; 
in loan guarantee programs, third-party lenders approve businesses for 
eligibility to receive funds. All nine programs prohibit using federal 
funds to support a business relocation that causes unemployment, but 
the thresholds for job loss differ. For example, a single lost job 
would trigger the provision for six programs, but for the other three 
programs, the job loss threshold is higher. 

Federal agencies administering the nine programs with a nonrelocation 
provision used various procedures, including screening applicants and 
monitoring recipients, to help ensure compliance, but the extent to 
which these procedures specifically addressed nonrelocation provisions 
was limited. The two loan guarantee programs emphasized screening 
procedures to help ensure compliance, and both programs had written 
guidance and other mechanisms that specifically addressed nonrelocation 
provisions. Screening may be effective for helping to ensure compliance 
in loan guarantee programs because federal agencies know at the time of 
initial application which businesses are requesting funds and how they 
plan to use them. In contrast, because of the way grant programs are 
structured, at the time of initial application, grant applicants do not 
always know which businesses later will apply for or receive 
assistance. As a result, officials administering grant programs relied 
more extensively on monitoring than screening to help identify 
instances of potential noncompliance. Despite this greater reliance on 
monitoring, only one of the grant programs GAO reviewed had written 
monitoring guidance that specifically addressed business relocation 
restrictions. Without formal policies and procedures, federal agencies 
have limited assurance that grant recipients and subrecipients are 
complying with statutory requirements that restrict the use of program 
funds to support employer relocations. 

What GAO Recommends: 

To improve the management of federal economic development grant 
programs, GAO recommends that the Departments of Labor, Agriculture, 
and Housing and Urban Development develop (or finalize the development 
of) and implement formal and structured approaches to monitor 
compliance. The Departments of Labor and Agriculture concurred with the 
recommendation and reported taking steps to implement it. Each of the 
three agencies provided technical comments that were incorporated into 
the report as appropriate. 

[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-07-1005]. 

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

[End of section] 

Contents: 

Letter: 

Results in Brief: 

Background: 

State and Local Governments Can Use a Variety of Large Federal Programs 
to Attract Businesses: 

Nine Large Federal Economic Development Programs Have Nonrelocation 
Provisions, but Requirements Vary: 

Extent to Which Federal Agencies Had Established and Implemented 
Procedures to Help Ensure Compliance with Nonrelocation Provisions Was 
Limited: 

Conclusions: 

Recommendations for Executive Action: 

Agency Comments and Our Evaluation: 

Appendix I: Scope and Methodology: 

Appendix II: Description of the Nine Large Federal Economic Development 
Programs with Nonrelocation Provisions: 

HUD CDBG Entitlement and State Programs: 

HUD and USDA EZ/EC Programs: 

Labor WIA Adult, Dislocated Workers, and Youth Programs: 

SBA 504 Loan Program: 

USDA B&I Program: 

Appendix III: Comments from the Department of Labor: 

Appendix IV: GAO Contact and Staff Acknowledgments: 

Tables: 

Table 1: Description of 17 Large Federal Economic Development Programs 
That Offer Financial Assistance or Services That Can Be Used as 
Business Incentives: 

Table 2: Job Loss and Other Statutory or Regulatory Requirements for 
Nine Large Federal Economic Development Programs with Nonrelocation 
Provisions: 

Table 3: Timeline Showing Congressional Approval of Nonrelocation 
Provisions for Nine Large Federal Programs: 

Table 4: Federal Agency Mechanisms to Screen for Compliance with 
Nonrelocation Provisions: 

Table 5: Status of Federal Agency Mechanisms for Monitoring Compliance 
with Nonrelocation Provisions, as of July 2007: 

Figures: 

Figure 1: Overview of CDBG Funding Streams for Economic Development 
Projects Involving Businesses: 

Figure 2: Overview of EZ/EC Funding Streams for Economic Development 
Projects Involving Businesses: 

Figure 3: Overview of WIA Adult, Dislocated Workers, and Youth Funding 
Streams: 

Abbreviations: 

BLS: Bureau of Labor Statistics: 
B&I: Business and Industry Guaranteed Loan program: 
CBO: Congressional Budget Office: 
CDC: certified development company: 
CDBG: Community Development Block Grant: 
CFDA: Catalogue of Federal Domestic Assistance: 
CRS: Congressional Research Service: 
EDA: Economic Development Administration: 
EC: Enterprise Community: 
EZ: Empowerment Zone: 
EZ/EC: Empowerment Zone/Enterprise Community: 
GSA: General Services Administration: 
HHS: Department of Heath and Human Services: 
HUD: Department of Housing and Urban Development: 
IRS: Internal Revenue Service: 
NETS: National Establishment Time Series: 
SBA: Small Business Administration: 
USDA: U.S. Department of Agriculture: 
WIA: Workforce Investment Act: 

United States Government Accountability Office: 

Washington, DC 20548: 

September 10, 2007: 

The Honorable Byron L. Dorgan: 
Chairman: 
Subcommittee on Interstate Commerce, Trade, and Tourism: 
Committee on Commerce, Science, and Transportation: 
United States Senate: 

Dear Mr. Chairman: 

State and local governments are estimated to spend billions of dollars 
annually in business incentives--financial assistance, tax concessions, 
and other benefits--in an effort to attract and retain jobs. State and 
local governments can directly or indirectly use funds and program 
services from a variety of federal, state, and local programs to induce 
individual businesses to relocate, expand, or maintain their operations 
in a state or community's jurisdiction. In response to concerns about 
state and local governments using federal funds to attract jobs to one 
U.S. community at a loss of jobs to another community, Congress began 
to impose restrictions in the 1950s on some federal programs to prevent 
funds from being used to relocate businesses. 

In 1997, we provided an overview of eight major federal programs that 
states and localities used at that time for economic development 
purposes.[Footnote 1] However, relatively little is known about how 
many other federal economic development programs state and local 
governments currently use as incentives to attract employers or about 
the extent to which restrictions exist against using funds to support 
an employer's relocation. You noted that in recent years the 
controversy about the costs and benefits of using limited government 
funds to recruit businesses has been growing and expressed concerns 
about efforts to help ensure compliance with restrictions on the use of 
federal funds. The objectives of this report are to (1) identify large 
federal economic development programs that state and local governments 
can use as incentives to businesses for attracting new jobs into their 
jurisdictions, (2) identify which of these programs contain statutory 
prohibitions on using program funds to relocate businesses, and (3) 
assess whether federal agencies had established and implemented 
procedures to help ensure compliance with these provisions. 

To identify large federal economic development programs that state and 
local governments can use in incentive packages for businesses, we 
searched the General Services Administration's (GSA) online Catalog of 
Federal Domestic Assistance (CFDA) for economic development programs 
that CFDA reported as having budget obligations of at least $500 
million.[Footnote 2] We also searched the Congressional Research 
Service's (CRS) 2006 Tax Expenditure Compendium for economic 
development tax expenditure programs with reported estimated tax 
revenue losses of $500 million or more for fiscal year 2006.[Footnote 
3] We then narrowed the list according to criteria that enabled us to 
identify the largest programs most likely to be candidates as a 
business incentive. Further, we reviewed the Web sites for each of the 
50 states' economic development agencies to identify federal programs 
typically marketed as business incentives. To identify the programs 
with nonrelocation provisions, we reviewed relevant statutes and 
regulations and focused on those programs that we identified as the 
largest based on our review of CFDA and the CRS Tax Expenditure 
Compendium. To assess the completeness of our search results, we 
interviewed representatives of selected federal agencies, economic 
development trade associations, and policy groups. To assess the extent 
to which federal agencies had procedures in place to help ensure 
compliance with nonrelocation provisions, we obtained documents from 
federal agencies that described the procedures for helping to ensure 
compliance and then conducted limited testing of these procedures 
(typically a nongeneralizable sample of 10 cases for each program) to 
determine their implementation. We did not conduct an overall 
evaluation of the programs, evaluate how well the programs served their 
intended purposes, or evaluate how nonrelocation provisions affect the 
relative success of the programs in achieving their intended purposes. 
We also did not address the impact these programs had on development 
efforts by state and local governments. We interviewed representatives 
of six federal agencies--Department of Labor (Labor), Department of 
Housing and Urban Development (HUD), Department of Agriculture (USDA), 
Small Business Administration (SBA), the Department of Commerce's 
Economic Development Administration (EDA), and the Department of the 
Treasury's Internal Revenue Service (IRS). In addition, we interviewed 
academics, researchers, representatives of economic development trade 
groups, and consultants that businesses hire to identify and select new 
business locations (site-selection consultants). We conducted our work 
in Washington, D.C., and San Francisco and Fresno, California, from 
October 2006 through August 2007 in accordance with generally accepted 
government auditing standards. Appendix I provides a more detailed 
description of our scope and methodology. 

Results in Brief: 

We identified 17 large federal economic development programs that state 
and local governments can use to attract and retain jobs. The 17 
programs--which include grants, direct loans and loan guarantees, and 
tax incentives for job training, infrastructure development, and 
business financing--are administered by five agencies--HUD, Labor, 
USDA, SBA, and IRS. State and local governments could combine federal 
economic development funds from various programs with their own 
resources to attract businesses. Based on our review of state economic 
development Web sites, the programs that appear to be marketed more 
than others were HUD's Community Development Block Grant (CDBG), SBA's 
7(a) and 504 loan guarantee programs, and IRS's tax-exempt private 
activity bond programs (at least 19 states advertised each of these as 
incentives). The results of our state Web site reviews were largely 
consistent with the comments of the site-selection consultants with 
whom we spoke. While academic studies indicate that differing 
definitions of incentives and the ability to interchange funds at the 
state and local level make it difficult to quantify the amount of 
federal, state, and local funds spent on business incentives, the use 
of federal funds as incentives appears to be more limited than the use 
of state and local funds. However, state and local governments could 
use federal economic development funds to attract additional investment 
or to free up their own funds for other purposes. Academic researchers 
with whom we spoke estimated that state and local governments spend 
from $20 billion to $50 billion annually on business incentives, mostly 
in the form of tax incentives, such as property and sales tax 
abatements. But the discretion that state and local governments have 
over the use of federal economic development funds varies. For some 
programs, such as SBA's 7(a) and 504 programs, third-party lenders and 
nonprofit development corporations make funding decisions. Others, such 
as Labor's Workforce Investment Act (WIA) and industrial development 
bond programs, provide state and local governments with more control 
over how to allocate resources to businesses. Finally, academic studies 
we reviewed questioned the importance of business incentives in firms' 
decisions to relocate, but according to the studies we reviewed and 
consultants with whom we spoke, state and local incentives could 
influence relocation decisions after businesses already had narrowed 
their choices. 

Nine of the 17 programs that we identified prohibit using program funds 
to relocate a business if the move would cause unemployment in the 
original location. They are the two HUD CDBG programs, three Labor WIA 
programs, a HUD Empowerment Zone (EZ) program, a USDA Empowerment Zone/ 
Enterprise Community (EZ/EC) program, a USDA Business and Industry 
(B&I) Guaranteed Loan program, and SBA's 504 program (see app. II for a 
more detailed description of the nine programs). The first seven are 
grant programs in which a federal agency provides funds to recipients, 
such as state or local governments, that, in turn, may provide funds to 
other entities, which we refer to as subrecipients, to facilitate 
economic development.[Footnote 4] The remaining two programs guarantee 
loans that third-party lenders and nonprofit development corporations 
make. All prohibit the funding of relocations that result in 
unemployment, but the amount of job loss that triggers the 
nonrelocation provision differs by program. For example, in six 
programs, a single loss would trigger the provision, but in the other 
three programs, higher thresholds trigger the provision. The three 
programs with higher thresholds also require applicants to exceed other 
thresholds before triggering the provision, such as requiring that 
relocations occur across defined geographic areas. For example, HUD's 
CDBG program, consistent with its statutory requirement, prohibits 
funding for a business that relocates to a different labor market. 
Recently, USDA, for its B&I program, has requested but not obtained 
congressional removal of the nonrelocation provision, saying 
enforcement of the provision was not cost-effective given the few 
complaints received over the course of many years. 

Federal agencies administering the nine programs with nonrelocation 
provisions used various procedures, including screening applicants and 
monitoring recipients, to help ensure compliance, but the extent to 
which these procedures specifically addressed nonrelocation provisions 
was limited. The two loan guarantee programs--USDA's B&I and SBA's 504 
programs--emphasized screening procedures to help ensure compliance. 
For example, both programs had written guidance and other mechanisms 
that specifically addressed nonrelocation provisions. The emphasis on 
screening for loan guarantee programs seemed appropriate given the 
structure of these programs. While agencies administering the seven 
grant programs with nonrelocation provisions also screened applicants, 
agency officials noted inherent limitations in using screening 
mechanisms for grant programs. For example, under grant programs, 
applicants (such as state and local governments) do not always know at 
the time they apply for funds which specific businesses later will seek 
and obtain assistance through the program. Because of the inherent 
limitations of screening procedures for grant programs, agencies 
administering grant programs primarily relied on monitoring to help 
identify instances of potential noncompliance. However, only one of the 
seven grant programs we reviewed--HUD's EZ program--had developed 
written monitoring guidance specific to the nonrelocation provision. 
Officials at all agencies stated that they have received few or no 
complaints of noncompliance with nonrelocation provisions, and some 
officials said that they do not consider noncompliance to pose a 
significant risk to the programs. However, without structured guidance 
and procedures in place to monitor compliance, agencies have limited 
assurance that grant recipients and subrecipients are complying with 
statutory and regulatory requirements and spending funds on allowable 
activities. 

We are making recommendations in this report intended to provide Labor, 
USDA, and HUD with greater assurance that fund recipients and, where 
applicable, subrecipients are complying with nonrelocation provisions 
and spending federal economic development funds on allowable 
activities. We provided a draft of this report to Labor, USDA, HUD, 
SBA, Commerce, and IRS for review and comment. Labor provided written 
comments that are reprinted in appendix III. USDA's Acting Assistant 
Deputy Administrator for Cooperative Programs provided oral comments on 
August 8, 2007. In its written comments, Labor stated that the 
department concurred with our recommendation and described actions to 
implement it. Specifically, Labor said that the department is 
implementing two complementary strategies. First, Labor said that it is 
developing a formal policy guidance letter that will clarify allowable 
and unallowable uses of WIA funds for economic-development-related 
activities. This guidance will specifically address prohibitions 
related to the nonrelocation provision. Second, Labor said that its 
draft Formula Grant Supplement to its Core Monitoring Guide includes 
indicators of compliance along with each governor's responsibility to 
determine which costs are allowable or unallowable under WIA, including 
prohibitions against using WIA funds to encourage business relocation 
and related restrictions. Labor stated that regional office reviewers 
have extensively tested the draft Formula Grant Supplement and that it 
expects the supplement to enter the final clearance process shortly and 
be completed by December 31, 2007. In oral comments on our report, 
USDA's Acting Assistant Deputy Administrator for Cooperative Programs 
stated that USDA concurred with our recommendation and provided us with 
documentation showing that the department is taking initial steps to 
implement the recommendation. Labor, USDA, HUD, SBA, and IRS provided 
technical comments that we have incorporated in the report where 
appropriate. Commerce did not provide comments on the draft report. 

Background: 

In 2000, the Council of State Governments reported that more than 40 
states offered tax and financial incentives to businesses for 
activities such as relocating, expanding, buying equipment, or creating 
and maintaining jobs. The use of incentives to attract and retain 
businesses has been an issue of debate for many years. Proponents 
maintain that economic development incentives are an effective means by 
which states and communities can compete for jobs. Opponents contend 
that the dollars spent to provide incentives would be better used to 
support activities believed to have more impact on a community's 
economic development, such as improvements to infrastructure and 
investments in education to develop a competitive labor pool. 

While states and localities compete with one another to attract 
businesses, some states and localities have attempted to curtail the 
use of economic development funds to relocate jobs. According to two 
policy groups promoting accountability in economic development, three 
cities--Austin, Texas; Gary, Indiana; and Vacaville, California--and 
nine states--Alabama, Connecticut, Florida, Iowa, Maryland, New Mexico, 
New York, Ohio, and Wisconsin--prohibit using city and state resources, 
respectively, to relocate jobs within their boundaries. For example, 
both policy groups state that the Gary, Indiana, city ordinance 
prohibits tax abatements for the relocation of existing jobs from 
outside the corporate limits of the city. One of the groups also said 
that in Puerto Rico, the governor may refuse any business application 
for tax incentives if doing so would adversely affect the business' 
employees in any state in the United States. Regional entities also 
have established formal and informal agreements to curtail the 
competition for businesses and jobs within their boundaries. These 
entities include the Metro Denver Economic Development Corporation; the 
tri-county region comprising Broward, Miami-Dade and Palm Beach 
counties in Florida; and Contra Costa and Alameda counties in 
California. 

In 2006, the total number of unemployed workers was 6.8 million in the 
fourth quarter, compared to 145.6 million employed. According to the 
Bureau of Labor Statistics (BLS), employers reported that a total of 
894,739 workers lost their jobs because of extended layoffs in 2006 
that resulted from a variety of economic factors, such as bankruptcy 
and reorganizations.[Footnote 5] A BLS survey of employers found that 
20,199 of these losses (about 2 percent) occurred because of business 
relocations within the United States, the majority across state lines. 
Another source--the National Establishment Time Series (NETS)--uses 
proprietary Dun & Bradstreet data on U.S. companies to track business 
relocations. According to a representative of the company that 
maintains the NETS data, more than 2.8 million businesses have 
relocated since 1990 and about 100,000 of these (or almost 4 percent) 
occurred across state lines. 

A number of federal programs fund or support economic development 
activities. In prior work, we identified activities that are directly 
related to economic development--planning economic development 
activities; constructing or renovating nonresidential buildings; 
establishing business incubators; constructing industrial parks; 
constructing and repairing roads and streets; and constructing water 
and sewer systems.[Footnote 6] These programs typically are available 
to applicants that include individuals; local, state, territorial, and 
tribal governments; and nonprofit organizations through loans, loan 
guarantees, and project and formula grants. Appendix II provides a 
description of the nine federal economic development programs that we 
identified as having nonrelocation provisions, including information 
about program funding and how the programs operate. 

State and Local Governments Can Use a Variety of Large Federal Programs 
to Attract Businesses: 

We identified 17 large federal programs that state and local 
governments can use to attract businesses. These programs offer 
assistance to businesses in the form of loans and loan guarantees, 
grants, job-training services, and tax benefits as incentives to 
businesses. Of the 17 economic development programs, states appear to 
have marketed 14 as incentives for businesses. However, according to 
academic experts who study economic development incentives and site- 
selection consultants, the amount of federal funds used as incentives 
is likely more limited than the amount of state and local funds used as 
incentives. State and local governments have varying discretion over 
the use of the federal funds, but can leverage federal funds to free 
their own resources for incentives or for other purposes that support 
businesses. Finally, academic studies on incentives and site-selection 
consultants have questioned whether incentives offered by state and 
local governments influence a business' decision to relocate or expand 
operations. 

State and Local Governments Can Use Various Types of Federal Programs 
as Business Incentives: 

We identified 17 large federal economic development programs that state 
and local governments can use as incentives to attract and retain 
businesses, based on a search of the CFDA database, Tax Expenditure 
Compendium, and state economic development Web sites. As shown in table 
1, five agencies administer the 17 programs, which offer a range of 
assistance or services (such as loans, grants, tax benefits, and 
training programs) to businesses. 

Table 1: Description of 17 Large Federal Economic Development Programs 
That Offer Financial Assistance or Services That Can Be Used as 
Business Incentives: 

Agency: HUD; 
Program: CDBG Entitlement; 
Program Description: Grants to large cities and urban counties to 
benefit the community development needs of low-and moderate-income 
people. 

Agency: HUD; 
Program: CDBG State; 
Program Description: Grants to states to benefit the community 
development needs of low-and moderate-income people living in non-
entitlement areas. 

Agency: HUD; 
Program: EZ (urban); 
Program Description: Grants, loans, and tax relief to federally 
designated urban areas to help them overcome economic and social 
problems. 

Agency: HUD; 
Program: Renewal Communities; 
Program Description: Tax incentives and regulatory relief for federally 
designated urban and rural areas to help them overcome economic and 
social problems. 

Agency: IRS/Treasury[A]; 
Program: New Markets Tax Credit; 
Program Description: Tax credits for investments in qualified community 
development entities that make investments in designated low-income 
communities. 

Agency: IRS; 
Program: Private activity bonds; 
Program Description: Tax incentives for construction of public 
airports, docks, and mass- commuting facilities. 

Agency: IRS; 
Program: Private activity bonds; 
Program Description: Tax incentives for the construction of sewage, 
water, and hazardous waste facilities. 

Agency: Labor; 
Program: WIA Adult; 
Program Description: Employment and training services to adults ages 18 
years and over. 

Agency: Labor; 
Program: WIA Dislocated Workers; 
Program Description: Employment and training services to dislocated 
workers. 

Agency: Labor; 
Program: WIA Youth; 
Program Description: Employment and training services to economically 
disadvantaged youth ages 14 to 21 possessing specific barriers to 
employment. 

Agency: SBA; 
Program: Certified Development Company 504 Loans; 
Program Description: Loans that development companies make and SBA 
guarantees, providing small businesses with proceeds to acquire or 
renovate fixed assets, including land, buildings, machinery, and 
equipment. This program does not cover working capital or refinancing. 

Agency: SBA; 
Program: 7(a) Loans; 
Program Description: Loan guarantees providing small businesses with 
proceeds to acquire land, buildings, machinery, equipment, furniture or 
fixtures, and funds to cover building renovation, leasehold expenses, 
working capital, and refinancing. 

Agency: USDA; 
Program: EZ/EC (rural); 
Program Description: Grants, loans, tax, and regulatory relief to 
federally designated rural areas to help them overcome economic and 
social problems. 

Agency: USDA; 
Program: B&I Guaranteed Loans; 
Program Description: Guaranteed loans to businesses for purchasing or 
improving land, facilities, equipment, and certain agricultural 
production projects. 

Agency: USDA; 
Program: Community Facilities Loans and Grants; 
Program Description: Direct loans, loan guarantees and grants to rural 
communities to develop public facilities, including industrial park 
sites. 

Agency: USDA; 
Program: Farm Ownership Loans; 
Program Description: Direct and guaranteed loans for purchase of family-
size farms. 

Agency: USDA; 
Program: Farm Operating Loans; 
Program Description: Direct and guaranteed loans for operation of 
family-size farms. 

Sources: GAO, GSA, and CRS. 

[A] IRS enforces compliance with relevant portions of the federal tax 
code for the New Markets Tax Credit program. The Department of the 
Treasury's Community Development Institutions Fund awards New Markets 
Tax Credit allocations to qualified community development entities. 

[End of table] 

Out of the 17 programs we identified, 

* five were direct loan or loan guarantee programs: the SBA 7(a) and 
504, USDA B&I, Farm Ownership Loans, and Farm Operating Loans; 

* four were tax incentive programs: IRS's New Markets Tax Credit, its 
two private activity bond programs, and HUD's Renewal Communities; 

* three were programs that support job training services: WIA Adult, 
Dislocated Workers, and Youth programs; and: 

* five were programs that offer more than one type of financial 
assistance (grants, direct or guaranteed loans, or tax incentives): the 
two HUD CDBG programs, HUD EZ, USDA EZ/EC, and USDA Community 
Facilities. 

State and local governments also can use federal economic development 
resources to supplement their existing resources to attract additional 
investment and potentially use federal economic development funds to 
free up money for incentives they otherwise would have spent on 
economic development.[Footnote 7] For example, according to USDA 
officials, EZs and ECs often leverage federal program resources to 
obtain other funds, thereby attracting businesses. Similarly, 
businesses located in EZs and ECs can claim various state and federal 
tax credits, including IRS's Work Opportunity Tax Credit, which 
provides tax credits to employers hiring individuals residing in an EZ 
or EC. According to our January 2007 report on the New Markets Tax 
Credit program, these credits can be packaged with other types of 
incentives, such as EZ/EC incentives or state and local tax abatements, 
to make the investments in economically distressed communities more 
attractive to investors such as banks. We previously have reported that 
more than one-fourth of New Markets Tax Credit projects were located in 
federally designated EZs.[Footnote 8] State and local governments also 
can use federal economic development funds to support economic 
development activities, thereby freeing up state and local funds for 
business incentives or other uses.[Footnote 9] 

Based on our review of state economic development Web sites, states 
appear to market all but 3 of the 17 programs (Community Facilities 
Loans and Grants, Farm Ownership Loans, and Farm Operating Loans being 
the exceptions). The programs that appear to be marketed more than 
others are the CDBG programs, SBA's 7(a) and 504 loan guarantees, and 
private activity bonds (at least 19 states appear to advertise each of 
these as incentives). Benefits from EZs, ECs, or Renewal Communities, 
and job-training programs funded with WIA funds were the next most 
marketed incentives, with at least nine states offering them. This 
appears to be somewhat consistent with what site-selection consultants 
told us about the specific federal incentives they see in business 
incentive packages. The consultants told us that they see CDBG loans 
funded with Entitlement and State block grants, private activity bonds, 
EZ/EC benefits and, increasingly, customized job-training funds in 
incentive packages. In contrast to the results of our Web site reviews, 
the consultants did not cite SBA loans as being among federal resources 
included in business incentive packages.[Footnote 10] 

Use of Federal Funds as Business Incentives Appears to Be More Limited 
Than Use of State and Local Funds: 

Although federal programs are marketed as business incentives, the 
amount of federal funds used as incentives appears to be more limited 
than the amount of state and local funds used. While the precise amount 
of federal funds used as incentives is not available, the Congressional 
Budget Office (CBO) estimated that the federal government spent $27.9 
billion to support commerce and business in addition to $2.2 billion on 
credit programs in 1995.[Footnote 11] CBO also indicated that the 
federal government provides the bulk of its support to businesses 
through tax provisions. CBO estimated tax revenue losses of at least 
$32.2 billion for the provision of the tax code that yielded the 
largest amount of direct support for businesses--depreciation of 
capital assets in excess of the alternative deprecation system--but did 
not provide total estimates of foregone revenue associated with all tax 
provisions.[Footnote 12] It is not clear from the CBO report whether 
and to what extent state and local governments also used these programs 
and tax provisions as incentives. We reviewed academic studies on 
economic development business incentives offered from 1995 to 2005 and 
interviewed the authors of these studies. The academic literature on 
economic business incentives generally focuses on state and local 
government incentives rather than federal incentives. Academic studies 
estimate that state and local governments spent from $20 to $50 billion 
annually on business incentives.[Footnote 13] While the amount of 
federal funds used as business incentives has not been measured to any 
great extent, some researchers with whom we spoke said that the amount 
of federal funds used as business incentives is likely limited compared 
to the amount of state and local funds used as incentives.[Footnote 14] 

One limitation in developing estimates of federal, state, and local 
funds spent on incentives is defining what constitutes a business 
incentive. For example, a state or local government might offer 
indirect benefits, such as infrastructure improvements, to attract or 
retain businesses, but these might not be counted in estimates as 
business incentives.[Footnote 15] Moreover, although the amount of 
federal economic development funds available as incentives appears to 
be limited, money can be fungible, or freely interchangeable, at the 
state and local level. Thus, even though the amount of federal funds 
used as incentives might be limited, state and local governments could 
leverage those funds to free up their own resources for incentives or 
for other purposes that support businesses. 

Furthermore, state and local governments have less discretion over the 
use of federal resources than they do over their own, but the degree of 
discretion varies with the program. For at least four of the programs 
(SBA's 7(a) and 504 loan programs, USDA's B&I loan program, and IRS's 
New Markets Tax Credit), state and local governments have no direct 
role in funding decisions. For these programs, third-party lenders, 
development corporations, or the federal government decide which 
businesses receive funds. In contrast, other programs provide states 
with more discretion over how they can use funds. For example, under 
WIA, states and local areas can use the discretionary and statutory 
funding from Labor to develop job training and employer service 
programs, including customized job training, which we previously have 
reported can be an important factor in a company's decision to locate 
in a particular area.[Footnote 16] 

Finally, the academic literature we reviewed questioned the importance 
of incentives in location or relocation decisions. These studies, as 
well as published articles in site selection industry magazines, 
indicate that other considerations might outweigh economic development 
incentives when companies decide where to locate. The studies explained 
that the critical factors in deciding were more likely to be the size 
and education of the labor force; local infrastructure such as 
telecommunication lines; transportation options, such as access to 
ports, roads, and rail; and access to consumer markets. However, the 
studies and consultants acknowledged that the incentives state and 
local governments offered could influence a business' decision when the 
business already had narrowed its choice to three or four locations. 

Nine Large Federal Economic Development Programs Have Nonrelocation 
Provisions, but Requirements Vary: 

We determined that 9 of the 17 large federal economic development 
programs that state and local governments can use as business 
incentives contain statutory prohibitions against using funds to 
relocate businesses if the relocation would cause 
unemployment.[Footnote 17] Seven of the federal economic development 
programs with nonrelocation provisions were grant programs, and the 
remaining two were loan guarantee programs. The number of job losses 
and other requirements needed to trigger the nonrelocation provision 
varied by program. Nonrelocation provisions for the nine programs were 
enacted over a 40-year period. Recently, one program has sought but not 
obtained congressional removal of its nonrelocation provision. 

Nine Large Federal Economic Development Programs Contain Statutory 
Nonrelocation Provisions: 

Based on our review of laws and regulations for the 17 large federal 
economic development programs that state and local governments can use 
as business incentives, we determined that nine contain statutory 
prohibitions against using program funds to relocate 
businesses.[Footnote 18] (See app. II for a more detailed description 
of each of these nine programs.) They are the two HUD CDBG programs 
(Entitlement and State programs); the WIA Adult, Dislocated Workers, 
and Youth programs; USDA and HUD's respective EZ/EC programs (for 
designated rural and urban communities, respectively); USDA's B&I 
program; and SBA's 504 program. SBA voluntarily applies a nonrelocation 
provision to its 7(a) program.[Footnote 19] 

All nine programs that we identified with statutory restrictions on 
employer relocations use job loss in a relocating company's original 
location as the primary criterion for applying a nonrelocation 
provision, but the job loss threshold varies by program. As shown in 
table 2, the statutory language for three programs--HUD and USDA's EZ/ 
EC program and USDA's B&I program--do not specify a job loss threshold, 
but these agencies interpret the job loss threshold as one job lost. 
The three WIA programs specify a job loss threshold of one job lost. 
The remaining three--HUD's CDBG Entitlement and State programs and 
SBA's 504 program--have higher job loss thresholds. In addition to job 
loss, these three programs specify other conditions for applying a 
nonrelocation provision, such as requiring that the relocations occur 
across geographically defined areas. 

Table 2: Job Loss and Other Statutory or Regulatory Requirements for 
Nine Large Federal Economic Development Programs with Nonrelocation 
Provisions: 

Agency: HUD; 
Program: CDBG Entitlement and State; 
Job loss threshold: More than 25 jobs; 
Other requirements: 
* Relationship between job loss and size of labor market in originating 
employer's area; 
* Relocation occurs across different labor market areas (as defined by 
BLS); 
Exemptions from application of nonrelocation provision: 
* New operations of a business that are unrelated to existing 
operations, even if business decides to reduce or eliminate existing 
operations; 
* Nonprofit entities; 
* Indirect assistance that benefits multiple businesses; 
* Loss of 25 or fewer jobs; 
* Microenterprises; 
* Purchase of business equipment, etc. if purchase does not result in 
relocation of sellers' operations. 

Agency: HUD; 
Program: EZ (urban); 
Job loss threshold: 1 job[A]; 
Other requirements: None; 
Exemptions from application of nonrelocation provision: None. 

Agency: Labor; 
Program: WIA Adult, Dislocated Workers, and Youth programs; 
Job loss threshold: 1 job; 
Other requirements: None; 
Exemptions from application of nonrelocation provision: None. 

Agency: SBA; 
Program: Certified Development Company 504 Loans; 
Job loss threshold: 
* One third workforce reduction within a company, or; 
* substantial increase in unemployment in any area of the country; 
Other requirements: None; 
Exemptions from application of nonrelocation provision: 
* Relocation is key to the economic well-being of the applicant; 
* Benefits to applicant and receiving community outweigh negative 
impact to original community. 

Agency: USDA; 
Program: EZ/EC (rural); 
Job loss threshold: 1 job[A]; 
Other requirements: None; 
Exemptions from application of nonrelocation provision: None. 

Agency: USDA; 
Program: B&I Guaranteed Loans; 
Job loss threshold: 1 job[A]; 
Other requirements: None; 
Exemptions from application of nonrelocation provision: 
* Business applying for $1 million or less of assistance, or; 
* Business applying would increase direct employment by less than 50 
employees[B]. 

Source: GAO analysis. 

Note: For CDBG programs, see 42 USC 5305(h); for EZ/EC programs, see 26 
USC 1391; for WIA programs, see 29 USC 2931(d); for SBA program, see 15 
USC 661; and for B&I program, see 7 USC 1932. 

[A] Neither the statutes nor the regulations for these programs specify 
a job loss threshold. However, agency officials stated that the job 
loss threshold is one lost job for these programs. 

[B] Based on language contained in statute, 7 U.S.C. 1932(d)(2). The 
regulations for the B&I program differ from the statute in that 
businesses are exempt from the nonrelocation provision if they are 
applying for less than $1 million in assistance "and" ( as opposed to 
"or") the business would increase direct employment by less than 50 
jobs. 7 C.F.R. 1980.412(c); 7 C.F.R. 4279.114(b). Loans that are not 
exempt from the nonrelocation provision require U.S. Department of 
Labor involvement in reviewing certain information about these loans. 
USDA officials said that they are currently implementing the B&I 
program based on the program's regulations. Thus, USDA sends to Labor 
only those loans that are for at least $1 million and would increase 
direct employment by more than 50 jobs. According to USDA officials, 
USDA is seeking to have the statutory language changed to make it more 
consistent with regulatory language. The officials stated that when the 
B&I statute was originally enacted in 1972, loans of $1 million and 
above were rare. Currently, according to USDA, if the agency were to 
send to Labor for review loans based solely on the amount ($1 million 
and above), Labor would have to review most B&I loans. 

[End of table] 

HUD regulations for the CDBG Entitlement and State programs make 
business relocations ineligible for funding if they involve certain job 
losses. Any relocation involving the loss of 500 or more jobs is 
prohibited. In contrast, relocations involving the loss of 25 or fewer 
jobs are exempt from the nonrelocation provision. For relocations 
involving between 25 and 500 jobs, the nonrelocation provision applies 
if the number of jobs lost equals or exceeds one-tenth of one percent 
of the number of employed persons in the labor market experiencing the 
loss.[Footnote 20] The CDBG program's statute does not specify a job 
loss threshold; it only requires that the agency prohibit funding for 
business relocations that are likely to result in a significant loss of 
employment. According to a HUD official, HUD chose to exempt any 
relocation involving 25 or fewer jobs because losses of this magnitude 
likely would not significantly affect a labor market of any size. By 
exempting these smaller businesses from the nonrelocation provision, 
this official said that the CDBG program retains some flexibility for 
entitlement and nonentitlement communities to provide funds to 
businesses to promote job growth. This official further noted that HUD 
also determined that relocations involving 500 or more jobs would be 
significant for labor markets of any size. 

SBA's 504 program, which guarantees the portion of a business loan that 
nonprofit certified development companies make to businesses, features 
potentially higher job loss thresholds.[Footnote 21] For example, SBA 
regulations would require that applications for loans be denied if the 
relocation would result in the business's reducing its workforce by at 
least one-third, or serious unemployment would result in the original 
business location or any area of the country. SBA regulations allow for 
the waiver of these job loss limits if the relocations would be key to 
the economic well-being of the business or if the benefits to the 
applicant and the receiving community would outweigh the negative 
impact to the community from which the applicant would move. 

As noted previously, three of the programs specify conditions in 
addition to job loss for applying the nonrelocation provision, such as 
relocations occurring across defined geographic areas and funding 
thresholds. For example, HUD's CDBG regulations for both the 
Entitlement and State programs prohibit funding for a business that 
relocates to a different labor market area.[Footnote 22] USDA's B&I 
program, through which USDA guarantees up to 80 percent of a loan that 
an approved third-party lender makes to businesses, statutorily 
prohibits program funds from supporting business relocations in cases 
in which USDA assistance exceeds $1 million. Our review of 
congressional reports indicates that this minimum funding threshold is 
intended to expedite the processing of small business applications, 
based on the reasoning that the relocation of small businesses would 
pose no threat to the labor force or other businesses in the original 
location. 

Congressional approval of the nonrelocation provisions for the nine 
large programs was spread over a 40-year period (1958 to 1998). Table 3 
shows the date on which the nine programs became subject to 
nonrelocation provisions. 

Table 3: Timeline Showing Congressional Approval of Nonrelocation 
Provisions for Nine Large Federal Programs: 

Year[A]: 1958[B]; 
Agency: SBA; 
Program: Certified Development Company 504 Loan program. 

Year[A]: 1972; 
Agency: USDA; 
Program: B&I Guaranteed Loan program. 

Year[A]: 1993; 
Agency: USDA / HUD; 
Program: EZ/EC (2 programs). 

Year[A]: 1998[C]; 
Agency: Labor; 
Program: WIA Adult, Dislocated Workers, and Youth (3 programs). 

Year[A]: 1998; 
Agency: HUD; 
Program: CDBG Entitlement and State (2 programs). 

Source: GAO analysis. 

[A] Years listed are those in which the legislation was enacted, not 
necessarily the years in which the provisions took effect. 

[B] The 504 loan program was enacted in 1986 as part of the Small 
Business Investment Act of 1958, as amended. The nonrelocation 
provision was established under the original 1958 act. It applied to 
the predecessors of the current 504 loan program and to the 504 program 
itself. 

[C] Labor's WIA was enacted in 1998, but the act's nonrelocation 
provisions are based on the Job Training Partnership Act, which was 
enacted in 1982. 

[End of table] 

One of the federal agencies has sought but not obtained removal of a 
nonrelocation provision from its program. USDA officials said that 
since 2001 the agency has sought congressional support for the removal 
of the nonrelocation provision for the B&I program, citing 
administrative burden and other problems involved with ensuring 
compliance. A USDA official explained that while Labor has the 
statutory responsibility to analyze labor market information related to 
B&I applications--to help ensure that funding will not result in the 
transfer of any employment or business activity--Labor does not receive 
separate funding to support analysis of this information. According to 
USDA, the agency has sent between 6 and 18 B&I applications to Labor 
for review in the past few years. Labor confirmed that it does not 
receive separate funding to support its analysis, but said the agency 
reviews all of the applications Labor provides.[Footnote 23] 

Extent to Which Federal Agencies Had Established and Implemented 
Procedures to Help Ensure Compliance with Nonrelocation Provisions Was 
Limited: 

Federal agencies administering the nine programs with nonrelocation 
provisions used various procedures to help ensure that program 
recipients complied with overall program goals and requirements, but 
the extent to which these procedures specifically addressed 
nonrelocation provisions was limited. The Guide to Opportunities for 
Improving Grant Accountability states that organizations awarding 
grants need effective internal control systems to provide adequate 
assurance that funds are properly used and achieve intended 
results.[Footnote 24] The two loan guarantee programs--USDA's B&I and 
SBA's 504 programs--relied on screening mechanisms (written review 
guidance and eligibility checklists or third-party verification of 
data) to help ensure compliance with nonrelocation provisions. In 
contrast, officials who administer grant programs we reviewed noted 
inherent limitations in using screening mechanisms for grant programs, 
given that program recipients (states and local governments) do not 
always know at the time of application which businesses later will 
apply for and obtain assistance through the program. Because of the 
inherent limitations of screening, the agencies administering grant 
programs primarily relied on monitoring recipients and subrecipients to 
help identify instances of potential noncompliance. However, only one 
of the grant programs we reviewed had developed monitoring guidance 
specifically tailored to the nonrelocation provision. Without 
structured guidance and procedures in place, agencies have limited 
assurance that recipients and subrecipients are complying with 
statutory and regulatory requirements and spending funds on allowable 
activities. 

Agencies Had Eligibility Screening Procedures, but Focus on 
Nonrelocation Provision Was Limited: 

As stated in the Guide to Opportunities for Improving Grant 
Accountability, organizations that award and receive grants need 
effective internal control systems to help ensure that grants are 
awarded to eligible entities for intended purposes and in accordance 
with applicable laws and regulations. As shown in table 4, each of the 
four federal agencies we reviewed had screening procedures covering 
applicants' eligibility to receive funds. The agencies used at least 
one of the following mechanisms: written application or plan review 
guidance, eligibility checklists, self-certification forms, third- 
party verification of data, or business statements of compliance. 
However, only four of the nine programs--including both loan guarantee 
programs--used screening mechanisms that specifically addressed a 
relevant nonrelocation provision. 

Table 4: Federal Agency Mechanisms to Screen for Compliance with 
Nonrelocation Provisions: 

Agency: HUD; 
Program: EZ (urban); 
Written application or plan review guidance: Specific to nonrelocation 
provision: [Empty]; 
Written application or plan review guidance: Not specific to 
nonrelocation provision: [Check]; 
Eligibility checklist that specifically addressed nonrelocation: 
[Empty]; 
Self-certification form: Specific to nonrelocation provision: [Empty]; 
Self-certification form: Not specific to nonrelocation provision: 
[Check]; 
Third-party verification of applicant data specific to nonrelocation: 
[Empty]; 
Business statements of compliance: [Empty]. 

Agency: HUD; 
Program: CDBG (Enlightenment); 
Written application or plan review guidance: Specific to nonrelocation 
provision: [Empty]; 
Written application or plan review guidance: Not specific to 
nonrelocation provision: [Check]; 
Eligibility checklist that specifically addressed nonrelocation: 
[Empty]; 
Self-certification form: Specific to nonrelocation provision: [Empty]; 
Self-certification form: Not specific to nonrelocation provision: 
[Check]; 
Third-party verification of applicant data specific to nonrelocation: 
[Empty]; 
Business statements of compliance: [Check]. 

Agency: HUD; 
Program: CDBG (State); 
Written application or plan review guidance: Specific to nonrelocation 
provision: [Empty]; 
Written application or plan review guidance: Not specific to 
nonrelocation provision: [Check]; 
Eligibility checklist that specifically addressed nonrelocation: 
[Empty]; 
Self-certification form: Specific to nonrelocation provision: [Empty]; 
Self-certification form: Not specific to nonrelocation provision: 
[Check]; 
Third-party verification of applicant data specific to nonrelocation: 
[Empty]; 
Business statements of compliance: [Check]. 

Agency: Labor; 
Program: WIA Adult; 
Written application or plan review guidance: Specific to nonrelocation 
provision: [Empty]; 
Written application or plan review guidance: Not specific to 
nonrelocation provision: [Check]; 
Eligibility checklist that specifically addressed nonrelocation: 
[Empty]; 
Self-certification form: Specific to nonrelocation provision: [Empty]; 
Self-certification form: Not specific to nonrelocation provision: 
[Check]; 
Third-party verification of applicant data specific to nonrelocation: 
[Empty]; 
Business statements of compliance: [Check]. 

Agency: Labor; 
Program: WIA Dislocated Workers; 
Written application or plan review guidance: Specific to nonrelocation 
provision: [Empty]; 
Written application or plan review guidance: Not specific to 
nonrelocation provision: [Check]; 
Eligibility checklist that specifically addressed nonrelocation: 
[Empty]; 
Self-certification form: Specific to nonrelocation provision: [Empty]; 
Self-certification form: Not specific to nonrelocation provision: 
[Check]; 
Third-party verification of applicant data specific to nonrelocation: 
[Empty]; 
Business statements of compliance: [Check]. 

Agency: Labor; 
Program: WIA Youth; 
Written application or plan review guidance: Specific to nonrelocation 
provision: [Empty]; 
Written application or plan review guidance: Not specific to 
nonrelocation provision: [Check]; 
Eligibility checklist that specifically addressed nonrelocation: 
[Empty]; 
Self-certification form: Specific to nonrelocation provision: [Empty]; 
Self-certification form: Not specific to nonrelocation provision: 
[Check]; 
Third-party verification of applicant data specific to nonrelocation: 
[Empty]; 
Business statements of compliance: [Check]. 

Agency: USDA; 
Program: EZ/EC (rural); 
Written application or plan review guidance: Specific to nonrelocation 
provision: [Check]; 
Written application or plan review guidance: Not specific to 
nonrelocation provision: [Empty]; 
Eligibility checklist that specifically addressed nonrelocation: 
[Empty]; 
Self-certification form: Specific to nonrelocation provision: [Check]; 
Self-certification form: Not specific to nonrelocation provision: 
[Empty]; 
Third-party verification of applicant data specific to nonrelocation: 
[Empty]; 
Business statements of compliance: [Empty]. 

Agency: USDA; 
Program: B&I Loans; 
Written application or plan review guidance: Specific to nonrelocation 
provision: [Check]; 
Written application or plan review guidance: Not specific to 
nonrelocation provision: [Empty]; 
Eligibility checklist that specifically addressed nonrelocation: 
[Empty]; 
Self-certification form: Specific to nonrelocation provision: [Check]; 
Self-certification form: Not specific to nonrelocation provision: 
[Empty]; 
Third-party verification of applicant data specific to nonrelocation: 
[Check]; 
Business statements of compliance: [Empty]. 

Agency: SBA; 
Program: 504; 
Written application or plan review guidance: Specific to nonrelocation 
provision: [Check]; 
Written application or plan review guidance: Not specific to 
nonrelocation provision: [Empty]; 
Eligibility checklist that specifically addressed nonrelocation: 
[Check]; 
Self-certification form: Specific to nonrelocation provision: [Empty]; 
Self-certification form: Not specific to nonrelocation provision: 
[Empty]; 
Third-party verification of applicant data specific to nonrelocation: 
[Empty]; 
Business statements of compliance: [Empty]. 

Source: GAO analysis. 

[End of table] 

Review of Applications or Plans: 

All four agencies had procedures for reviewing applications or plans to 
help ensure that applicants were eligible to receive funds under the 
program. 

* The two loan guarantee programs--USDA for its B&I program and SBA for 
its 504 program--had formal written guidance that specifically 
addressed the screening of applicants for compliance with the 
nonrelocation provision. USDA's formal written guidance listed the 
nonrelocation provision as one of the ineligible purposes of a B&I loan 
guarantee.[Footnote 25] SBA also incorporated specific references to 
its nonrelocation provision into its standard operating procedures, 
which are addressed to SBA personnel and lending partners who review 
and approve 504 loans. SBA also required its 504 lending partners to 
complete an eligibility checklist for each loan guarantee applicant. 
One of the items on the eligibility checklist seeks to determine 
whether 504 loan proceeds will be used to "relocate any operations of a 
small business, which will cause a net reduction of one-third or more 
in the workforce of the relocating small business or a substantial 
increase in unemployment in any area of the country." In reviewing the 
supporting documentation for 10 approved loans, we found that certified 
development companies were using the eligibility checklist SBA had 
developed to screen 504 loan applicants for these loans.[Footnote 26] 

* Each of the seven grant programs had formal written guidance covering 
the review of required plans but with the exception of USDA's EZ/EC 
program, the guidance did not specifically address the nonrelocation 
provisions for each program. Under the CDBG programs, recipients 
(entitlement communities and states) must submit an action plan to HUD 
each year that broadly identifies the activities that they will 
undertake to meet the objectives of previously submitted consolidated 
plans.[Footnote 27] Labor requires states to submit strategic plans for 
WIA describing how a state intends to use WIA funds. Both agencies use 
written checklists as guidance to determine whether the submitted plans 
are complete and both agencies' guidance includes an item to determine 
whether applicants have assured their compliance with applicable laws 
and regulations. HUD officials noted that its written guidance on 
review of action plans does not require analysis of the nonrelocation 
provision, in part because CDBG recipients generally do not know which 
businesses will apply for CDBG funding at the time the plans are 
developed and submitted to HUD. HUD officials explained that most CDBG 
recipients engaged in economic development activities have an "open 
window" approach, in that assistance is available to businesses on an 
"as needed" basis during the program year. 

* For the EZ/EC programs, USDA had formal written guidance for 
reviewing required application plans that referred to the program's 
nonrelocation provision, while HUD's written guidance did not 
specifically address the provision. Under the EZ/EC program, 
communities seeking EZ or EC designation submit (1) a strategic plan 
outlining the community's vision for revitalizing its distressed area; 
(2) a tax incentive utilization plan specifying how the community plans 
to use the tax benefits available under the program; and (3) an 
implementation plan providing detailed information on the activities 
and projects the community is undertaking to implement its strategic 
plan. HUD officials said that while the agency does not currently have 
review guidance specific to the nonrelocation provision, the agency has 
been revising a review manual to incorporate language specific to the 
provision and has been taking other steps, such as communicating 
directly with EZs regarding compliance and providing training to staff, 
to raise awareness of the provision and the need to comply with it. 
USDA officials said that EZ/EC review staff were told to reject any 
application for EZ/EC designation in which an applicant's strategic 
plan included evidence that the community intended to lure businesses 
from other communities. The officials said that review staff eliminated 
several applications for potential program designation because intent 
to relocate jobs was evident in the submitted plans. However, we were 
not able to verify this statement because USDA officials said that the 
strategic plans eliminated from contention were discarded and are no 
longer available for review. 

Some officials, particularly those who administer grant programs, noted 
the limitations of reviewing applications and plans to identify 
instances of potential noncompliance with a nonrelocation provision. As 
noted above, HUD CDBG officials said that action plans for its 
Entitlement program were unlikely to identify specific businesses 
receiving funds because the communities do not always know which 
businesses would apply for assistance when they submitted the action 
plans. Similarly, the officials noted that action plans for the State 
CDBG program do not contain a list of proposed activities, but rather a 
description of the methods used to distribute funds to local 
governments. HUD officials noted that under the CDBG State program, 
individual states implement a method of distributing funds that may or 
may not include economic development activities and that in most cases 
the states evaluate applications from local governments to determine 
which activities to fund. 

Requirements for Self-Certification of Compliance: 

As part of the application review process, USDA's EZ/EC and B&I 
programs require applicants to sign self-certification forms that 
included a specific reference to the nonrelocation provision for each 
program. For example, USDA's application for the EZ/EC program 
contained a form in which an applicant self-certifies that "no action 
will be taken to relocate any business establishment to the nominated 
area." According to USDA EZ/EC officials, this required certification 
sends a clear message to the EZ/EC community that relocation is not 
permitted under the program. Similarly, USDA's B&I program requires 
loan applicants applying for loans of more than $1 million that will 
increase employment by more than 50 employees to self-certify that "it 
is not the intention of the applicant or any related company to 
relocate any present operation as a result of the proposed 
project."[Footnote 28] 

Other agencies, such as HUD for both its CDBG and EZ programs and Labor 
for its WIA programs, require more general statements of compliance. 
For example, HUD's application for Round II of the EZ program contained 
a form in which an applicant self-certified that "the nominating 
entities shall comply with state, local, and federal requirements, and 
have agreed in writing to carry out the Strategic Plan if designated." 
Similarly, HUD's CDBG program requires applicants to self-certify their 
compliance with "applicable laws," which HUD officials said includes 
the Housing and Community Development Act of 1974, as amended, which 
contains the nonrelocation provision. According to the officials, HUD 
saw no need or statutory basis to add a special certification for the 
nonrelocation provision, particularly since not all states or 
entitlement communities use CDBG funding for economic development 
purposes. Labor's statement of compliance, included in WIA state 
strategic plans, requires the governor of each state to assure that WIA 
funds "will be spent in accordance with the Workforce Investment Act 
and the Wagner-Peyser Act and their regulations, written Department of 
Labor guidance implementing these laws, and all other applicable 
federal and state laws and regulations." Labor officials noted that 
this general statement of compliance covers compliance with the 
nonrelocation provision. During our review of 30 USDA EZ/EC, HUD EZ, 
and Labor WIA approved grant applications (10 applications for each 
program), we found that recipients had completed the required self- 
certifications for each of the applications we reviewed. 

Pre-Approval Third-Party Verification: 

As part of the pre-approval process for the B&I program, USDA turns 
over information that certain loan applicants provide to Labor for 
independent, third-party verification. For guaranteed loans in excess 
of $1 million that will increase employment by more than 50 jobs, USDA 
will send an applicant's certification of nonrelocation and the market 
and capacity information form to Labor for clearance. In-turn, Labor 
sends the form to state-level workforce agencies, where the business' 
competitors are located, for analysis and direct solicitation of the 
competitor's comments. According to USDA officials, Labor must complete 
this third-party verification before USDA can approve a B&I loan 
guarantee request. Our review of loan documentation for 10 approved B&I 
loan applications indicated that both USDA and Labor carried out these 
procedures for the applications we reviewed. As discussed earlier in 
this report, USDA officials have been asking Congress to remove the 
nonrelocation provision from the B&I program, citing an administrative 
burden and costs incurred in helping to ensure compliance. 

Requirements for Written Statements of Compliance from Businesses: 

Regulations for HUD's Entitlement and State CDBG programs and Labor's 
three WIA programs require grant recipients (such as a state or local 
government) to obtain a signed written statement of compliance with the 
nonrelocation provision from businesses before providing direct 
assistance to them. For example, under the CDBG programs, there is a 
two-step process. First, businesses receiving CDBG assistance must 
submit a written statement to the recipient (entitlement community or 
state), subrecipient, community-based development organization, or 
nonprofit providing the assistance whether the activity will result in 
the relocation of jobs from one labor market area to another. Second, 
if the assistance will not result in the relocation of jobs covered by 
the statutory prohibition, the business must provide a certification 
that it has no plans to relocate jobs (in a manner that would violate 
the nonrelocation provision). However, these statements are not 
included in a recipient's application for funding (action plan), and 
thus HUD does not review them during the action plan review process. 
HUD officials noted that it would not be possible for an entitlement 
community to provide these statements to HUD with an action plan 
because, as previously noted, most entitlement communities do not know 
at that time which businesses will apply for CDBG assistance. Similar 
to HUD, Labor's regulations for WIA require that local workforce 
investment boards conduct a pre-award review of businesses seeking job 
training funds, which includes obtaining a written certification from 
the business indicating whether WIA assistance is being sought in 
connection with past or impending job losses at other facilities. 

Our review of 10 approved WIA grants indicated that businesses had 
completed the required statements of compliance for each of those 
grants. With respect to HUD's CDBG program, we did find one case in 
which a HUD CDBG entitlement community recipient we contacted told us 
that its subrecipient (a nonprofit development corporation) was not 
obtaining the required written statements of compliance. An official 
from the entitlement community said that neither the entitlement 
community nor the subrecipient had developed formal procedures to help 
ensure compliance with the regulatory requirement. In addition, neither 
HUD nor Labor require that recipients provide copies of completed 
written statements to HUD or Labor, although a HUD official noted that 
the written statements would be available to on-site reviewers during 
monitoring visits. HUD officials also said that HUD is revising a 
monitoring handbook to include a question addressing the business' 
written statements of compliance. We discuss agency monitoring 
procedures and guidance in greater detail in the next section. 

While Monitoring Is a Key Control for Helping to Ensure Compliance with 
Nonrelocation Provisions, Only One Grant Program Had Written Guidance 
Specific to the Provision: 

The Guide to Opportunities for Improving Grant Accountability states 
that once grants are awarded, agencies need to ensure that grant funds 
are used for intended purposes and in accordance with applicable laws 
and regulations. The guide also states that it is critical to identify, 
prioritize, and manage potential at-risk subrecipients to ensure that 
grant goals are reached and resources are properly used. Due to 
inherent limitations in using the screening process to help ensure 
compliance with nonrelocation provisions, other procedures, such as 
monitoring activities, become key controls. Having established, written 
procedures in place helps to ensure that agencies achieve their 
monitoring objectives and that staff are consistently implementing 
monitoring procedures. 

Officials at some of the agencies we reviewed told us that they rely on 
complaints as a mechanism to monitor compliance with the employer 
nonrelocation provision. A HUD official said that an employer 
relocation that resulted in significant job loss and involved the use 
of federal funds likely would result in the affected community or state 
raising a complaint to the federal agency or to their congressional 
representatives. HUD, Labor, SBA, and USDA officials all reported 
receiving few if any of these complaints, in some cases over the course 
of many years. For this reason, some officials did not consider the 
risk of noncompliance to pose a significant risk to the programs. 
However, this complaint-based approach is reactive and does not 
necessarily provide reasonable assurance of compliance. Standards for 
Internal Control in the Federal Government states that an agency's 
monitoring activities should be performed continually and be ingrained 
in agency operations.[Footnote 29] As shown in table 5, the four 
agencies administering programs with nonrelocation provisions used 
various other mechanisms, including on-site review, to monitor fund 
recipients. All of the agencies had formal written guidance covering 
the monitoring of program participants. However, only one program--HUD 
for its EZ program--had a monitoring procedure that specifically 
addressed the nonrelocation provision. 

Table 5: Status of Federal Agency Mechanisms for Monitoring Compliance 
with Nonrelocation Provisions, as of July 2007: 

Agency: HUD; 
Program: EZ (urban); 
On-site monitoring of recipients: [Check]; 
Written monitoring guidance: [Check]; 
Written monitoring guidance specific to nonrelocation provision: 
[Check]; 
Specific monitoring guidance has been used in a monitoring review: 
[Check]. 

Agency: HUD; 
Program: CDBG (Entitlement); 
On-site monitoring of recipients: [Check]; 
Written monitoring guidance: [Check]; 
Written monitoring  specific to nonrelocation provision: Draft; 
Specific monitoring guidance has been used in a monitoring review: 
Agency: [Empty]. 

Agency: HUD; 
Program: CDBG (State); 
On-site monitoring of recipients: [Check]; 
Written monitoring guidance: [Check]; 
Written monitoring guidance specific to nonrelocation provision: Draft; 
Specific monitoring guidance has been used in a monitoring review: 
[Empty]. 

Agency: Labor; 
Program: WIA Adult; 
On-site monitoring of recipients: [Check]; 
Written monitoring guidance: [Check]; 
Written monitoring guiduance specific to nonrelocation provision: 
Draft; 
Specific monitoring guidance has been used in a monitoring review: 
[Empty]. 

Agency: Labor; 
Program: WIA Dislocated Workers; 
On-site monitoring of recipients: [Check]; 
Written monitoring guidance: Check]; 
Written monitoring guiduance specific to nonrelocation provision: 
Draft; 
Specific monitoring guidance has been used in a monitoring review: 
[Empty]. 

Agency: Labor; 
Program: Agency: WIA Youth; 
On-site monitoring of recipients: [Check]; 
Written monitoring guidance: [Check]; 
Written monitoring guidance specific to nonrelocation provision: Draft; 
Specific monitoring guidance has been used in a monitoring review: 
[Empty]. 

Agency: USDA; 
Program: EZ/EC (rural); 
On-site monitoring of recipients: [Check]; 
Written monitoring guidance: [Empty]; 
Written monitoring guiduance specific to nonrelocation provision: 
[Empty]; 
Specific monitoring guidance has been used in a monitoring review: 
[Empty]. 

Agency: USDA; 
Program: B&I Loan Guarantee; 
On-site monitoring of recipients: N/A[A]; 
Written monitoring guidance: [Check]; 
Written monitoring guiduance specific to nonrelocation provision: 
[Empty]; 
Specific monitoring guidance has been used in a monitoring review: 
[Empty]. 

Agency: SBA; 
Program: 504 Loan Guarantee; 
On-site monitoring of recipients: N/A[A]; 
Written monitoring guidance: [Check]; 
Written monitoring guiduance specific to nonrelocation provision: 
[Empty]; 
Specific monitoring guidance has been used in a monitoring review: 
[Empty]. 

Source: GAO analysis. 

[A] Given program structure and legal requirements, USDA and SBA 
procedures are implemented up-front, on a pre-approval rather than a 
post-approval basis. 

[End of table] 

To effectively leverage limited staff resources, HUD and Labor told us 
that their respective agencies conduct on-site monitoring reviews in 
accordance with risk-based procedures intended to focus monitoring 
resources on areas requiring the most attention.[Footnote 30] For 
example, HUD's procedures for the EZ program specify factors for 
reviewers to consider when determining the scope of a review. These 
factors include funding amount, outstanding complaints related to 
noncompliance with a legal requirement, and unresolved monitoring or 
assessment issues. Similarly, for the CDBG program, reviewers consider 
factors such as the complexity of a state or entitlement community's 
activities and use of subrecipients to carry out funded activities. 
According to HUD CDBG officials, on-site monitoring is the most 
effective way to identify potential violations of the nonrelocation 
provision for the CDBG program. Labor also conducts on-site monitoring 
of states and a sample of local workforce investment agencies. As part 
of Labor's risk-based procedures, reviewers may consider factors such 
as the number of federal grants a state administers, a history of 
disallowed costs or administrative findings in previous reviews, and 
percentage of grant funds subcontracted. 

USDA's monitoring for the EZ/EC program involves two staff members--one 
in a state office and the other in the national office--reviewing 
requests for drawdown that EZ/ECs make several times during the year. 
Drawdown requests include a specification of how an EZ or EC will use 
its funds. Prior to disbursing requested funds, USDA staff members 
review the request to ensure that the funds will be used to carry out 
the community's strategic plan (which includes a certification form 
that specifically refers to the nonrelocation provision and which USDA 
reviews at the time of initial application). In addition to reviewing 
drawdown requests, USDA staff in both the state and national offices 
review mandatory annual reports describing a community's progress in 
implementing its strategic plan. According to USDA officials, the 
review of annual reports also includes a review of any updates to the 
strategic plan to ensure that no relocation support has crept into the 
plan since the initial review. A USDA official added that USDA staff 
have made on-site monitoring visits to all of the rural EZ/ECs. 

Officials of SBA's 504 and USDA's B&I program told us that they do not 
monitor for compliance with the nonrelocation provision because, unlike 
federal grant programs, in loan guarantee programs, a federal agency 
can determine which specific businesses will receive assistance and for 
what purpose (relocation, equipment purchase, etc.) before an agency 
guarantees a loan. SBA officials explained that SBA and certified 
development companies (CDC) approve a project for 504 financing before 
construction begins, but SBA does not disburse loan funds or issue a 
debenture guarantee until after the project is completed.[Footnote 31] 
According to SBA officials, CDC staff review the completed project 
before closing on a loan, at which time loan funds are disbursed and a 
debenture guarantee issued. Similarly, USDA officials told us that 
their field staff verify uses for loan proceeds when they review a loan 
closing package, specifically the settlement statement, before 
guaranteeing a loan. USDA officials explained that once a loan is fully 
disbursed, subsequent monitoring of the use of loan proceeds for 
compliance focuses on other issues, such as the number of jobs created, 
rather than compliance with the nonrelocation provision, because the 
loan proceeds already have been used for their intended purposes. The 
emphasis on screening rather monitoring seemed appropriate for the two 
loan guarantee programs since the federal agencies know which specific 
businesses are requesting funds and the purposes for which the funds 
will be used. 

HUD's EZ program was the only program we reviewed that had written 
monitoring guidance specific to the nonrelocation provision at the time 
of our review. As of July 2007, HUD had used this monitoring guidance 
in four on-site reviews. HUD's guide for the review of Round II EZ 
strategic plan compliance calls for review staff to determine whether 
there is "any evidence to indicate that the EZ is complying with the 
prohibition against assisting a business to relocate." The guide did 
not provide specific procedures or steps that staff should follow to 
make the assessment of compliance, but rather referred to the program's 
implementing regulation for the nonrelocation provision. HUD officials 
said that under current procedures, on-site reviewers rely on receiving 
complaints of noncompliance or on information obtained by asking open- 
ended questions about compliance to determine whether communities are 
complying. For the four reviews in which HUD had used the guidance at 
the time of our review, the narrative supporting the reviewer's 
assessment of compliance indicated that approved implementation plans, 
discussions with EZ staff regarding standard operating procedures, and 
a review of loan file documents were among the bases on which HUD 
reviewers determined that EZs were complying with the program's 
nonrelocation provision. HUD officials said that for additional on-site 
reviews planned for fiscal year 2007, the agency is considering 
reviewing implementation plans to specifically check for compliance 
with the nonrelocation provision. HUD officials said that they would 
focus on plans involving sites with potential for commercial 
development to determine whether HUD-approved activities or projects 
involving marketing or promotional efforts encouraged relocations to an 
EZ. 

HUD and Labor officials told us that their agencies were developing 
monitoring guidance specific to the nonrelocation provision for the 
CDBG and WIA programs, respectively, but that such guidance is in draft 
form.[Footnote 32] As of July 2007, HUD and Labor had not finalized 
this guidance or used it in a monitoring review. HUD officials said 
that HUD expects to finalize the monitoring guidance tailored to the 
nonrelocation provision by December 31, 2007. The officials explained 
that HUD was developing monitoring guidance for inclusion in a 
forthcoming revision to a monitoring handbook that HUD uses for all of 
its major Office of Community Planning and Development grant programs, 
including the CDBG and EZ programs. HUD undertook the revisions because 
the current version of the handbook was issued prior to the 
promulgation of the CDBG program's nonrelocation provision in December 
2005. HUD CDBG officials stated that including a question on compliance 
with the nonrelocation provision is intended to ensure that compliance 
reviews by HUD staff in this area would be consistent. Labor officials 
explained that their monitoring handbook for employment and training 
grant programs, including WIA programs, is generic and limited to 
examining core activities found in all of Labor's employment and 
training programs. In contrast, Labor's formula grant supplement to the 
monitoring handbook, currently under development and in draft form, 
will provide a more detailed examination of statutes, rules, and 
regulations specific to the formula-based programs once finalized. 
Labor officials said that the formula grant supplement has been tested 
in field offices and will address the nonrelocation provision. The 
officials said that they expect to publish the formula grant supplement 
in the latter half of calendar year 2007. 

Conclusions: 

State and local governments use incentives, including funds from 
federal economic development programs, to attract business investment 
and create jobs in their communities. Although it is difficult to 
determine the extent to which state and local governments use federal 
funds as business incentives, 9 of 17 large federal economic 
development programs contain statutory restrictions against using 
program funds to relocate jobs if the use of such funds creates 
unemployment. Thus, for these nine federal programs, the agencies 
charged with their administration are responsible for helping to ensure 
that program funds are used for intended purposes and in accordance 
with applicable laws and regulations, including compliance with 
nonrelocation provisions. 

Each of the four agencies that administer the programs with 
nonrelocation provisions used screening and monitoring mechanisms to 
help ensure that fund recipients were eligible to participate in the 
programs, meeting program goals, and complying with legal requirements. 
The two agencies administering the loan guarantee programs we reviewed-
-SBA for the 504 program and USDA for the B&I program--relied primarily 
upon screening mechanisms to help ensure that applicants would not use 
loan proceeds to relocate businesses and jobs. For these two programs, 
screening mechanisms may be sufficient since the agencies can determine 
which specific businesses will receive assistance and how the loan 
proceeds will be used. In such cases, a screening process can determine 
if loan funds will be used to support a business relocation. In 
contrast, officials from the other programs we reviewed, particularly 
those that administer grant programs, noted limitations in using 
screening mechanisms for such programs. For example, with grant 
programs, fund recipients (e.g., states and local communities) do not 
always know which businesses will apply for or receive funding at the 
time the recipient submits an initial plan or application for funding. 

Acknowledging the limitations of screening for helping to ensure 
compliance with nonrelocation provisions, agency officials regarded on- 
site monitoring as the most effective way to detect an instance of 
potential noncompliance in their grant programs. However, officials 
also noted that they targeted their limited monitoring resources on 
recipients that posed the greatest risk. Furthermore, they maintained 
that noncompliance with nonrelocation provisions did not present a 
significant risk to the programs they administered because they 
received few or no complaints over the years and regarded complaints as 
a barometer for undertaking monitoring activities. 

We recognize that there are costs associated with monitoring program 
recipients for compliance with nonrelocation provisions. Nevertheless, 
a reactive approach in which agencies assume there are no problems 
because outside parties do not report them, by itself, is an 
insufficient means to help ensure that problems do not exist and 
federal internal control standards state that monitoring should be 
performed continually and be ingrained in agency operations. Further, 
USDA EZ/EC program officials said that they have rejected applications 
for zone designation because intent to relocate jobs was evident in the 
applications, providing evidence that applicants do sometimes seek to 
use program funds to lure businesses away from one community to 
another. 

Given the relatively large size of some federal grant programs and 
their complicated funding structure (including the number of recipients 
and subrecipients involved in the process), it is important that 
agencies develop and use cost-effective approaches to identify, 
prioritize, and manage potential at-risk recipients. Specific 
monitoring guidance and procedures would provide staff impetus and 
direction in their monitoring roles and help ensure consistent 
monitoring efforts across locations. Moreover, written guidance would 
provide recipients and subrecipients with specific information on the 
types of business support activities allowed under each program. For 
example, we learned that there are HUD CDBG subrecipients who may be 
unaware of the requirement that businesses receiving assistance under 
the program must provide written statements of compliance with the 
nonrelocation provision. Absent such guidance and related controls, 
agencies have limited assurance that recipients and subrecipients-- 
which include state and local governments as well as individual 
business--are meeting statutory and regulatory responsibilities that 
restrict the use of program funds to support employer relocations. 

Recommendations for Executive Action: 

To provide greater assurance that grant recipients and subrecipients of 
federal economic development programs are complying with statutory 
restrictions against the use of program funds to support employer 
relocations, we recommend that the Secretaries of Labor (for the WIA 
Adult, Dislocated Workers, and Youth programs); Agriculture (for the 
EZ/EC program); and Housing and Urban Development (for the CDBG 
Entitlement and State programs) direct their respective offices to 
develop (or finalize the development of) and implement formal and 
structured approaches for federal reviewers to follow when monitoring 
for compliance with nonrelocation provisions. 

Agency Comments and Our Evaluation: 

We provided a draft of this report to the Secretaries of the 
Departments of Labor, Agriculture, Housing and Urban Development, and 
Commerce; the Acting Commissioner of the Internal Revenue Service; and 
the Administrator of the Small Business Administration. We received 
written comments from Labor that are summarized below and are reprinted 
in appendix III. USDA's Acting Assistant Deputy Administrator for 
Cooperative Programs provided oral comments on August 8, 2007, which 
are summarized below. 

In its written comments, Labor stated that the department concurred 
with our recommendation that it develop and implement formal and 
structured approaches for federal reviewers to follow when monitoring 
compliance with nonrelocation provisions. In addition, Labor stated 
that it agreed that such guidance and approaches will assist states in 
monitoring local subrecipient compliance with these provisions. Labor 
stated that to support efforts to monitor and ensure compliance with 
nonrelocation provisions, it is implementing two complementary 
strategies. First, Labor is developing a formal policy guidance letter 
that clarifies allowable and unallowable uses of WIA funds for economic-
development-related activities and that will specifically address 
prohibitions related to the nonrelocation provision. Second, Labor said 
that its Core Monitoring Guide and draft Formula Grant Supplement to 
the guide provide federal reviewers with tools for monitoring 
compliance with the nonrelocation provision. Labor said the draft 
Formula Grant Supplement includes indicators of compliance along with 
each governor's responsibility to determine which costs are allowable 
or unallowable under WIA, including prohibitions against using WIA 
Title I funds to encourage business relocation and related 
restrictions. Labor stated that its regional office reviewers have 
extensively tested the draft Formula Grant Supplement since the fall of 
2006, and the supplement will enter the formal clearance process 
shortly. Labor said that when completed in final form, which the 
department expects to occur by December 31, 2007, the supplement will 
provide federal reviewers, as well as state review staff, with a 
valuable resource for assessing recipients' compliance with the 
nonrelocation provision under the WIA Adult, Dislocated Worker, and 
Youth programs. 

In oral comments, USDA's Acting Assistant Deputy Administrator for 
Cooperative Programs stated that USDA concurred with the report's 
recommendation. The Acting Assistant Deputy Administrator also provided 
us with documentation showing that USDA is taking initial steps to 
implement the recommendation. 

We also received technical comments from Labor, USDA, HUD, IRS, and SBA 
that were incorporated into the report as appropriate. Commerce did not 
provide comments on the draft report. 

As agreed with your office, unless you publicly announce the contents 
of this report earlier, we plan no further distribution until 30 days 
from the date of the report. At that time, we will provide copies of 
this report to the Ranking Member, Subcommittee on Interstate Commerce, 
Trade, and Tourism, Senate Committee on Commerce, Science, and 
Transportation, and interested congressional committees. We will also 
provide copies of this report to Secretaries of Labor, Agriculture, 
Housing and Urban Development, and Commerce; the Acting Commissioner of 
the Internal Revenue Service; and the Administrator of the Small 
Business Administration. We will provide copies to others upon request. 
In addition, this report will be available at no charge on our home 
page at [hyperlink, http://www.gao.gov]. 

If you or your staff have any questions concerning this report, please 
contact me at (202) 512-8678 or shearw@gao.gov. Contact points for our 
Office of Congressional Relations and Public Affairs may be found on 
the last page of this report. GAO staff who made key contributions to 
this report are listed in appendix IV. 

Sincerely yours, 

Signed by: 

William B. Shear Director: 
Financial Markets and Community Investment: 

[End of section] 

Appendix I: Scope and Methodology: 

To identify large federal economic development programs, we conducted a 
search of the Catalog of Federal Domestic Assistance (CFDA) database 
(using key word searches of "jobs" and "economic development") and 
focused on those programs that can be used to provide assistance to 
businesses and that CFDA reported as having obligations of at least 
$500 million for fiscal year 2006. In a prior report, we found 
inconsistencies in how agencies reported budget data for CFDA, 
resulting in potential over-reporting of data.[Footnote 33] However, 
for purposes of this report, because we are using CFDA to identify 
large federal economic development programs, the risk is acceptably low 
of CFDA not covering large programs we would have otherwise selected. 
We, therefore, consider CFDA to be a sufficiently reliable source of 
data for use in this report. Because CFDA does not include tax 
expenditure programs, we searched the Congressional Research Service's 
(CRS) Tax Expenditure Compendium (using key word searches of "community 
development" and "private activity bonds") for economic development tax 
expenditure programs that support businesses for which CRS reported as 
having estimated tax revenue losses of at least $500 million in fiscal 
year 2006. We also confirmed these budget figures with agency 
officials. We excluded programs that are only available under specific 
circumstances or are not available nationwide, such as regional 
economic development programs or those that are only available under 
disaster assistance designations. 

In addition to these database searches, we reviewed each of the 50 
states' economic development Web sites to identify the federal programs 
that states marketed as incentives or financial assistance for 
businesses. While this search did not provide us with a comprehensive 
list of federal programs used as business incentives, it provided us 
with additional information on how the programs we identified through 
CFDA and the CRS compendium might be used as incentives. 

To identify large federal programs currently or formerly subject to 
restrictions against use for relocating jobs among U.S. communities, we 
reviewed laws and regulations. Our review included the use of 
electronic databases. We identified relevant nonrelocation provisions 
for four federal agencies--the Departments of Housing and Urban 
Development (HUD), Agriculture (USDA), Labor, and the Small Business 
Administration (SBA)--and a former provision for one federal agency-- 
the Department of Commerce's Economic Development Administration (EDA). 
To assess the completeness of our search results, we interviewed 
representatives of select federal agencies as well as representatives 
of economic development trade associations and policy groups. To 
identify congressional purpose in adopting or rescinding restrictions, 
we reviewed implementing laws and their legislative histories, 
including congressional reports and the Congressional Record. 

To assess federal agency procedures to help ensure compliance with 
nonrelocation provisions, we requested, obtained, and analyzed the 
following information from HUD, Labor, USDA, and SBA: 

* policies and procedures designed to ensure compliance with 
nonrelocation provisions; 

* data on the number of complaints received regarding the provisions; 

* data on the number of violations identified; and: 

* information about any enforcement actions taken, as well as the 
status of those actions. 

We also conducted a limited test of agency procedures by reviewing a 
small and random, but not generalizable sample of case file 
documentation for each of the programs (generally 10 files for each 
program). These documents included the mechanisms agencies have 
developed to screen for compliance with nonrelocation provisions, 
including: 

* an eligibility checklist (SBA's 504 program); 

* self-certification forms (USDA and HUD's Empowerment Zone/Enterprise 
Community program); 

* business statements of compliance as a condition of receiving 
assistance (Labor's Adult, Dislocated Workers, and Youth programs under 
the Workforce Investment Act); and: 

* third-party verification of data that applicants self report (USDA's 
Business and Industry Guaranteed Loan program). 

Further, we reviewed monitoring guidance and exhibits for each program 
having such guidance; completed monitoring reports; publications on 
effective internal control and grant management practices; and recently 
issued reports we completed on the programs.[Footnote 34] To supplement 
our document reviews and testing procedures, we conducted interviews 
with officials at each agency. 

The scope of our work in this area was focused mainly on whether the 
agencies had screening and monitoring procedures. We did not test the 
effectiveness of the implementation of these procedures. Furthermore, 
we did not conduct an overall evaluation of the programs, evaluate how 
well the programs served their intended purposes, or evaluate how 
nonrelocation provisions affect the relative success of the programs in 
achieving their intended purposes. We also did not address the impact 
these programs had on development efforts by state and local 
governments. 

We conducted our work from October 2006 through August 2007 in 
Washington, D.C., and San Francisco and Fresno, California, in 
accordance with generally accepted government auditing standards. 

[End of section] 

Appendix II: Description of the Nine Large Federal Economic Development 
Programs with Nonrelocation Provisions: 

The following is a description of the nine large federal economic 
development programs that we identified as having statutory 
restrictions against using program funds to relocate businesses and 
jobs. Seven are grant programs in which a federal agency provides funds 
to recipients (generally a state or local government) that, in turn, 
may provide funds to a subrecipient (such as a nonprofit entity or for- 
profit business) to facilitate economic development activities. They 
are: 

* the Department of Housing and Urban Development's (HUD) Community 
Development Block Grant (CDBG) Entitlement and State programs; 

* HUD and U.S. Department of Agriculture's (USDA) Empowerment Zone/ 
Enterprise Community (EZ/EC) programs (urban and rural respectively); 
and: 

* the Department of Labor's (Labor) three Workforce Investment Act 
(WIA) programs--Adult, Dislocated Workers, and Youth. 

The two remaining programs--USDA's Business and Industry (B&I) program 
and SBA's 504 program--are loan guarantee programs in which federal 
agencies guarantee loans that third-party lenders and nonprofit 
development corporations make. 

HUD CDBG Entitlement and State Programs: 

HUD's CDBG program provides communities with grants for activities that 
will benefit low-and moderate-income people, prevent or eliminate slums 
or blight, or meet urgent community development needs. The Entitlement 
program provides grants to qualifying local governments. The State 
program provides states with grants for distribution to the smaller, 
nonentitlement communities. Both programs fund a wide range of 
activities--including those that support housing, public improvements, 
public services, and economic development--which involve the use of 
funds to assist, recruit, and retain individual businesses. According 
to the Catalog of Federal Domestic Assistance (CFDA), fiscal year 2006 
estimated budget authority for the CDBG Entitlement program was $2.6 
billion and $1.1 billion for the State program. 

HUD's Office of Community Planning and Development (CPD) administers 
the CDBG program. A headquarters office sets program policy while 43 
HUD field offices monitor recipients. HUD distributes funds to 
entitlement communities and states based on the higher yield of two 
formulas.[Footnote 35] See figure 1 for an overview of the funding 
process for economic development projects involving businesses. 
Entitlement communities may carry out activities under CDBG directly, 
or they may award funds to subrecipients, which include, as HUD defines 
them for the purposes of the CDBG program, governmental agencies such 
as housing authorities as well as private nonprofit and a limited 
number of private for-profit entities. Under HUD regulations, 
subrecipients must enter into a signed, written agreement with 
entitlement communities regarding compliance with laws and regulations. 
States distribute their funds to nonentitlement communities for 
activities such as business financing. The distribution mechanisms vary 
by state; some states set aside a certain percentage of funds for 
economic development while others do not take into account the category 
of activity. Neither HUD nor the states distribute funds directly to 
citizens or private organizations. Moreover, HUD does not select the 
business entities that receive CDBG assistance; recipients and 
subrecipients make these decisions. 

Figure 1: Overview of CDBG Funding Streams for Economic Development 
Projects Involving Businesses: 

[See PDF for image] 

Source: GAO analysis of prior reports and HUD information. 

[End of figure] 

Businesses receive assistance through the CDBG program either from a 
recipient (such as an entitlement community) or from subrecipients 
(such as designated public agencies or nonprofit development 
corporations). For example, once an entitlement community or a state 
receives its allocation, businesses may apply for economic development 
funding, assuming that the recipient has elected to operate an economic 
development program. This assistance may take the form of loans, 
grants, technical assistance, or infrastructure improvements. This 
approach assumes that the recipient's consolidated and action plans 
include and authorize these types of economic development activities. 

For a related GAO product on the CDBG program, see Community 
Development Block Grants: Program Offers Recipients Flexibility but 
Oversight Can Be Improved. GAO-06-732. Washington, D.C.: July 28, 2006. 

HUD and USDA EZ/EC Programs: 

HUD and USDA's EZ/EC program targets federal grants and provides tax 
relief to distressed communities in urban and rural areas, 
respectively, to help those communities overcome economic and social 
problems. EZs and ECs can use grant funds for a range of activities 
identified in strategic plans, which are developed in conjunction with 
community stakeholders. Strategic plans outline the urban or rural 
community's vision for revitalizing its distressed areas and the 
activities and projects planned to accomplish this task. These 
activities can include education, infrastructure development, workforce 
development, and assistance to for-profit businesses. According to 
CRS's Tax Compendium, estimated revenue losses for USDA's and HUD's 
EZ/EC program were $1 billion combined for fiscal year 2006.[Footnote 
36] 

Congress authorized three rounds of EZ designations and two rounds of 
EC designations. HUD and USDA have primary oversight over the program, 
which involves reviewing strategic plans, designating communities as 
EZs or ECs, and evaluating the progress EZs and ECs make in 
implementing their strategic plans. However, two other agencies, the 
U.S. Department of Health and Human Services (HHS) and the Internal 
Revenue Service (IRS), also have had responsibility for administering 
the program. For the first round of the program which began in 1993, 
HHS had fiscal oversight over the program, in which HHS issued grants 
to states, which served as pass-through entities that in turn 
distributed funds to individual EZs and ECs. For the second round of 
the program, which began in 1998, Congress appropriated grant funds 
through USDA and HUD, but not through HHS. For the third round, which 
began in 2001, Congress appropriated grant funds for rural EZs but not 
for urban EZs. In addition to grants, businesses that locate in an EZ 
or EC can claim tax benefits, such as the Work Opportunity Tax Credit, 
which IRS administers. Tax benefits have been available in all three 
rounds of the EZ/EC program, but not the EC program. 

As shown in figure 2, businesses can receive funds directly from the 
designated EZ/EC cities or from nonprofit corporations the city 
establishes to administer the program. For example, EZs/ECs issue 
requests for proposals and review applications for EZ/EC funding, 
including those that businesses submit. The EZs/ECs that a corporation 
oversees generally have a board of directors consisting of community 
members who review and have final approval for funded activities (with 
input from advisory committees). Businesses then receive funding in the 
form of grants, loans, and other assistance. Businesses eligible for 
federal, state, and local tax benefits claim these benefits directly on 
tax filing forms. 

Figure 2: Overview of EZ/EC Funding Streams for Economic Development 
Projects Involving Businesses: 

[See PDF for image] 

Source: GAO analysis of prior reports; and HUD and USDA information. 

[End of figure] 

For related GAO products on the EZ/EC program, see: 

* Empowerment Zone and Enterprise Community Program: Improvements 
Occurred in Communities, but the Effect of the Program Is Unclear. GAO- 
06-727. (Washington, D.C.: Sept. 22, 2006), and: 

* Community Development: Federal Revitalization Programs Being 
Implemented, but Data on the Use of Tax Benefits Are Limited. GAO-04- 
306. (Washington, D.C.: March 5, 2004). 

Labor WIA Adult, Dislocated Workers, and Youth Programs: 

The WIA Adult and Dislocated Workers programs provide a variety of 
services to individuals, including help with job searches, skills 
assessment, and occupational training. The Adult and Dislocated Workers 
programs provide similar services, but differ in their eligibility 
requirements.[Footnote 37] The Youth program is designed to prepare 
high school students for employment or postsecondary education. All 
three programs require that states and local areas use a one-stop 
center approach, which consolidates 16 categories of programs under 
four agencies (Labor, Education, HHS, and HUD) to provide services for 
several employment and training programs. In addition to employee 
services, state and local workforce investment boards may use WIA funds 
from the three programs to provide services to employers, including 
helping employers identify and recruit job candidates.[Footnote 38] 
States and local boards can also offer various job training programs, 
such as classroom-based, on-the-job, or customized training to meet 
employer needs.[Footnote 39] According to CFDA, fiscal year 2006 
estimated obligations for the WIA Adult, Dislocated Workers, and Youth 
programs were $857 million, $1.181 billion, and $926 million, 
respectively. 

Labor oversees all three WIA programs, but states and local boards have 
flexibility over how they use WIA funds. WIA specifies a different 
funding source for each of the Act's main clients--youth, adults, and 
dislocated workers. Labor distributes WIA funds to states and states 
distribute funds to local areas based on specific formulas that account 
for unemployment (see fig. 3 below for an overview of the three WIA 
program funding streams). Labor allots 100 percent of the adult and 
youth funds and 80 percent of the dislocated worker funds to states 
(the Secretary of Labor sets aside 20 percent of the dislocated worker 
funds primarily for national emergency grants, but these funds can be 
used for other job training purposes).[Footnote 40] The states can then 
set aside up to 15 percent of the funds as discretionary funds to 
support state employment activities. (For the dislocated worker 
program, the state can set aside no more than 25 percent of the funds 
for rapid response activities, such as notifying workers on how to 
access unemployment and one-stop center benefits in the event of mass 
layoffs.) 

Figure 3: Overview of WIA Adult, Dislocated Workers, and Youth Funding 
Streams: 

[See PDF for image] 

Source: GAO analysis. 

[End of figure] 

The remainder of the funds are distributed to local areas based on a 
formula. Local workforce investment boards, in turn, may provide 
services to businesses. Businesses are generally connected to these 
services through one-stop career centers. 

For related GAO products on the Workforce Investment Act, see: 

* Workforce Investment Act: Labor and States Have Taken Actions to 
Improve Data Quality, but Additional Steps Are Needed. GAO-06-82. 
Washington, D.C.: November 14, 2005; 

* Workforce Investment Act: Substantial Funds Are Used for Training, 
but Little is Known Nationally About Training Outcomes. GAO-05-650. 
Washington, D.C.: June 29, 2005; and: 

* Workforce Investment Act: Exemplary One-Stops Devised Strategies to 
Strengthen Services, but Challenges Remain for Reauthorization. GAO-03- 
884T. Washington, D.C.: June 18, 2003. 

SBA 504 Loan Program: 

SBA's 504 loan program provides businesses with long-term, fixed-rate 
financing for major fixed assets, such as land, buildings, and 
machinery and equipment. To qualify for an SBA loan guarantee, a 
project must meet job creation or other community development goals, 
such as increasing the number of minority-owned businesses in an area. 
For the job creation requirement, a business must generally create or 
maintain one job for every $50,000 in SBA assistance. 

While SBA administers the 504 loan guarantee program, it relies on 
development companies to originate 504 loans. SBA participates in the 
504 loan program by guaranteeing loans that certified development 
companies (CDC) make. CDCs generally are private nonprofit corporations 
established to contribute to the economic development of their 
communities. For a typical 504 loan project, the borrower (a business) 
must cover at least 10 percent of a project's costs, a private third- 
party lender provides at least 50 percent of project costs, and a CDC 
provides up to 40 percent of project costs. SBA guarantees 100 percent 
of the CDC's portion of the loan. According to SBA, in fiscal year 
2006, the agency provided 504 program guarantees totaling $5.7 billion. 

USDA B&I Program: 

USDA's B&I program seeks to improve the economic and environmental 
climate in rural communities by providing guarantees on loans private 
lenders make to borrowers that meet certain economic development 
criteria, such as creating employment or encouraging the development 
and construction of renewable energy systems. The program finances 
business and industry acquisition, construction, conversion, expansion, 
and repair in rural areas. Loan proceeds can be used to finance the 
purchase and development of land, supplies and materials, and start-up 
costs for rural businesses. 

USDA administers the B&I program through field offices located in each 
of the states. A borrower first secures a loan from a USDA-approved 
private third-party lender. The borrower then applies to USDA for a B&I 
loan guarantee. USDA will evaluate the application and make a 
determination on whether the borrower is eligible and the proposed loan 
is for an eligible purpose, there is reasonable assurance of repayment 
ability, there is sufficient collateral and equity, and the proposed 
loan complies with all applicable statutes and regulations. USDA will 
notify the lender in writing if it is unable to guarantee a loan. USDA 
also works with the lender to negotiate the percentage of guarantees, 
but USDA can guarantee up to 80 percent of loans for $5 million or 
less, 70 percent of loans between $5 and $10 million, and 60 percent of 
loans exceeding $10 million. According to USDA, in fiscal year 2006, 
the B&I program guaranteed 350 loans with a face-value of $766.3 
million. 

[End of section] 

Appendix III: Comments from the Department of Labor: 

U.S. Department of Labor: 
Assistant Secretary for Employment and Training: 
Washington, D.C. 20210: 

August 22, 2007: 

Mr. William B. Shear: 
Director, Financial Markets and Community Investment: 
Government Accountability Office: 
441 G Street, NW: 
Washington, D.C. 20548: 

Dear Mr. Shear: 

The Department of Labor's Employment and Training Administration (ETA) 
is in receipt of the Government Accountability Office (GAO) draft 
report, "Economic Development: Formal Monitoring Approaches Needed to 
Help Ensure Compliance with Restrictions on Funding Employer 
Relocations," GAO-07-1005. 

To ensure that grant recipients and subrecipients are complying with 
statutory restrictions against the use of economic development program 
funds to support employer relocations, GAO recommends that ETA develop 
and implement formal and structured approaches for Federal reviewers to 
follow when monitoring Workforce Investment Act (WIA) Adult, Dislocated 
Worker, and Youth programs for grantee compliance with nonrelocation 
provisions. 

The Department concurs with the recommendation that formal guidance and 
structured approaches will assist ETA Federal reviewers in monitoring 
state grantee compliance with the nonrelocation provisions outlined in 
statute at WIA Section 181(d)(1) and in regulation at 20 CFR 
667.200(c). In addition, the Department agrees that such guidance and 
approaches will assist states in monitoring local subrecipient 
compliance with these provisions. Please note that the Department has 
the responsibility for monitoring its direct state grantees, and state 
grantees have primary responsibility for monitoring their direct local 
sub-grantees. 

To support efforts to monitor and ensure compliance with the 
nonrelocation provisions, ETA is implementing two complementary 
strategies. First, we are developing a Training and Employment Guidance 
Letter (TEGL), ETA's formal policy guidance vehicle, which clarifies 
allowable and unallowable uses of WIA funds for economic development-
related activities. This policy guidance will specifically address 
prohibitions related to the nonrelocation provision. When published, 
the TEGL will provide both Federal and state monitors with explicit 
guidance on how the nonrelocation provision applies to grants funded 
under the WIA Adult, Dislocated Worker, and Youth programs. Second, 
ETA's Core Monitoring Guide and the draft Formula Grant Supplement to 
the Core Monitoring Guide provide Federal reviewers with tools for 
monitoring for compliance with the WIA Title I nonrelocation provision. 
The Core Monitoring Guide covers the essential functions that must be 
in place in order for any grantee to operate an ETA grant within the 
boundaries of acceptable practices that are established by law, 
regulation, and government-wide rule. The draft Formula Grant 
Supplement to the Core Monitoring Guide was developed to assist Federal 
reviewers in monitoring for compliance based upon funds allocated by 
formula to states. The Supplement provides a more detailed examination 
of program specific statutes, rules, and regulations related to program 
operations. 

The Core Monitoring Guide's Objective 3.5, "Allowable Costs," is 
designed to assist Federal reviewers to determine if a grantee has a 
system in place to ensure that the costs incurred are necessary, 
reasonable, allowable, and allocable. The key indicator for Objective 
3.5 is obtaining a copy of the organization's applicable Office of 
Management and Budget cost principles circular and ensuring that the 
grantee is aware of which costs are allowable, allowable under certain 
conditions, or unallowable. 

The draft Formula Grant Supplement to the Core Monitoring Guide 
includes indicators of grantee compliance along with the Governor's 
responsibility to determine which costs are allowable or unallowable 
under WIA (20 CFR 667.200(e)), including the prohibitions against the 
use of WIA title I funds to encourage business relocation and related 
restrictions. The draft Supplement includes a worksheet for the Federal 
reviewer to determine whether a grantee's written allowable cost policy 
addresses the prohibitions in the WIA regulations. 

The draft Formula Grant Supplement to the Core Monitoring Guide has 
been field- tested extensively by ETA Regional Office Federal reviewers 
since the fall of 2006, and will enter ETA's formal clearance process 
shortly. We expect that the Supplement will be completed in the first 
half of Program Year 2007 (by December 31, 2007). When completed in 
final form, the Supplement will provide Federal reviewers, as well as 
state review staff, with a valuable resource for assessing recipients' 
compliance with the nonrelocation provision under WIA Adult, Dislocated 
Worker, and Youth programs. 

If you would like additional information, please do not hesitate to 
contact me at (202) 693-2700. 

Signed by: 

Emily Stover DeRocco: 

[End of section] 

Appendix IV: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

William B. Shear at (202) 512-8678 or shearw@gao.gov: 

Staff Acknowledgments: 

In addition to the above contact, Harry Medina, Assistant Director; 
Meghana Acharya; Dianne Blank; Bonnie Derby; Ronald Ito; Terence Lam; 
John McGrail; Carl Ramirez; Barbara Roesmann; Paul Schmidt; Michael 
Springer; and Kathryn Supinski made key contributions to this report. 

[End of section] 

Footnotes: 

[1] GAO, Economic Development Activities: Overview of Eight Federal 
Programs, GAO/RCED-97-193 (Washington, D.C.: Aug. 28, 1997). In the 
absence of a standard federal definition to describe economic 
development, for this 2007 report we used a list of activities from 
another GAO report, Rural Economic Development: More Assurance is 
Needed That Grant Funding Information Is Accurately Reported, GAO-06-
294 (Washington, D.C.: Feb. 24, 2006). Thus, economic development as we 
define it includes the construction and repair of infrastructure, such 
as buildings and roads; direct financial support and technical 
assistance to businesses, including job-training assistance; and tax 
expenditure programs that support these activities. 

[2] The General Services Administration and Office of Management and 
Budget maintain the CFDA database, which lists federal programs 
available to state and local governments (including the District of 
Columbia); federally recognized Indian tribal governments; territories 
(and possessions) of the United States; domestic public, quasi public, 
and private for-profit and nonprofit organizations and institutions; 
specialized groups; and individuals. See appendix I for more 
information on CFDA and how we used it in this report. 

[3] The Tax Expenditure Compendium is a biennial publication that 
provides CRS estimates of revenue costs of individual tax provisions 
for the U.S. Senate's Committee on the Budget. We used the 2006 Report 
(CRS, 109th Congr., 2nd sess; S. Prt. 109-072). 

[4] For purposes of this report, subrecipients include nonprofit 
organizations and businesses. 

[5] BLS collects these data under its Mass Layoff Statistics program 
using each state's unemployment insurance database. Extended mass 
layoff events consist of 50 or more initial claims for unemployment 
insurance from an establishment during a 5-week period, with at least 
50 workers separated for more than 30 days. According to BLS, 
establishments with at least 50 workers represented 4.6 percent of all 
U.S. establishments and 56.5 percent of all U.S. workers in 2006. We 
consider the BLS data to be reliable based on our use of the data in 
prior reports. 

[6] GAO, Economic Development; Multiple Federal Programs Fund Similar 
Economic Development Activities, GAO/RCED/GGD-00-220 (Washington, D.C.: 
Sept. 29, 2000). 

[7] For additional information on the leveraging of federal economic 
development funds, see GAO, Leveraging Federal Funds for Housing, 
Community, and Economic Development, GAO-07-768R (Washington, D.C.: May 
25, 2007). 

[8] GAO, Tax Policy: New Markets Tax Credit Appears to Increase 
Investment by Investors in Low-Income Communities, but Opportunities 
Exist to Better Monitor Compliance, GAO-07-296 (Washington, D.C.: Jan. 
31, 2007). 

[9] GAO-07-768R. 

[10] At least 7 of the 50 state Web sites that we reviewed marketed SBA 
programs in the form of links to federal Web sites rather than as 
direct incentives for businesses. 

[11] Congressional Budget Office, Federal Financial Support of Business 
(Washington, D.C: July 1995). CBO has not updated this report since 
1995. 

[12] CBO indicated that it is difficult to provide a total revenue loss 
estimate because the interactions between different provisions of the 
tax code do not equal the arithmetic sum of revenue losses from 
individual tax provisions. 

[13] Tim Bartik, "Evaluating the Impacts of Local Economic Development 
Policies on Local Economic Outcomes: What Has Been Done and What is 
Doable?" Upjohn Institute Staff Working Paper No. 03-89, prepared for 
the Organization for Economic Cooperation and Development's (OECD) 
Conference on "Evaluating Local Economic and Employment Development" 
(Kalamazoo, Mich.: The Upjohn Institute, November 2002); Kenneth 
Thomas, Competing for Capital: Europe and North America in a Global Era 
(Washington, D.C.: Georgetown University Press, 2000); and Peter Fisher 
and Alan Peters, "The Failure of Economic Development Incentives," 
Journal of the American Planning Association 70, no. 1 (Chicago, Ill.: 
Winter, 2004). 

[14] Bartik. 

[15] Thomas. 

[16] GAO-03-884T. 

[17] We identified 21 additional federal programs with statutory 
nonrelocation provisions. We did not focus on these programs because 
they did not meet our minimum funding criteria of $500 million annually 
or did not meet our definition of economic development. 

[18] See appendix I for a more detailed description of our methodology 
for identifying the large economic development programs with statutory 
prohibitions against using program funds for employer relocation. 

[19] SBA voluntarily applies a nonrelocation provision to its 7(a) loan 
program, which provides assistance to small businesses to purchase land 
and buildings. 7(a) loans also assist small businesses with support 
operations, such as payroll and inventory. SBA's standard operating 
procedures prohibit the approval of a 7(a) loan if it finances a move 
that would cause serious unemployment in the present location. However, 
SBA's procedures permit financing the relocation of an applicant's 
business when the relocation will accomplish a sound business purpose, 
such as preventing the business from closing. The remaining seven 
programs--HUD's Renewal Communities, IRS's New Market Tax Credit and 
two private activity bonds, USDA's Community Facilities Loans and 
Grants, USDA's Farm Ownership Loans and USDA's Farm Operating Loans--do 
not contain statutory restrictions on using program funds to relocate 
businesses. 

[20] See 24 C.F.R. § 570.210 (Entitlement program); 24 C.F.R. § 
570.482(h) (State program). 

[21] Certified development companies are private, nonprofit 
corporations established to promote economic development within a 
community. 13 C.F.R. § 120.822 requires each certified development 
company to have at least 25 members representing the following groups: 
(1) government organizations responsible for economic development; (2) 
financial institutions that provide commercial long-term fixed-asset 
financing; (3) community organizations dedicated to economic 
development; and (4) businesses. 

[22] According to BLS, a labor market area is an economically 
integrated area within which individuals can readily change jobs 
without moving. According to HUD officials, HUD's regulatory approach 
reflects the statutory nonrelocation provision for the CDBG program, 
which specifies that a "relocation is likely to result in a significant 
loss of employment in the market area from which the relocation 
occurs." 

[23] We identified another agency--EDA for its Public Works and 
Facilities Program--that did obtain congressional removal of a 
nonrelocation provision. According to EDA officials, the Secretary of 
Commerce requested the removal because the agency had detected only one 
violation more than 30 years ago when the provision was effective and 
because EDA did not receive separate funding to monitor compliance with 
the provision. Senate and House reports do not specifically address the 
rationale for removing this provision, but note that the legislative 
changes were being made to reflect different economic conditions and a 
new emphasis on innovation, productivity, and entrepreneurship. Despite 
the statutory removal of the provision, program officials told us they 
do not support the use of program funds to relocate jobs among 
communities. 

[24] A guide compiled by members of the Domestic Working Group (a 
collection of federal, state, and local audit organizations tasked by 
the Comptroller General of the United States) working on a Grant 
Accountability Project. They were tasked with offering suggestions for 
improving grant accountability. See Domestic Working Group, Guide to 
Opportunities for Improving Grant Accountability (Washington, D.C.: 
October 2005). 

[25] USDA RD Instruction 4279-B, section 4279.114(b). 

[26] Under the 504 program, certified development companies underwrite 
up to 40 percent of project financing. Thus, they are involved in 
screening 504 program applicants and monitoring their use of loan 
proceeds. 

[27] CDBG recipients submit a consolidated plan at least once every 3 
to 5 years that addresses the housing, homeless, and community 
development needs in the recipient's jurisdiction. 

[28] USDA only requires an applicant to make this self-certification if 
the applicant or related company has a business facility at another 
location. 

[29] GAO's Standards for Internal Control in the Federal Government, 
GAO/AIMD-00-21.3.1 (Washington, D.C.: November 1999) provides an 
overall framework for establishing and maintaining internal control, 
identifying and addressing major performance and management challenges, 
and identifying and addressing areas at the greatest risk of fraud, 
waste, and mismanagement. 

[30] HUD CDBG program officials noted that HUD also can perform off- 
site monitoring of recipients if necessary. This off-site monitoring 
involves a remote review of files and documents in a HUD office. 

[31] A debenture is a certificate acknowledging a debt. 

[32] According to HUD officials, the monitoring guidance for the CDBG 
program, once finalized, will include a check for business statements 
of compliance, required under the CDBG program's nonrelocation 
provision. As noted previously, businesses are to complete these 
statements as a condition of receiving CDBG funds. 

[33] GAO, Rural Economic Development: More Assurance is Needed that 
Grant Funding Information is Accurately Reported, GAO-06-294 
(Washington, D.C.: Feb. 24, 2006), 32. 

[34] For example, GAO, Workforce Investment Act: Labor and States Have 
Taken Actions to Improve Data Quality, but Additional Steps Are Needed, 
GAO-06-82 (Washington, D.C.: Nov. 14, 2005); Community Development 
Block Grants: Program Offers Recipients Flexibility but Oversight Can 
Be Improved, GAO-06-732 (Washington, D.C.: July 28, 2006); and 
Empowerment Zone and Enterprise Community Program: Improvements 
Occurred in Communities, but the Effect of the Program Is Unclear, GAO-
06-727 (Washington, D.C.: Sept. 22, 2006). 

[35] The Entitlement and State programs each have their own set of 
formulas that take into account population, poverty, overcrowding, 
growth lag, and age of housing. The two formulas are similar. 

[36] CRS's Tax Compendium lists one combined estimated revenue-loss 
figure for the EZ tax incentive program (both HUD and USDA), District 
of Columbia tax incentive program, and Indian Reservation tax incentive 
program. 

[37] The Adult program serves all adults over the age of 18, while the 
Dislocated Workers program targets adults who have been laid off from a 
job or are displaced homemakers. 

[38] Each of approximately 600 local workforce areas throughout the 
country has a local workforce investment board that administers WIA 
activities within that area. 

[39] For customized job training, an employer must pay at least 50 
percent of the training costs. 

[40] This money also can be used for demonstrations and technical 
assistance, but at least 85 percent of the 20 percent set-aside must be 
used for national emergency grants. 

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