Economic Development:

The Distribution of Federal Economic Development Grants to Communities with High Rates of Poverty and Unemployment

GAO-12-938R: Published: Sep 14, 2012. Publicly Released: Sep 14, 2012.

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Stanley J. Czerwinski
(202) 512-6520
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What GAO Found

The distribution of grant funding per person in poverty in cities was not consistently aligned with overall poverty rates. Most cities, with the exception of those cities with the highest poverty rates, received roughly the same amount of economic development funding per person living in poverty. Further, when we examined how grant funds are distributed to cities based on their unemployment rates, we also found that some cities with higher unemployment rates received less funding per unemployed person than other cities with lower unemployment rates. However, we did find that a small number of cities (17 out of a total of 465 cities) with the highest unemployment rates received funding that was roughly 40 percent higher than the average for unemployed populations in all cities.

Similarly, the distribution of grant funding per person in poverty to nonmetro counties was not consistently aligned with overall poverty rates. Nonmetro counties with the lowest poverty rates received more grant funding per person in poverty than counties with higher poverty rates. Further, when we examined how grant funds were aligned with unemployment rates in nonmetro counties, we found that counties with relatively low unemployment rates (under 5 percent) received more funding per unemployed person than counties with higher unemployment rates. Only those nonmetro counties with the highest unemployment rates (over 20 percent) received higher funding per unemployed person.

When we compared the distribution of economic development funds awarded to nonmetro counties with funding awarded to metro counties, we found that while metro counties received more grant funds in total, nonmetro counties received a higher portion of grant funding relative to the percentage of their population in poverty. Specifically, 20 percent of the poverty population in this study lived in nonmetro counties, yet those counties received 29 percent of the total economic development grant funds. Thus, members of the poverty population in nonmetro counties received more grant funding per capita than their counterparts in metro counties.

Finally, we identified a number of issues related to the characteristics of grant programs and the availability of data that limit what we can say about the geographic distribution and beneficiaries of the grant awards. First, the geographic information for the grant programs we reviewed in USAspending.gov (accessed Aug. 22, 2012) corresponds to the address of the primary grant recipient, which in some cases is not necessarily the location where the services funded by the grant are delivered. For example, Commerce provides grants to economic development organizations that may serve multiple cities. Therefore, the geographic information might understate the true reach of the federal funds. But in some cases, such as with the CDBG/Entitlement Communities program, the address of the primary recipient is also where the grant funds are spent on economic development activities because the funds are specifically awarded to support economic activities in that community. In addition, the data we analyzed do not allow us to identify who benefits from the economic activity supported by the grant. For example, we cannot tell who might have received a job from a newly established business that received an economic development grant designed to incubate new businesses in economically distressed communities. Finally, because this analysis did not examine the outcomes of these federal investments we are limited in what we can say about whether and how these grant programs improved local economic conditions.

Why GAO Did This Study

For decades the nation has faced the challenge of revitalizing its most economically distressed communities, which suffer from high levels of poverty and joblessness. To help poor communities, Congress appropriated $6.2 billion in fiscal year 2010 for community and economic development programs, largely in the form of grants, loan guarantees, and direct loans. In a 2011 report, we identified 80 programs that make funding available to communities to enhance local economic activity. These activities include, but are not limited to, planning and developing strategies for job creation and retention, developing new markets for existing products, building infrastructure to attract industry to undeveloped areas, rehabilitating dilapidated housing, and establishing business incubators to provide facilities for new businesses' operations, among others. But the extent to which federal economic development grant support is aligned with local economic conditions is less clear.

To assist Congress in its fiscal year 2013 budget deliberations, Congress asked us to provide data that show the extent to which federal economic development grant funding is awarded to the poorest communities. In consultation with Congressional offices, we agreed to provide data that show the distribution of community and economic development grant funds to cities and rural counties with high rates of poverty and unemployment. This letter transmits information we provided to Congressional staff on May 5, July 23, and July 27, 2012. It describes the distribution of federal community and economic development grant funding for (1) cities with high rates of poverty and unemployment and how that compares with the distribution of economic development funding to cities in general and (2) nonmetropolitan counties with high rates of poverty and unemployment and how that compares to the distribution to counties in general.

For more information, contact Stanley J. Czerwinski at (202) 512-6806 or czerwinskis@gao.

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