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Highlights

Congress imposed restrictions on some federal programs to prevent funding of business relocations. Congress 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.

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Recommendations

Recommendations for Executive Action

Agency Affected Recommendation Status
Department of Agriculture 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, 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) should 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.
Closed - Implemented
In response to our recommendation, USDA has added a new question to the form used by its reviewers to approve the disbursement of EZ/EC funds to record whether grant funds will not be used for business relocation purposes. Additionally, USDA has included instructions to its reviewers alerting them to the new question that was added to the review form. USDA held Webinar training on October 28, 2008, with its EZ/EC communities and USDA Rural Development staff. The Webinar training included a review of the relocation regulations and the requirement to answer the relocation question with each disbursement request, which is then monitored by the state. Additionally, the monitoring of the relocation regulation was added to USDA's Fiscal Year 2009 EZ/EC program Management Control Review guide.
Department of Housing and Urban Development 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, 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) should 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.
Closed - Implemented
HUD has taken or has underway four actions in response to our recommendation. According to HUD, it has highlighted for its field staff the prohibition against using CDBG funds for employer relocations. Specifically, HUD noted that it had included issues related to job relocation in the training provided to its field and/or grantee staff in four cities as of July 30, 2008. Second, HUD stated that the restrictions against the use of CDBG funds for employer relocations were discussed during a bi-weekly conference calls with its field directors shortly after the issuance of the GAO report. According to HUD, the purpose of the reviewing the regulatory requirements is to ensure that the field directors can accurately convey to their staff the requirements associated with the job relocation provisions and to ensure thorough and adequate reviews. Third, HUD stated that it was in the process of finalizing guidance to its grantees highlighting the need for grantees to properly their economic activities consistent with regulatory requirements and the need for HUD field staff to check that documentation. According to HUD, the guidance was expected to be finalized by the end of September 2008. Lastly, HUD has revised its program monitoring handbook to include questions related to grantee compliance with the employer relocation provisions in its March 2008 update of the handbook, which is available from its website.
Department of Labor 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, 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) should 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.
Closed - Not Implemented
DOL has indicated that it is implementing two strategies to address our recommendation. On December 11, 2007, DOL issued a formal policy directive that clarifies clarifies allowable and unallowable uses of Workforce Investment Act (WIA) funds for economic development activities. The Training and Employment Guidance Letter directly addresses the concern raised by GAO regarding the use of funds for employer relocations by clearly articulating that this is an unallowable cost under WIA. Second, DOL has stated that it has drafted a supplement to its core monitoring guide that provides guidance regarding which costs are allowable or unallowable under WIA, including prohibitions against using WIA funds to encourage business relocation and related restrictions. The supplement was expected to be issued in 2009; however, ETA had to shift its focus on implementation of the Recovery Act. DOL anticipates issuing the supplement before the end of calendar year 2011.

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