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Strategic Objective: The Promotion of Viable Communities.

Issue: The economic and social well-being of the nation's 
communities has a great bearing on the nation's overall growth and 
prosperity. Vibrant communities are integral to the quality of life of 
America's citizens. Community and economic growth is a multifaceted 
challenge involving state and local governments, nonprofits, and 
private entities covering a range of issues, including regional growth 
planning and management, local business development, home ownership, 
and disaster preparedness. As underscored by the events of September 
11, where the critical role played by local governments in preparing 
and responding to terrorism attacks was highlighted for the entire 
nation, successful implementation of the many federal programs 
addressing these objectives depends on effective local governance and 
management.

The federal government operates more than 100 programs through multiple 
federal agencies and spends billions of dollars annually on grants, 
loans, loan guarantees, and other types of assistance for community and 
economic development. The sheer number of programs raises questions 
about the federal role in economic development; whether it should be 
focused on communities with special needs or more broadly directed 
toward all communities. In addition, a large share of the federal 
commitment is administered through state and local governments and 
nonprofit organizations. This reliance on multiple layers of government 
and nonprofits presents coordination issues for the local communities 
and oversight challenges for the federal government.

Small businesses play an important role in the nation's economy, 
employing more than half of the nation's workforce. The Small Business 
Administration (SBA), with a portfolio of loans worth more than $50 
billion, is the nation's single largest financial backer of small 
businesses and provides management and technical assistance to about 1 
million small business owners annually. SBA also has oversight 
responsibility for federal contracting goals for small businesses. SBA 
has undertaken numerous initiatives to address management issues. As a 
result, the Congress needs up-to-date assessments of SBA's performance.

To promote affordable home ownership, a key element of a vibrant 
community, the federal government provides mortgage assistance through 
mortgage guarantees provided by the Federal Housing Administration and 
the VA and guarantees of mortgage securities by the Government National 
Mortgage Association (GNMA). It also provides a federal charter and 
other direct and indirect benefits to government sponsored enterprises; 
Fannie Mae, Freddie Mac, and the Federal Home Loan Banks; that invest 
in mortgages that are not federally insured. The federal government 
must balance the benefit derived from achieving additional home 
ownership, especially among the underserved, against the financial risk 
it takes on directly or indirectly.

The Department of Housing and Urban Development (HUD) provides housing 
assistance programs to help families with lower incomes reside in safe, 
decent, and affordable housing. HUD's rental assistance programs remain 
at high risk of waste and abuse, and HUD faces numerous management 
challenges in human capital, contract management and information 
technology. Also, HUD and the U.S. Department of Agriculture's Rural 
Housing Service, which oversees rural housing programs, face challenges 
in ensuring that federally assisted properties are physically and 
financially sound and administered in a way that best serves the needs 
of low-income households. All of these challenges point to the need to 
better understand the relationship between federally supported housing 
programs and community stability.

Since the late 1970s, the federal government provided over $100 billion 
to help prepare for disaster and to assist disaster victims and their 
communities. In response to the recent terrorist attacks, billions of 
dollars have already been appropriated for recovery and relief efforts. 
Establishing an efficient and cost-effective approach to disaster 
assistance is difficult in the face of pressures to provide relief for 
disaster victims. However, approaches that provide incentives for 
preventive activities and foster private insurance coverage are two 
avenues that both the Federal Emergency Management Agency (FEMA) and 
the Congress are interested in exploring.

Performance Goals: To support efforts by the Congress and the federal 
government to address these issues, GAO will:

* assess federal economic development assistance and its impact on 
communities,

* assess how the federal government can balance the promotion of home 
ownership with financial risk,

* assess the effectiveness of federal initiatives to assist small and 
minority-owned businesses,

* assess federal efforts to enhance national 
preparedness and capacity to respond to and recover from natural and 
man-made disasters, and

* assess how well federally supported housing programs meet their 
objectives and affect the well-being of recipient households and 
communities.

Viable Communities:
Assess Federal Economic Development Assistance and Its Impact on 
Communities.

Key Efforts:

* Identify approaches and best practices for measuring the impact of 
economic development programs,

* Assess the impact of program fragmentation on program recipients,

* Assess the impact of specific economic development initiatives on 
communities,

* Assess the implications of federal programs and policies on 
communities' efforts to plan for and manage growth and the implications 
of the characteristics of state, local, and metropolitan-area planning 
models for achieving the goals and outcomes of federal programs (for 
example, housing, transportation, and economic development).

Significance:

Federal commitment to strong and stable communities is demonstrated 
through the diversity of federal economic development assistance 
programs. More than 70 federal programs provide direct economic 
development assistance in the form of grants, loans, and loan 
guarantees involving billions of dollars each year. The economic issues 
addressed by these programs include the living conditions of low- and 
moderate-income families, and the stability of urban and rural American 
communities. At the same time, faced with continued dramatic increases 
in their populations and demand for residential and commercial 
development, many communities have become increasingly concerned about 
the need to plan for and manage growth and development in a way that is 
economically and environmentally sustainable. A large share of the 
federal commitment is administered through state and local governments 
or nonprofit organizations. As a result, the outcomes from these 
programs often are determined by local priorities, affected by local 
economies, and require years to accomplish. Furthermore, communities 
are finding that planning for and managing growth means an increasingly 
complicated governance challenge of bringing state, regional, and 
federal players and resources to bear on numerous crosscutting issues 
and concerns. Thus, federal decision makers face the challenge of 
finding ways to improve the design and flexibility of federal programs 
to help communities balance sustainable economic growth with the need 
to maintain quality of life and deliver key services while still 
providing sufficient oversight.

Potential Outcomes that Could Result when GAO's Work Is Used:

Improved oversight of federal economic development programs,

Improved coordination among federal programs and streamlined delivery 
of economic development assistance,

Improved decision making related to the creation or continuation of 
federal programs,

Better congressional understanding of the implications of federal 
programs on the growth and development of communities; the implications 
of different state, local, and metropolitan-area planning models on the 
outcomes of federal programs; and how to better design federal programs 
to achieve their strategic goals in light of this understanding.

Viable Communities:
Assess How the Federal Government Can Balance the Promotion of Home 
Ownership with Financial Risk.

Key Efforts:

Assess HUD's controls to manage risks, including its oversight of the 
lenders, appraisers, and contractors that participate in HUD's loan 
origination, loan servicing, and management of HUD-held loans and 
property functions,

Assess the financial risks associated with the activities of GSEs,

Assess the impact that market and policy changes may have on HUD's 
single-family and multifamily insurance funds and the budget,

Evaluate the effectiveness of federal programs, tax and other 
incentives, and requirements that support financing for parts of the 
single-family and multifamily housing markets that are considered to 
be underserved.

Significance:

The federal government supports housing finance through various 
programs, incentives, and requirements. To promote homeownership, the 
Department of Housing and Urban Development's (HUD) Federal Housing 
Administration (FHA), the Department of Veterans Affairs' Loan Guaranty 
Services, and the Department of Agriculture's Rural Housing Service 
(RHS) insure home mortgages made by lenders against loss for home 
buyers who would have difficulty obtaining, or be unable to otherwise 
obtain, home mortgages. FHA and RHS also insure mortgages for 
multifamily properties. These agencies are responsible for managing 
over $600 billion in insured mortgages. In addition, HUD's Government 
National Mortgage Association; through its guarantee of $600 billion in 
mortgage-backed securities; provides liquidity to the market by 
ensuring that lenders of government-insured loans can obtain additional 
funds to make mortgages available to other qualified borrowers. 
Furthermore, government-sponsored enterprises (GSE), Fannie Mae, 
Freddie Mac, and the Federal Home Loan Banks, are also encouraged to 
provide liquidity to lenders in underserved markets. These GSEs must 
also operate in a safe and sound manner. The housing finance system 
supported by these federal agencies and GSEs represents one of the 
nation's largest financial markets, with significant commitments, 
obligations, and financial exposure. These entities have long-term 
commitments whose ultimate cost depends on the performance of 
underlying mortgages and, in the case of GSEs, the prudence of their 
funding strategies. At the same time these various federally sponsored 
programs, incentives, and requirements can have a substantial influence 
on the availability of housing finance, particularly for markets that 
are considered to be underserved.

Potential Outcomes that Could Result when GAO's Work Is Used:

Better management of acquired multifamily properties and loans, thereby 
limiting the federal government's losses,

Improved HUD administration of its single-family and multifamily 
mortgage insurance program,

Improved supervision of the GSEs, enabling them to meet public policy 
goals while ensuring safe and sound operations,

Improved capital requirements that are more commensurate with the risks 
posed by the GSEs' operations,

Improved HUD ability to ensure adequate capital reserve and funding for 
its insurance programs,

More effective delivery of homeownership opportunities to low- and 
moderate-income households.

Viable Communities:
Assess the Effectiveness of Federal Initiatives to Assist Small and 
Minority-Owned Businesses.

Key Efforts:

* Assess SBA's initiatives to make its programs more efficient, 
effective, and helpful to small businesses, especially those least able 
to access credit markets,

* Assess SBA's management initiatives in areas such as organizational 
alignment, information technology, financial management, and human 
capital, and determine how these improvements may have helped SBA 
better meet its mission,

* Assess the impact of federal contracting policies and practices on 
small businesses and determine what oversight SBA provides to ensure 
that federal agencies meet small business contracting goals.

Significance:

America's small businesses play a critical role in the nation's 
economy, employing more than half the nation's workforce. Since its 
inception in 1953, the Small Business Administration (SBA) has had a 
clear mission to serve the small business sector of the economy by 
providing financial, technical, and management assistance to help 
Americans start, run, and grow their own businesses. SBA also has 
oversight responsibility for federal contracting goals for small 
businesses. In 2000, $47 billion in federal prime contracts went to 
small businesses. SBA has undertaken a number of initiatives to address 
problems identified in areas such as its business loan guarantee 
programs, minority business development program, and information 
systems management. As SBA pursues its mission to maintain and 
strengthen the nation's economy by aiding, counseling, assisting, and 
protecting the interests of small businesses and by helping families 
and businesses recover from natural disasters, the Congress needs up-
to-date functional and programmatic assessments of SBA's performance.

Potential Outcomes that Could Result when GAO's Work Is Used:

Improved SBA assistance to small businesses and better cost-saving 
measures,

Improved SBA management practices that lead to more results-oriented 
performance,

Increased knowledge of the effects of federal contracting practices on 
small businesses and enhanced oversight of federal small business 
contracting goals.

Viable Communities:
Assess Federal Efforts to Enhance National 
Preparedness and Capacity to Respond to and Recover From Natural and 
Man-Made Disasters.

Key Efforts:

* Assess FEMA's and other federal agency efforts to coordinate federal, 
state, and local disaster preparedness, response, and recovery efforts 
and ensure efficient, effective, and accountable services at all 
levels,

* Assess the structure, coordination, and cost-effectiveness of FEMA's 
disaster mitigation activities to reduce the likelihood and potential 
effects of both man-made and natural disasters,

* Assess the cost and benefits of implementation of existing disaster- 
related insurance programs,

* Assess the capacity of private insurance markets to supply coverage to 
protect individuals, families, and businesses from catastrophic losses, 
and assess federal efforts to support and supplement that protection.

Significance:

Since 1977, the federal government provided over $100 billion to assist 
victims of disasters and emergencies during the 1980s and 1990s. To 
respond to the recent terrorist attacks, the Federal Emergency 
Management Agency (FEMA) has already been appropriated $40 billion for 
recovery and relief efforts in New York City, Virginia, and 
Pennsylvania. The Federal Response Plan, coordinated by FEMA, 
represents the federal blueprint for responding to all disasters, 
providing a framework for coordinating the delivery of all federal 
assistance to state and local governments. The September 11 attacks 
have heightened national interest in and concern about the 
effectiveness of overall federal support to state and local governments 
in enhancing the planning, mitigation, response, and recovery from 
disasters; both natural and man made.

Determining how to provide disaster assistance as efficiently and cost- 
effectively as possible is the subject of many national debates. The 
Congress and FEMA have increasingly emphasized the importance of 
mitigation;  prevention activities or projects put in place prior to a 
disaster to reduce losses or to prevent them from occurring; as the 
most effective means of reducing long-term losses from disasters. 
However, the process FEMA has used in the past to provide mitigation 
assistance; making a grant after a disaster based on a percentage of 
the total costs of the disaster available for discretionary use within 
a state; may not prepare the nation for disasters in other geographic 
areas. Although the National Flood Insurance Program was intended to 
shift the financial burden of flood losses from the federal government 
to policyholders, it has not fully done so as the program's expenses 
over time have exceeded its revenues. As concerns about controlling 
future disaster spending grow, decision makers are facing new issues 
regarding the availability and affordability of insurance coverage and 
mitigation assistance for terrorist incidents as well as natural 
disasters.

Potential Outcomes that Could Result when GAO's Work Is Used:

Improved coordination and more effective federal support of efforts to 
enhance the capacity of state and local first responders to cope with 
large-scale disasters,

More responsive, better coordinated, and more efficient and accountable 
disaster response and recovery efforts,

More effective and economical mitigation strategies and programs for 
the full range of federal efforts to reduce the likelihood and effect 
of future disasters,

Increased congressional understanding of the National Flood Insurance 
Program's coverage of properties in flood-prone areas and possible 
measures to improve the program's financial condition,

Increased understanding of the pros and cons of increased federal 
involvement in providing catastrophic insurance or other forms of 
backup protection to enhance the capacity of private insurance markets.

Viable Communities:
Assess How Well Federally Supported Housing Programs Meet Their 
Objectives and Affect the Well-Being of Recipient Households and 
Communities.

Key Efforts:

* Assess how current and new housing programs can better meet the demand 
for low-income housing,

* Assess federal agencies' efforts to ensure that federally assisted 
housing is effectively managed and remains in good physical and 
financial condition,

* Assess how effectively housing programs are used in combination with 
other community investment programs in promoting decent affordable 
housing and suitable living environments,

* Determine what progress HUD has made in managing program costs and 
operations and in addressing its high-risk performance and management 
challenges, including its human capital management and acquisitions 
practices.

Significance:

For more than six decades, the federal government has taken numerous 
actions to help families with lower incomes attain safe, decent, and 
affordable housing. In fiscal year 1999, the federal government spent 
close to $30 billion to provide housing assistance to about 5.2 million 
households. This assistance included funding to support about 1.6 
million units with certificates and vouchers, about 2.4 million 
privately owned subsidized units, and about 1.3 million public housing 
units. During the same year, however, almost 9 million very-low-income 
renter households that qualified for housing assistance did not receive 
it. HUD's rental assistance and other programs remain at high risk of 
waste, abuse, and mismanagement. HUD faces numerous challenges in 
improving its human capital, acquisition management, and information 
technology capabilities and practices. Federal agencies also face a 
number of challenges in making sure that the existing housing stock is 
physically and financially sound and is administered in a manner that 
best serves the needs of low-income households. For example, a 
substantial portion of the federally supported housing stock is either 
currently experiencing physical or financial difficulties or is likely 
to face such difficulties in the future. Furthermore, existing housing 
assistance and supportive services programs are faced with the growing 
and changing needs of special populations; the elderly, the homeless, 
and persons with disabilities. All of these challenges point to the 
need to increase the cost-effectiveness of housing programs, to 
strengthen program delivery mechanisms, to modify programs in light of 
changing needs, and to ensure that responsibilities for administering 
the programs are being carried out in the most efficient and effective 
manner. These challenges also point to the need to better understand 
the relationship between federally supported housing programs and 
community stability.

Potential Outcomes that Could Result when GAO's Work Is Used:

Improvements in the design, delivery, efficiency, and impact of housing 
assistance programs,

Improvements in federal agencies' efforts to assess and address the 
physical and financial needs of federally supported housing,

Improvements in agencies' actions to identify properties that are 
physically or financially troubled and to take corrective actions,

Enhancements in HUD's efforts to identify and address its major human 
capital issues,

Improvements in HUD's management of its acquisition process and efforts 
to hold contractors accountable for their work,

A more informed basis for the Congress to assess the costs and spending 
patterns of HUD's programs and operations.