GAO-12-938R

United States Government Accountability Office

Washington, DC 20548

September 14, 2012

The Honorable Richard Durbin

Chairman

The Honorable Jerry Moran

Ranking Member

Subcommittee on Financial Services and General Government

Committee on Appropriations

United States Senate

The Honorable Jo Ann Emerson 

Chairwoman

The Honorable José E. Serrano

Ranking Member

Subcommittee on Financial Services and General Government

Committee on Appropriations

House of Representatives

The Honorable Emanuel Cleaver, II

Chairman

Congressional Black Caucus

House of Representatives

Subject: The Distribution of Federal Economic Development Grants to Communities with 

High Rates of Poverty and Unemployment

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.1 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. 

 

1

GAO, Economic Development Programs: Efficiency and Effectiveness of Fragmented Economic Development 

Programs Are Unclear, GAO-11-477R (Washington, D.C.: May 19, 2011). See enclosure IV for a list of related 

GAO reports.
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To assist you in your fiscal year 2013 budget deliberations you 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 your 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 your staff on May 5, July 23, and July 27, 2012. (See enclosure I for the 

presentation slides.) Specifically, these slides describe 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.

The federal government supports community and economic development through grants, 

loans, and tax expenditures. In addition to the $6.2 billion in grants and loans, the federal 

government invested an even larger amount—$8.7 billion—in community and economic 

development through tax expenditures in fiscal year 2010.2 However, given your primary 

interest in the distribution of federal grant funds to economically distressed communities, we 

focused our work specifically on a selection of high dollar value community and economic 

development grant programs that made funding available to cities and nonmetropolitan 

counties. Four agencies administered these programs— the Departments of Commerce 

(Commerce), Housing and Urban Development (HUD), and Agriculture (USDA), and the 

Small Business Administration (SBA). (See enclosure II for a list of the selected economic 

development grant programs.) 

Our analysis included grant programs that use both competitive and formula award 

procedures to channel funds to communities with high rates of poverty or to programs that 

serve low and moderate income households. For example, USDA’s Rural Business 

Opportunity grants program awards funds through a competitive process that gives priority 

to projects that will provide services to economically distressed communities. By contrast, 

HUD allocates Community Development Block Grant Program (CDBG) funds to 

communities by using a formula which employs several variables--poverty, population, pre1940 housing, slow population growth and overcrowding.3 Although poverty is one factor in 

targeting funds to economically distressed communities, the CDBG program, which has the 

most impact on our findings, is designed to target multiple dimensions of community need. 

To determine the distribution of federal economic development grant funding for cities and 

rural counties with various rates of poverty and unemployment, we combined information 

from a number of sources including our previous work on community and economic 

 

2

Tax expenditures are preferential provisions in the tax code, such as exemptions and exclusions from taxation, 

deductions, credits, deferral of tax liability, and preferential tax rates that result in forgone revenue for the federal 

government. The revenue that the government forgoes is viewed by many analysts as spending channeled 

through the tax system. See GAO, Limited Information on the Use and Effectiveness of Tax Expenditures Could 

Be Mitigated through Congressional Attention. GAO-12-262 (Washington, D.C.: Feb. 29, 2012).

3

Our analyses include $2.8 billion in CDBG/Entitlement Communities grants and $1.2 billion in CDBG/States 

Program grants. Recipients of both programs may undertake a wide range of activities including economic 

development, and improvements to community services and facilities.
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development programs,4 agency-reported fiscal year 2010 obligation data, and economic 

indicator data from the U.S. Bureau of the Census’ (Census) American Community Survey. 

Given your interest in both urban and rural communities, we examined approximately 465 

cities with populations exceeding 65,000 and 2,048 nonmetro counties.5

To determine the amount of grant funding awarded to cities, we selected high-dollar grant 

programs that made federal economic development grant funds available to cities, totaling 

$2.3 billion in fiscal year 2010 obligations. To determine the amount of grant funding 

awarded to nonmetro counties, we selected grant programs that made funding available to 

rural locations, which totaled roughly $1.5 billion in fiscal year 2010 economic development 

grant obligations.6

 

To identify grant recipients in cities and related obligation amounts, we used fiscal year 2010 

data from USAspending.gov (accessed Aug. 22, 2012), a publicly searchable database on 

government spending. To identify obligation amounts and grant recipients in nonmetro 

counties, we used the USDA Economic Research Service’s Federal Funds data set. We 

assessed the reliability of these data by (1) performing electronic testing of required data 

elements, (2) reviewing existing information about the data and the system that produced 

them, and (3) interviewing agency officials knowledgeable about the data. We determined 

the data were sufficiently reliable for the purposes of this report. We interviewed agency 

officials from Commerce, HUD, SBA, and USDA about their data reliability procedures and 

obtained obligation data to verify the obligation totals. To approximate economic need in a 

given city or nonmetro county, we used poverty rates and unemployment rates from Census’ 

2010 American Community Survey and compared the distribution of economic development 

grant funding for cities and nonmetro counties with different rates of poverty and 

unemployment.

Finally, to focus our analysis on populations experiencing economic hardships, we 

examined grant obligations relative to the number of persons in poverty and to unemployed 

persons in the geographic areas in our analyses. While there are other valid ways to 

measure the distribution of grant obligations, such as comparing obligations across 

geographies on a per capita basis, we chose to compare funding amounts relative to 

poverty populations and unemployed populations because of your interest in how 

communities with high rates of poverty and unemployment fare with respect to federal 

 

4

GAO-11-477R and GAO, Economic Development: Multiple Federal Programs Fund Similar Economic 

Development Activities, GAO/RCED/GGD-00-220 (Washington, D.C.: Sept. 29, 2000). 

5

The $2.3 billion amount represents economic development grant obligations for cities with populations over 

65,000 and with both poverty and unemployment data available in the U.S. Census’ American Community

Survey 2010 1-year estimates. The $1.5 billion amount represents economic development grant obligations for 

nonmetro counties with poverty and unemployment data available in the American Community Survey 5-year 

estimates.

6

Nonmetro counties are all areas outside metro counties. In this analysis, we use “rural" and "nonmetro" 

interchangeably to refer to people and places outside of metro areas. Metro counties, as defined by the Office of 

Management and Budget, include central counties containing one or more urbanized areas (i.e., areas with an 

urban center with a population of 50,000 or more); outlying counties are included if economically tied to the core 

counties as measured by work commuting. 
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funding for community and economic development. In addition, many of the grant programs 

we examined are designed to aid populations in need. For this reason we compare funding 

across jurisdictions not on a per capita basis but on specific targeted populations with the 

greatest need to show the relationship of the federal grant funding to such populations. 

Although we singled out these populations for this analysis, it is important to note that the 

benefits of economic development grant funding may accrue to the wider population.

We conducted our work from August 2011 to September 2012 in accordance with all 

sections of GAO’s Quality Assurance Framework that are relevant to our objectives. The 

framework requires that we plan and perform the engagement to obtain sufficient and 

appropriate evidence to meet our stated objectives and to discuss any limitations in our 

work. We believe that the information and data obtained, and the analysis conducted, 

provide a reasonable basis for any findings and conclusions in this product.

Summary

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. 
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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.

Agency Comments and Our Evaluation

We provided a draft of this correspondence to Commerce, HUD, USDA and SBA for review 

and comment. Commerce and HUD provided written comments, which are presented in 

enclosure III and IV, respectively. While both agencies generally agreed with our findings, 

Commerce provided additional information on some of the data we used, and HUD 

requested that we provide additional clarification on our methodology and results for 

analyzing the distribution of economic development grant funds to communities. USDA and 

SBA provided technical comments, which we have incorporated where appropriate.

Commerce noted that the fiscal year obligation amounts which we included in the draft’s 

enclosure II differed from the actual fiscal year 2010 obligation amounts that Commerce has 

for some programs. We agree that the numbers we had included in enclosure II may differ 

from Commerce’s actual 2010 obligation amounts. This difference is due to the fact that we 

obtained obligation data as of August 2011. While these were the most recent data that 

provide federal grant obligations by county, agencies can later adjust the obligation 

amounts. Although many of the differences are generally quite small, we have removed the 

unadjusted award data from the table in enclosure II to prevent confusion with data that 

have been more recently adjusted.7

HUD commented that we should provide more information on the method of allocation for 

each program so that readers understand variables that influence the allocation of funds to 

economically distressed communities. Although we provide information about the methods 

programs used to allocate funds to economically distressed communities, we agree that 

additional information, particularly in regards to the CDBG program which has a major 

 

7

Appropriation data for these programs, which gives an indication of relative size of each program, is 

provided in GAO-11-477R, 43-50. 
6 GAO-12-938R

impact on our analysis, could be beneficial. Accordingly, we have provided additional detail 

about the CDBG program to clarify that poverty is one of several variables used to target 

CDBG funds to economically distressed communities. HUD also noted that, because our 

analysis focused on specific populations within communities rather than on the entire 

community population, it was misleading to conclude that the distribution of grant funding to 

communities was not consistently aligned with poverty and unemployment rates. We agree 

and have clarified our language and added more detailed information to make it clearer that, 

given congressional interest in the distribution of federal funds to populations experiencing 

the greatest need, our findings reflect a per capita comparison based on the populations in 

poverty and the unemployed as opposed to an overall per capita basis.

***************************************************

We are sending copies of this report to the appropriate congressional committees and the 

Secretaries of Commerce, HUD and USDA, and the Administrator of SBA. In addition, the 

report is available at no charge on GAO’s Web site at http://www.gao.gov. 

If you or your staff has questions regarding this report, please contact me at (202) 512-6806 

or czerwinskis@gao . Contact points for our Offices of Congressional Relations and 

Public Affairs may be found on the last page of this report. Individuals making key 

contributions to this report include Laurel E. Beedon, Amy R. Bowser, Kathleen M. Drennan, 

Gregory O. Dybalski, Luann M. Moy, Keith C. O’Brien, Carol L. Patey, Rebecca K. Rose, 

Tind S. Ryen, Albert C. Sim and Michael Springer.

.gov

Stanley J. Czerwinski

Director

Strategic Issues

Enclosures—5 
GAO-12-938R

Enclosure I: Briefing Slides
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GAO-12-938R

Enclosure II: Selected Economic Development Programs

Agency Program

Included in nonmetro 

county analysis

Included in city 

analysis

Commerce Economic Adjustment Assistance ● ●

Grants for Public Works & Economic Development 

Facilities ● ●

Trade Adjustment Assistance ● ●

Community Trade Adjustment Assistance ●

Economic Development - Support for Planning 

Organizations ● ●

Economic Development - Technical Assistance ●

Minority Business Development Centers ●

Research and Evaluation Program ●

Minority Business Opportunity Committee ●

HUD

Community Development Block Grants (CDBG) 

/Entitlement Grants ● ●

CDBG/State's Program ●

Alaska Native/Native Hawaiian Institutions Assisting 

Communities ●

CDBG/Insular Area ●

Sustainable Communities Regional Planning Grant 

Program ●

SBA Small Business Development Center ●

Microloan Demonstration Program ● ●

Women's Business Ownership Assistance ● ●

Microenterprise Development Grants ●

Veterans Entrepreneurial Training and Counseling ●

SCORE ●

USDA Water and Waste Disposal System for Rural Communities ●

Community Facilities Loans and Grants ●

Rural Energy for America Program ●

Water and Waste Disposal Loans and Grants (Section 

306C) ●

Rural Business Enterprise Grants ●

Rural Cooperative Development Grants ●

Small Business Innovation Research ● ●

Technical Assistance and Training Grants ●

Rural Economic Development Loans and Grants ●

Assistance to High Energy Cost Rural Communities ●

Rural Business Opportunity Grants ●

Public Television Station Digital Transition Grant Program ●

Schools and Roads Grants to States ●

Solid Waste Management Grants ●

Emergency Community Water Assistance Grants ●

State Bulk Fuel Revolving Fund Grants ●
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Agency Program

Included in nonmetro 

county analysis

Included in city 

analysis

Rural Microentreprenuer Assistance Program ●

Grant Program to Establish a Fund for Financing Water 

and Wastewater Projects ●

Schools and Roads Grants to Counties ●

Empowerment Zones Program ●

Distant Learning and Telemedicine Loans and Grants ●

Total 40 9

Sources: U.S. Department of Agriculture and U.S. Department of Housing and Urban Development data and GAO-11-477R.

Note: Appropriation data for these programs, which gives an indication of relative size of each program, is provided in 

GAO-11-477R, 43-50.
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Enclosure III: Comments from the Department of Commerce
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Enclosure IV: Comments from the Department of Housing and Urban Development
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Enclosure V: Related GAO Products

Entrepreneurial Assistance: Opportunities Exist to Improve Program Collaboration, Data-Tracking, 

and Performance Management. GAO-12-819. Washington, D.C.: August 23, 2012

Limited Information on the Use and Effectiveness of Tax Expenditures Could Be Mitigated through 

Congressional Attention. GAO-12-262. Washington, D.C.: February 29, 2012.

Efficiency and Effectiveness of Fragmented Economic Development Programs Are Unclear. 

GAO-11-477R. Washington, D.C.: May 19, 2011. 

Opportunities to Reduce Potential Duplication in Government Programs, Save Tax Dollars, and 

Enhance Revenue. GAO-11-318SP. Washington, D.C.: March 1, 2011.

Revitalization Programs: Empowerment Zones, Enterprise Communities, and Renewal Communities.

GAO-10-464R. Washington, D.C.: March 12, 2010.

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

Tax Benefits Are Limited. GAO-04-306. Washington, D.C.: March 5, 2004

Rural Economic Development: More Assurance Is Needed That Grant Funding

Information Is Accurately Reported. GAO-06-294. Washington, D.C.: February 24, 2006.

Economic Development: Multiple Federal Programs Fund Similar Economic Development Activities. 

GAO/RCED/GGD-00-220. Washington, D.C.: September 29, 2000.

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