United States Government Accountability Office

Washington, DC 20548 

December 21, 2005 

The Honorable James M. Inhofe 

Chairman 

The Honorable Jim Jeffords 

Ranking Minority Member 

Committee on Environment and Public Works 

United States Senate 

The Honorable Don Young 

Chairman 

The Honorable James L. Oberstar 

Ranking Democratic Member 

Committee on Transportation and Infrastructure 

House of Representatives 

Subject: Status of Two Authorities Granted to the Department of Commerce’s Economic 

Development Administration 

The Department of Commerce’s (Commerce) Economic Development Administration (EDA) 

Reauthorization Act of 20041

 directed us to regularly review the implementation of two 

authorities granted to the Secretary of Commerce: (1) allowing excess funds from projects 

constructed under projected cost to be reinvested in new or existing projects and (2) establishing 

a performance award process for grant recipients that meet or exceed performance measures 

established in connection with the grant. This report transmits briefing slides we provided to 

committee staff on October 27, 2005.

As agreed with the committees of jurisdiction, because the authorities came into effect on 

October 1, 2005—too recently to allow for a full assessment—we limited our initial analysis to 

interviews with agency officials and a review of the legislative history, appropriate budget 

documents, and proposed regulations. We conducted our review from June 2005 through 

November 2005 in Washington, D.C., in accordance with generally accepted government auditing

standards. 

This report (1) discusses EDA’s authority to reinvest excess funds and provides information on 

the portion of these funds EDA has had to return to the U.S. Treasury and (2) describes the 

status of the performance award system and identifies some steps EDA could take to develop a 

useful performance award system. 

 1

Pub. L. No. 1808-373 (2004). The act directed us to report no later than 1 year after the date that this subsection was 

enacted, or no later than October 27, 2005. As agreed, we fulfilled this requirement by providing the enclosed briefing

slides to you by that date. 

GAO-06-308R Status of EDA’s Two Authorities 
Background 

EDA provides two types of funding for construction projects: public works and economic 

adjustment grants. Public works grants are designed to help distressed communities attract new 

industry; encourage business expansion; diversify their economies; and generate long-term, 

private sector jobs. Economic adjustment grants help areas develop and implement strategies to 

address structural economic problems resulting from sudden and severe economic dislocation, 

natural disasters, and spending reductions related to the closure of defense installations and 

military bases. In addition to providing direct assistance, both types of grants are intended to 

leverage local and private sector matching funds, sometimes as much as 50 percent of the total 

project costs. Of EDA’s $292 million in budget obligations for 2005, just under three-fourths 

($212 million) were for construction grants funded under the public works and economic 

adjustment assistance programs. 

EDA published an interim final rule in the Federal Register on August 11, 2005, that included the 

two authorities. The rule, which went into effect on October 1, 2005, gives Commerce’s Assistant 

Secretary for Economic Development the discretion to use excess funds and performance 

awards to increase EDA’s investment rate for projects to up to 100 percent of cost, in some cases 

eliminating the need for matching funds. EDA has not yet published a final rule and is in the 

process of incorporating revisions from Congress on certain provisions of the interim final rule. 

According to EDA officials, these revisions to the provisions are not applicable to the two 

authorities. All changes to the provisions will be reflected in the final rule. 

EDA Has Been Able to Reinvest Excess Funds since Fiscal Year 2000 

Before the EDA Reform Act of 1998, EDA, which was funded with annual funds, was required to 

return to the U.S. Treasury all funds from construction projects that were constructed for less 

than the projected cost (cost underruns). The EDA Reform Act of 1998 modified EDA's 

authorizing legislation (the Public Works and Economic Development Act of 1965, as amended) 

to permit EDA to retain funds recovered from projects constructed under cost to improve the 

project, and not return those particular funds, even though they were annual funds, to the U.S. 

Treasury. Cost underrun funds that could not be used to improve the project had to be returned. 

Beginning in fiscal year 2000, appropriations language permitted EDA to retain all program funds 

until the money was expended—that is, no-year funding. However, according to EDA officials, 

after the agency started receiving no-year funding, the agency's 1998 authorization legislation had 

the unintended consequence of requiring EDA to return to the U.S. Treasury cost underrun funds 

that could not be used to improve the specific construction project, even though the funds were 

no-year funds. The 2004 authorizing legislation corrected this unintended consequence, and EDA 

may now retain all cost underrun funding and use the funds for other projects. 

EDA officials stated that between fiscal years 2000 and 2004 about $127.2 million of excess funds 

was reinvested. Of this amount, about $79.3 million (62 percent) was used to improve existing 

projects and about $47.9 million (38 percent) was reinvested in new projects. EDA officials also 

said that between fiscal years 2000 and 2005, the agency returned about $5.7 million of excess 

funds to the U.S. Treasury—$3.8 million in fiscal year 2004 and $1.9 million in fiscal year 2005. 

In addition, EDA returned about $6.7 million to the U.S. Treasury that was rescinded in fiscal 

year 2004 as part of an across-the-board cut in nondefense spending. 

2 GAO-06-308R Status of EDA’s Two Authorities 
EDA Does Not Plan to Implement the Performance Award System in the Near Future 

EDA officials told us that the agency has not yet issued any performance awards but was 

developing policy and procedures that would allow the agency to offer such incentives. But the 

officials added that they did not foresee the agency issuing any awards in the near future. They

said that the agency needed more time to refine the general criteria set out in the interim final 

rule and noted that any changes would be reflected in the final rule. 

Under the new interim final rule, as amended, to qualify for a performance award a grant 

recipient must be rated as meeting or exceeding certain standards. 2 That is, recipients’ projects 

must generate at least the number of jobs and the amount of private investment that was initially 

estimated and must meet the initial target dates that were set for starting and completing the 

projects. The new rule gives Commerce’s Assistant Secretary for Economic Development 

discretion in determining other performance characteristics. Performance awards would be 

issued after the projects were closed out, which is a process that takes, on average, about 3 

years, and the amounts awarded could not exceed 10 percent of the original project costs. As 

part of previous analyses, we found difficulties in estimating jobs and private investments both 

before and after the projects were closed out. Some of these difficulties had to do with limited 

data being available to measure the impact of construction projects and inconsistencies on the 

part of some EDA officials in verifying and reconciling initial estimates of projected jobs and 

private investments with reported results.3

 Clearly defined and supportable criteria could 

improve the basis for granting performance awards, as well as utilizing independent sources to 

verify estimates. 

Agency Comments 

We provided a draft of our briefing slides to EDA for review and comment. They generally 

agreed with the briefing slides and provided technical comments. We have incorporated their 

comments in this report where appropriate. 

- - - - - 

Copies of this report are being sent to the Assistant Secretary of Commerce for Economic 

Development; the Director, Office of Management and Budget; and other interested parties. We 

will also make copies available upon request. In addition, the report will be available at no 

charge in GAO’s Web site at http://www.gao.gov. 

 2

On December 15, 2005, EDA published certain amendments to the interim final rule in the Federal Register. 

3

GAO, Economic Development Administration: Remediation Activities Account for a Small Percentage of Total 

Brownfield Grant Funding, GAO-06-7 (Washington, D.C.: Oct. 27, 2005); Economic Development: Limited 

Information Exists on the Impact of Assistance Provided by Three Agencies, GAO/RCED-96-103 (Washington D.C.: 

Apr. 3, 1996); and Economic Development: Observations Regarding the Economic Development Administration’s

May 1998 Final Report on Its Public Works Program, GAO/RCED-99-11R: Mar. 23, 1999). 

3 GAO-06-308R Status of EDA’s Two Authorities 
If you or your staffs have any questions about this report, please contact me at (202) 512-4325 or 

at shearw@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs 

may be found on the last page of this report. Andy Finkel, Assistance Director; Roberto Piñero; 

Emily Chalmers; and Tania Calhoun made key contributions to this report. 

William B. Shear 

Director, Financial Markets and 

 Community Investment 

Enclosure

4 GAO-06-308R Status of EDA’s Two Authorities 
Enclosure I 

1

Excess Funds and Performance Awards

Briefing to Senate Committee on Environment 

and Public Works and House Committee on 

Transportation and Infrastructure

October 27, 2005

5 GAO-06-308R Status of EDA’s Two Authorities 
Enclosure I 

2

Contents

• EDA Mandates

• Objectives

• Background

• Use of Excess Funds

• Performance Awards

6 GAO-06-308R Status of EDA’s Two Authorities 
Enclosure I 

3

EDA Mandates

The EDA Reauthorization Act of 2004 requires us to 

evaluate two authorities granted to the Secretary of 

Commerce:

• The use of funds that remain after projects receiving 

EDA grants are completed at less than the projected 

cost (excess funds).

• Performance awards to EDA grant recipients that meet 

or exceed certain standards.

7 GAO-06-308R Status of EDA’s Two Authorities 
Enclosure I 

4

Objectives

Our review has two objectives:

• To describe how excess funds are currently used and 

determine the amount of excess funds that EDA 

returns to the U.S. Treasury.

• To determine the status of the performance award 

system that is being developed and identify some of 

the steps that should be taken next.

8 GAO-06-308R Status of EDA’s Two Authorities 
Enclosure I 

5

Background:

Budget Considerations

• About three-fourths of EDA’s budget is used to

fund construction-related projects.

• In 2005, $212 million in budget obligations was 

designated for construction-related grants.

• EDA’s primary construction-related initiatives 

are the Public Works Program and the 

Economic Adjustment Program.

• Construction-related projects could be eligible 

for excess funds, performance awards, or both.

9 GAO-06-308R Status of EDA’s Two Authorities 
Enclosure I 

6

Background:

Budget Considerations (continued)

• Before FY 2000, funds for projects were made 

available annually.

• Authorizing legislation required EDA to return all 

excess funds to the U.S. Treasury at the end of

the fiscal year in which they were awarded.

• Beginning in FY 2000, appropriation language 

permitted EDA to keep all program funds until 

the money was expended (no-year money).

10 GAO-06-308R Status of EDA’s Two Authorities 
Enclosure I 

7

Background:

Interim Final Rule

• On August 11, 2005, EDA published an Interim 

Final Rule that included the two authorities.

• On October 1, 2005, the Interim Final Rule

became effective (with limited exceptions that 

were not applicable to the two authorities).

• EDA can now use these two authorities for other

purposes, including to increase the investment

rate of affected projects and reduce the 

matching funds requirement.

11 GAO-06-308R Status of EDA’s Two Authorities 
Enclosure I 

8

Background:

Interim Final Rule (continued)

• EDA has not yet published a Final Rule.

• Discussions with Congress indicate a desire to

revise certain provisions of the Interim Final 

Rule. 

• All changes will be reflected in the Final Rule.

12 GAO-06-308R Status of EDA’s Two Authorities 
Enclosure I 

9

Use of Excess Funds:

Need for the New Authority

EDA officials told us that the agency:

• needed the new authority, which makes clear that the 

no-year funds do not need to be returned to the U.S. 

Treasury, and 

• has been able to reinvest some of the excess funds 

since 2000, but may need this authority to reinvest 

excess funds in new projects.

13 GAO-06-308R Status of EDA’s Two Authorities 
Enclosure I 

10

Use of Excess Funds:

Existing and New Projects

Between 2000 and 2004, about $127.2 million in excess funds

was reinvested in new or existing projects:

EDA was unable to tell us how much in excess funds was used to improve 

original projects on a case-by-case basis.

14 GAO-06-308R Status of EDA’s Two Authorities 
Enclosure I 

11

Use of Excess Funds:

Funds Returned to US Treasury

Between 2000 and 2005, EDA returned about $12.4 million to 

the U.S. Treasury:

15 GAO-06-308R Status of EDA’s Two Authorities 
Enclosure I 

12

Performance Awards:

Is the New Authority Needed?

EDA officials told us that:

• the agency had not yet issued any awards but was

developing the policy and procedures to do so;

• they did not foresee issuing any awards soon;

• awards would be issued after projects were closed out

(on average, about 3 years after the time of the award); 

and

• EDA needed more time to refine general criteria set out 

in the Interim Final Rule and that any changes would be

reflected in the Final Rule.

16 GAO-06-308R Status of EDA’s Two Authorities 
Enclosure I 

13

Performance Awards:

General Criteria

Under the Interim Final Rule, to qualify for a performance 

award a grant recipient must be rated as meeting or

exceeding the following standards:

• projected number of jobs created;

• projected private investment;

• target dates for starting and completing the project; and

• other characteristics, as determined by the Assistant 

Secretary of Commerce.

The award may not exceed 10 percent of the EDA grant.

17 GAO-06-308R Status of EDA’s Two Authorities 
Enclosure I 

14

Performance Awards:

General Criteria – Next Steps

In previous GAO reports, we noted that:

• limited data made quantifying gains from EDA 

programs difficult,

• discrepancies existed between the initial estimates of

jobs and private investment and the actual results 

reported after 6 years, and

• some EDA regional offices had not followed 

procedures in verifying estimates.

Clearly defined and supportable criteria are needed as a basis

for granting performance awards, as well as independent 

sources to verify estimates.

18 GAO-06-308R Status of EDA’s Two Authorities 
Enclosure I 

15

Questions?

Questions?

(250246) 

19 GAO-06-308R Status of EDA’s Two Authorities 
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