According to the National Academy of Public Administration, federal participation in economic development evolved during the 20th century. Economic development programs implemented during the 1930s characteristically involved direct federal action, bypassing state and local governments. During the 1940s and 1950s, these programs were intended to improve housing and commercial districts in central cities. In the 1960s, the federal government created programs to provide economic development assistance to economically distressed areas. These programs were expanded in the 1980s and 1990s to utilize new technologies to create new transit systems, clean up hazardous waste sites, and carry out other economic development activities in urban and rural areas. Most recently, economic development initiatives have included the revitalization of disaster areas, including lower Manhattan after the September 11, 2001, terrorist attacks and the Gulf Coast after the 2005 hurricane season. A variety of federal programs and federally funded regional commissions and authorities have helped advance economic development in communities throughout the United States, including many communities that are considered rural. Most of the nationwide programs do not have specific rural economic development objectives, but the regional commissions and authorities target economic rural areas specifically. For this reason, a narrow definition of economic development programs that only included those focusing exclusively on rural areas would include few programs and limited dollars. The nationwide programs also do not have a standard definition of economic development. Department of Commerce officials, for example, consider economic development programs as those that save or create jobs. U.S. Department of Agriculture (USDA) officials consider economic development broadly as activities that increase economic opportunities and improve residents’ quality of life. Officials at other federal agencies, including the Department of Defense (DOD), the Department of Transportation (DOT), and the Department of Housing and Urban Development (HUD), said that they did not have definitions of economic development. Like the concept of economic development, the notion of what constitutes rural and urban areas has evolved over several decades, partly in response to changes in residential and commuting patterns. As the cities and suburbs have expanded and more remote areas have become accessible, distinctions between rural and urban areas have blurred. Federal agencies use different criteria as to what constitutes a rural area. Depending on the agency and the program, the criterion most often used to define rural areas is population, especially at USDA, which uses varying thresholds ranging from 2,500 or less to 50,000. Some agencies and programs that fund economic development activities do not focus on serving rural or urban areas but instead provide competitive or formula-based grants to eligible applicants from any location. FAADS is a centralized reporting system that OMB established in April 1980 to gather and disseminate information on the domestic financial assistance provided by federal agencies. Authorized by the Consolidated Federal Funds Report Act of 1982, FAADS is a quarterly report of financial assistance awards made by each federal agency. OMB has designated Census as its executive agent to manage and operate the system, which the Congress and public officials use for policy and trend analyses, revenue forecasting, oversight, and legislative initiatives. Federal agencies and regional commissions and authorities that administer financial assistance programs are required to report quarterly to FAADS on the financial assistance awards they make. Because federal agencies do not have a standard definition of what constitutes economic development, we developed a list of activities that were generally accepted as being directly related to economic development. As agreed with your office, we based our framework on our prior work, a review of other research studies, and discussions with federal officials and rural development groups. We also held discussions with the administering federal agencies, regional commissions, and regional authorities to reach consensus on the activities and programs we selected. Our framework includes nine economic development activities: planning and developing strategies for job creation and retention; constructing and renovating commercial buildings; establishing business incubators (facilities to help small businesses get developing infrastructure by constructing and repairing roads, water and sewer systems, and airports; promoting the development of new markets for existing products; developing telecommunications and broadband infrastructure and enabling technology transfer; and developing and improving areas for tourism. The first five activities listed above, with the exception of developing airports, are from our 2000 report. That list was developed based on a general consensus of officials from (1) the Department of Commerce’s Economic Development Administration, whose mission is to help economically distressed areas, (2) other federal agencies involved with economic development, and (3) several national associations familiar with economic development. For this report, we confirmed the 2000 list with officials from the same federal agencies and organizations and also reached a general consensus on the four additional items. In general, we focused on activities that directly affected the overall development of an area, such as job creation, rather than on activities that improved individuals’ quality of life, such as housing and education. However, we did include job training that had a direct impact on economic development by, for example, preparing employees for work in a specific industry or business in a particular area. We identified 86 federal programs at 10 federal agencies and 3 regional commissions that included one or more of the activities in our economic development framework. Many of these programs were not labeled as economic development programs, but some of their activities suggested that they supported this goal. For example: The goal of USDA’s Empowerment Zone and Enterprise Community program for rural areas is to stimulate the creation of new jobs, particularly for the disadvantaged and long-term unemployed, and to revitalize economically distressed rural areas. The Department of the Interior’s (Interior) Bureau of Indian Affairs Facilities Operations and Maintenance program provides funding for basic services at noneducational facilities located on reservations. The Department of Commerce’s Trade Adjustment Assistance program provides assistance to firms and industries adversely affected by increased imports. The Appalachian Regional Commission, which oversees the Appalachian Development Highway System, aims to open up areas with development potential where commerce and communication have been inhibited by lack of adequate access. The number of programs each agency and commission administered that met one or more of the components of our economic development framework varied from one at the Denali Commission—established in 1998 to address the needs of rural Alaska—to 29 at USDA. We included only economic development programs that received funding during our review period (fiscal years 2002 to 2004). Thus, we did not include programs such as DOD’s base closing economic assistance programs because DOD reported no obligations for these programs during those years. Appendix II contains more detailed information on each of the 86 programs. Since our 1989 report, which used county-level data to classify rural and urban areas, a variety of more sophisticated classification systems have been developed that use census tracts to differentiate between rural areas and urban areas. These classification systems provide a more precise way of differentiating between rural and urban areas than county-based systems. Further, computer software programs can now geocode federal funding data below the county level. Due to data limitations that only allowed us to identify subcounty level recipients for about half of the funding, we chose to use a system developed in 2001 which relies on both population and commuting patterns of census tracts to classify each county as rural or urban based on the counties dominant commuting patterns. Although this approach does not fully resolve all the classification problems inherent in county-based systems that are based on political boundaries rather than demographic characteristics, it allowed us to geocode most of the data and was most comparable to census population data. We considered a number of county-based and subcounty systems for analyzing the data (table 1). We found shortcomings with most of these systems. For example: Many studies that have evaluated the rural share of federal programs, including our 1989 report, have used the rural-urban continuum codes devised by the Economic Research Service (ERS) of the USDA. These codes distinguish counties by their degree of urbanization and proximity to a metropolitan area or areas. While using rural-urban continuum codes allows geocoding at the county level, the results are often skewed, particularly in the western states, where counties often are very large. For example, using this approach, more than 50 percent of the nation’s rural population would live in counties that would be considered urban (based on the 2000 Census). Urban influence codes, which were developed by ERS in 1993 as a way to measure rurality by quantifying the influence of urban areas on rural areas, use only county-level data and are based solely on urban factors. As a result, the classifications are heavily skewed toward urban. Beginning in the 1990s, ERS and other organizations have developed subcounty classification systems that attempt to better capture differences between rural and urban areas. These subcounty classification systems include elements such as commuting zones and labor market areas that are more precise than the county level systems in order to capture the economic and social diversity of rural areas. Some use census tracts (about 62,000) or other geographic areas smaller than counties (about 3,000) that can better reflect rural-urban differences. Census’s urbanized areas and urban cluster system defines rural areas by exclusion—that is, it views as rural all areas that it has not already identified as urban. Census defines urbanized areas as continuously built up areas with a population of at least 50,000 and compromising one or more places and adjacent densely settled areas. Urban clusters are densely settled territories with at least 2,500 but fewer than 50,000 people. Collectively, urbanized areas and urban clusters are referred to as urban areas and essentially depict densely settled territory as it may appear from the air (see fig. 1). On the basis of these definitions, data from the 2000 Census suggest that 59 million Americans (20 percent of the population) reside in rural areas. As we reported in our 2004 report, using urbanized areas and urban clusters is an effective way to make consistent eligibility determinations for individual rural economic development programs when data is available at the census tract level. However, we found that our ability to track funds to the local level varied significantly across agencies. For example, while rural housing and most other USDA program data could be geocoded to the local level, most DOT spending could be tracked only to the counties. Thus, while geocoding data using urbanized areas and urban clusters would effectively show rural and urban differences, limitations with the data would only allow us to geocode about half of the data under this classification system. Ultimately, we chose the dominant RUCA system, developed by the Washington State Office of Community and Rural Health in 2001, because it uses both census tracts and county codes to determine which areas are rural. Using this system we were able to code 99 percent of the economic development funding. The dominant RUCA system is based on the 10- tiered subcounty RUCA system developed by ERS in conjunction with the Department of Health and Human Services (HHS) in the late 1990s. RUCA reflects both where people live and work by using both population and commuting relationships to classify census tracts. The dominant RUCA system classifies each county as rural or urban based on the dominant commuting patterns. Figure 2 shows a map of the rural and urban areas as defined by both the census tracts on which the RUCA codes are based and by the dominant RUCA system that we used due to the data limitations. Although the census tract RUCA code map better reflects where people live and work, using the dominant RUCA system we determined that 19 percent of the U.S. population resided in rural areas. This figure is comparable to the 20 percent figure cited in the 2000 Census. The rural-urban continuum classification system does not explicitly define rural. However, the rural-urban continuum codes can be combined to create rural and urban designations. (See fig. 3.) For example, in our 1989 report we defined as rural any county whose urban population was less than 20,000 people. Using this definition, slightly more than 10 percent of the U.S. population resides in rural areas, or only half the 20 percent rural figure cited in the 2000 Census. The 86 economic development programs we identified that met one or more of the criteria from our list of economic development activities provided about $200 billion in funding to the 50 states and Washington, D.C. for fiscal years 2002 through 2004. We were able to use geocoding to track about $150 billion of those dollars to the county level or below. We could not track beyond the state level another $50 billion that was passed through state capitals to county and local jurisdictions because we could not identify final recipients. If we had geocoded the funding for pass-through programs at the state capitals, the share of spending associated with urban areas—where state capitals are typically located—would have been overstated. For the approximately $150 billion that we could geocode to the county level or below, our analysis showed that during fiscal years 2002 through 2004, rural areas received more economic development program assistance dollars per capita than their urban counterparts. The overall shares of funding varied by the administering program and agency, and by the state and region receiving the money, with rural areas receiving a greater share of the funding in some cases and urban areas in others. When we analyzed economic development funding by program, we found wide variations in the percentage of funding that went to rural areas. The funding ranged from a high of 100 percent for the Interior’s Improvement and Repair of Indian Detention Facilities Program down to about 1 percent for DOT’s Transit Planning and Research Program and HUD’s Brownfields Economic Development Initiative. The programs with the highest percentage of rural funding tended to be from USDA, whose funding decisions are primarily based on specific definitions of rural, and from Interior and the commissions and authorities whose programs serve rural areas. In contrast, HUD, the Environmental Protection Agency (EPA), and DOL were among the agencies with the lowest percentage of funding reaching rural areas who also had significant pass-through dollar amounts. Most program funding by these agencies to eligible applicants is done using a formula or on a competitive basis without differentiating between rural and urban areas. USDA had the most programs providing economic development funding for rural areas, but DOT provided the largest amount of economic development funding overall (fig.4). DOT also accounted for the largest overall amount of pass-through dollars ($37.9 billion), but higher percentages of funds from EPA, DOL, and HUD were sent to state capitals. We were unable to track 88 percent of EPA’s funding, 79 percent of DOL’s, or 75 percent of HUD’s below the state level, and excluded those dollars from our analysis. Examples of programs that we could not track below the state level are DOL’s Employment Service program and EPA’s capitalization grants for clean water and drinking water. Figure 5 shows the approximately $150 billion in economic development funding that we could track below the state level by agency under both the dominant RUCA and rural-urban continuum models during fiscal years 2002–2004. Under both models, the amount of federal agency, regional commission, or authority funding to rural areas varied widely. For example, using the dominant RUCA model we found that the amounts provided to rural areas ranged from 7 percent or less for the portion of DOL and EPA funding we could track to about 58 percent for USDA and 77 percent for the Delta Regional Authority. The share of economic development funding that rural areas received also varied by state. Under the dominant RUCA model, the shares varied from 85 percent of the total funding in Wyoming to 3 percent in Massachusetts. Figure 6 shows the percentage of economic development funding in each state that went to rural areas. The amounts also varied by region of the country. As shown in figure 7, rural residents in the western states generally received more economic development funding per capita than residents in the mid-Atlantic and midwest states. For example, Alaska and North Dakota residents received more than $1,200 a year during fiscal years 2002 through 2004, while residents of all states east of the Mississippi River received $800 or less per year during the same time period. Detailed information on the share of federal economic development funding that rural areas received, listed by program, agency, state, and county under both the dominant RUCA and rural-urban continuum classification systems, can be viewed at www.gao.gov/cgi-bin/getrpt?GAO- 06-436sp. OMB requires that all federal agencies submit financial assistance award data to Census for their programs on a quarterly basis, but our review showed that the data submitted were often inaccurate and that some data were missing altogether. We worked with Census officials to find the reasons for the incorrect and missing data, and ultimately we received corrected information from seven agencies and three commissions. With these corrections, we determined that the data were sufficiently reliable for our analysis. The agencies involved took a number of significant actions in order to provide corrected data for the programs we reviewed, and these actions should improve FAADS reporting in the future. During our review, which covered fiscal years 2002 through 2004, we looked at the quarterly files of standardized records that FAADS maintains on financial assistance awards made by federal agencies. For those programs for which information had been submitted to FAADS, we checked the amounts against agency obligation data provided by the agency or the CFDA record. When we found significant discrepancies, we contacted the agencies to determine the reasons for these differences. If the FAADS data were deemed incorrect, in most cases we obtained corrected information from the agencies and replaced the FAADS information with that data for our analysis. In cases where the discrepancy could not be resolved, we used the agency obligations data provided to us by the agency. We found that for 44 of the 86 economic development programs included in our analysis, the administering agencies either did not report any funding data or reported incomplete or inaccurate data to FAADS during all or part of fiscal years 2002 through 2004. Total obligations that were reported to Census during those years for these programs were off by more than $11 billion, including obligations of about $4.5 billion for 19 programs (22 percent) that had not been reported at all, and a total of about $7 billion for 25 programs that was either over- or underreported. The programs we reviewed accounted for less than 10 percent of the federal programs that should be providing obligation information to FAADS. Since the FAADS reporting requirements are the same for all federal agencies and commissions that administer financial assistance programs—not just those involved in economic development—the amount of unreported and misreported funding is likely far greater than the $11 billion we identified during our review. Even though the FAADS reporting requirement has been in place since 1982, for the agencies we reviewed, several factors affected the extent of compliance with the FAADS requirements. These factors included: a lack of controls and resources at Census to determine whether agencies were actually submitting the data, a lack of knowledge among program officials about the FAADS poor oversight and coordination at the agencies responsible for ensuring both compliance with the reporting requirement and the accuracy of the data submitted. A Census official noted that, over the years, Census has worked with agencies to increase reporting compliance, but with limited success. Because we identified so many programs for which data had not been reported to FAADS, we worked with agency officials to identify the agencies’ reasons for not submitting the information. The agencies were either unaware of the requirements, did not have computer databases containing the necessary information, or were using expenditure instead of obligation data. Several program officials subsequently instituted corrective actions to improve FAADS reporting, and these improvements should eventually be reflected in the annual CFFR. Our review showed that Census could not ensure that federal agencies were complying with the FAADS reporting requirements. According to our Standards for Internal Control in the Federal Government and related documents, an agency’s system of internal control should include appropriate measures that will ensure the validity, accuracy, and completeness of the data in agency systems and capture erroneous data that can then be reported, investigated, and promptly corrected. However, according to a Census official, a lack of resources had kept the bureau from establishing an effective system to monitor whether agencies were submitting the required information. Further, Census does not have an adequate process for determining whether an agency has failed to report particular program data in a given year. Although Census prepares quarterly compliance reports showing whether agencies are meeting their reporting requirements, the reports we reviewed did not capture the extent of the misreporting we found. While Census officials told us that they had attempted to “persuade” agencies to submit data in the past, it became apparent from our findings that the effect of these efforts had been limited. During the course of our review, we talked with Census officials about the significant lack of compliance with FAADS reporting requirements, and officials from Census and OMB held several discussions about the problem. The culmination of these discussions was a meeting held in April 2005 between OMB, Census, and most of the agencies responsible for reporting information to FAADS. The purpose of the meeting was to allow OMB and Census to explain to the agencies the importance of submitting their obligation information on all programs on a quarterly basis as required. In addition, in June 2005, officials from the two agencies met with representatives of HUD to emphasize the need for compliance and accurate reporting, and in November 2005 Census and OMB held a second multiagency meeting. Even after this renewed emphasis on compliance and accurate reporting, Census officials told us that some agencies had continued to submit improper data that were not necessarily reliable, forcing Census to devote staff resources to cleaning up the information. For example, the officials said that even though they had frequently pointed out data problems to HUD, the same errors kept occurring with each submission. HUD officials told Census and OMB staff at a June 2005 meeting that they would try to improve their reporting accuracy. According to a HUD official, the agency was commended by OMB at the November 2005 multiagency meeting for reducing its error rate by half. However, Census officials told us that while HUD’s progress is commendable, HUD’s error rate remains higher than that of most agencies. A number of federal program officials who had not submitted FAADS information to Census were not aware that they were required to do so. In fact, a number of federal agency and regional commission officials told us that they had never heard of FAADS. As shown in table 2, CFDA program funding not reported to Census for fiscal years 2002, 2003, or 2004, accounted for about $4.5 billion. In the following examples of nonreporting that we found during our review, the agency officials involved were not familiar with FAADS: Staff at two of the three regional commissions and authorities we included in our analysis had never heard of FAADS or the CFFR and were not aware of the reporting requirements. We provided information to these officials about FAADS and the Census’s involvement in collecting the data. Between the two organizations, more than $340 million had not been reported to FAADS during our 3-year review period. As a result of our discussions about FAADS, officials at both commissions said that they would contact Census and begin reporting the information. Two different HUD program officials noted that they were not familiar with FAADS or the requirements to submit quarterly data. As a result, for fiscal year 2002 more than $50 million dollars in funding provided by the Brownfields Economic Development Initiative and the Rural Housing and Economic Development program was not reported to FAADS. A DOD program official was not familiar with FAADS and was only vaguely familiar with his program’s CFDA number. As a result, $53 million in program obligations was not reported in fiscal years 2002 through 2004. Initially, the FAADS data we received directly from DOD indicated that the program had received no funding for the 3 years we included in our review. However, subsequent discussions with the DOD official revealed that this particular program had about $53 million in obligations for fiscal years 2002 through 2004 that was not reported to FAADS and reflected in the CFFR. While other program managers were aware of the FAADS reporting requirements, the information they submitted to Census was either incomplete or inaccurate, resulting in the misreporting of another approximately about $7 billion dollars from various agencies during fiscal years 2002 through 2004. Several factors affected the quality of the reporting. First, in some cases data from several programs were combined. Second, program officials sometimes did not capture all the necessary information. And finally, agencies lacked the controls needed to ensure that all of the programs and the correct data were submitted, resulting in significant over- and underreporting of obligations. The following examples show some of the different scenarios that affected the completeness and accuracy of agencies’ submissions to FAADS: Although the Appalachian Regional Commission had four separate CFDA program numbers, for many years the agency had submitted all of its information under one program. As a result, three CFDA program accounts showed no funding, even though each represented a distinct program. We also determined that the amount of funding data submitted to FAADS appeared to be more than $30 million higher than the Appalachian Regional Commission’s annual appropriation in fiscal year 2002 and more than $4 million higher than the Commission’s fiscal year 2003 appropriation. The Appalachian Regional Commission subsequently determined that it had counted a portion of its FAADS submission twice and agreed to submit revised data that would reapportion its data correctly among the four CFDA program accounts and correct for the over-counting. These changes should lower its fiscal year 2002 total by more than $31 million, and its fiscal year 2003 total by $4.5 million. Also, the Appalachian Regional Commission told us that it has instituted internal controls to prevent duplicate submissions to FAADS and to prevent the reporting of all investments under one CFDA number. Interior had not updated its “cross-walk” of internal data codes that is intended to keep current with changes in the CFDA. As a result, Interior had underreported its FAADS data by nearly $56 million for fiscal years 2002 and 2003. The staff member in charge of reporting to FAADS told us that he had learned that some of his data codes were out of date only after we questioned some inaccuracies in the data. Interior has since rerun its data with the new codes and planned to resubmit corrected information to Census for fiscal year 2004. Also, Interior’s Outdoor Recreation, Acquisition, Development and Planning program reported to FAADS obligations amounting to about $64 million. Data we subsequently obtained from the agency showed obligations totaling more than $290 million. An agency official explained that until recently, there had been no monitoring of the information submitted to FAADS. HUD has consistently submitted to FAADS expenditure rather than obligation data. When questioned about this practice, a HUD official told us that the agency’s systems were set up to capture expenditure data. We found significant differences between expenditures and obligations in the funding information for two of the six HUD programs we evaluated. HUD met with Census and OMB in June 2005 about the issue and was considering ways to change its system to supply the required obligations data. Subsequently, another HUD official told us that a new system that would collect and report program obligation data rather than expenditure data to Census would be operational some time during 2006. We questioned a FAADS submission by HHS for the department’s Native American programs for fiscal year 2002 because the more than $82 million in obligations reported for that year totaled more than three times the $26.2 million budget for this program. For fiscal year 2003, the $37 million reported to FAADS was about $16 million more than the $20.8 million actual obligation amount provided to us by HHS. For fiscal year 2004, the $37 million reported to FAADS was about $13 million more than the $23.9 million reported to us by HHS. An HHS official said that she could not explain the discrepancies. For HHS’s Health Care and Other Facilities program, the FAADS submission for Fiscal Year 2002 totaled $620 million—more than $300 million more than what HHS’s internal system showed. An HHS official agreed that the appropriate figure for the year was about $314 million and said that HHS planned to review its data system to correct the discrepancy. We also questioned the figure of $1.3 billion that HHS reported for its Community Services Block Grant Discretionary Awards program for fiscal year 2002, because the department’s internal grant-tracking system showed a figure of about $55 million. After looking into the discrepancy, an HHS official indicated that the department had for several years mistakenly combined the Community Services Block Grant program and the Discretionary Awards program under the Discretionary Awards CFDA program number. However, the $1.3 billion total reported to FAADS also appeared to be incorrect, as the total obligations for the two programs combined in fiscal year 2002 was about $700 million—about $600 million less than what was reported to Census. HHS has agreed to correct the discrepancy, beginning with its fiscal year 2006 submission. The Small Business Administration (SBA) did not include in its FAADS submission the funding for a special loan program under its Small Business Loan program that was set up to assist the World Trade Center area after the September 11, 2001, terrorist attacks. As a result, the agency’s obligations were underreported by about $828 million for fiscal year 2003 and about $3.1 billion for fiscal year 2004. According to an SBA official, the agency will review the data that it provides to FAADS more closely in order to avoid such discrepancies in the future. According to the Census official who oversees the FAADS program, most of the agency staffs who submitted the data to Census had very little involvement with program operations, adding that the individual program managers who were most knowledgeable about the data’s accuracy and completeness generally did not get involved. OMB has required since fiscal year 1982 that agency officials review and sign off on a compliance form when submitting quarterly data. The form contains a series of statements, including one that reads, “All agency financial assistance award programs are covered in agency’s FAADS sources.” However, the official we spoke with who oversaw the program and had been involved with it since 1996 said that he had never seen a compliance form accompanying a quarterly report. It appeared that neither Census nor OMB was enforcing the requirement. Both Census and OMB staff told us that OMB had previously considered amending its guidance (Circular A-89) on reporting financial assistance data to specifically require that each agency appoint an official responsible for certifying that the FAADS data were accurately reported to Census. However, at the time of our review, the guidance had not been amended. Officials in a number of agencies commented about the lack of controls for submissions of data to FAADS and told us that requiring data certification would likely improve data quality. For example, one FAADS coordinator noted that the agency had no internal control checks in place to determine which programs should report cost information in any particular quarter or whether program personnel were submitting the required cost information. Other agency officials indicated that their agencies had no controls over FAADS data, including having individuals responsible for certifying that the data submitted was correct. Finally, one USDA official noted that USDA had been recording some FAADS information manually rather than through an electronic system but added that the agency is expected to automate the data collection system in 2006. The federal government funds a wide variety of programs that provide rural areas with economic development money. These programs provide assistance that directly supports communities’ economic well-being through such activities as creating and helping to retain jobs; constructing and repairing roads, airports, and water systems; establishing business incubators; and developing and improving tourist areas. Exactly how much assistance rural areas receive from the various economic development programs depends on how “rural” is defined, a definition which is constantly changing as advances in transportation, computer technology, and telecommunications—along with the spread of suburbia—continue to blur many of the distinctions between rural and urban life. We found that the amount of economic development funding provided to rural areas varied widely by program, agency, state, and region. However, both the Congress and the public are at a disadvantage in trying to assess the exact levels of funds rural areas receive because agencies have not provided accurate funding data for economic development programs. Our review showed that the data were often inaccurate or had not been reported at all. As a result, the information published by Census in reports issued to the Congress and the general public for the programs we examined was off by billions of dollars. We reviewed fewer than 10 percent of the programs that are required by OMB to provide obligation information to Census. Because the reporting requirements do not differ for the remaining 90 percent or more of the programs that are required to report to FAADS, the accuracy of the remaining program data are likely questionable. OMB has recently begun to meet with agency officials to improve agency reporting, and several agencies have agreed to implement changes that should ensure more accurate and complete compliance. Such efforts should improve the data submitted to FAADS. But the types of errors we identified will persist unless OMB emphasizes the importance of establishing improved controls at the agencies and at Census, including requirements that agencies certify their FAADS submissions and that Census notify agencies when significant errors occur. To better ensure that Census receives accurate funding information from federal agencies, OMB should consider improving its oversight of compliance with FAADS reporting requirements. We recommend that the Director of the Office of Management and Budget: regularly reach out to individual agencies on FAADS reporting requirements and on ways to improve the quality of the data provided to Census, and amend its guidance to require agency officials to certify the accuracy and completeness of their FAADS data reported to Census, and provide support to Census with its work in notifying agencies that do not report or significantly misreport their FAADS data. We provided Commerce and OMB with a draft of this report for review and comment. The Deputy Secretary of Commerce provided written comments that are provided in appendix III. OMB provided oral comments, stating that it agreed that improvements are needed in the FAADS reporting process. OMB officials said that they would continue to regularly reach out to individual agencies on FAADS reporting requirements, and when requested by Census, will provide support in notifying agencies that do not report or significantly misreport their FAADS data. They also said that they would discuss the need for having higher-level agency officials certify FAADS data submitted to Census at their next agencywide outreach meeting in April 2006. The Deputy Secretary of Commerce wrote that the Census generally agrees with the report’s conclusions and recommendations and that the difficulties GAO encountered with FAADS provide insights into the breadth and depth of the complexities involved for its staff in collecting, analyzing, and tabulating this large governmentwide data set. He wrote that the department will work with OMB and the individual reporting agencies to identify additional resources and streamlined methodologies to make future data more complete and accurate. The Census official who oversees FAADS provided us with oral comments that expanded on the Deputy Secretary’s comments, stating that he agreed with the need for OMB to regularly outreach to individual agencies and to require agency officials to certify the accuracy and completeness of data reported to FAADS. He also agreed that there is a need to identify and notify agencies that do not report or significantly misreport their FAADS obligation data, and noted that his office has been routinely reporting problems to agencies. However, he said that his office needs more support from OMB to succeed in this area. For example, he said that Census contacted 12 federal agencies in mid-September 2005 informing them about significant data problems with their fiscal year 2004 FAADS data submissions, including many of the items we reported as missing in this report. However, he said that 7 of the 12 agencies did not respond in any way as to how they planned to correct the types of discrepancies in the future. In light of this new information, we revised our recommendation to acknowledge that OMB should provide additional support to Census in notifying agencies that do not report or significantly misreport their FAADS obligation data. In addition to the comments we obtained from OMB and Commerce, we also obtained technical comments from most of the other agencies and commissions included in our review. We incorporated the comments in the report as appropriate. As agreed with your office, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from its issuance date. At that time we will send copies of the report to interested members of Congress and congressional committees. We will also send copies of this report to the Secretary of the Department of Commerce and the Director of the Office of Management and Budget and we will make copies available to others upon request. In addition, detailed information about the share of federal economic development funding by program, agency, state, and county will be available at no charge on the GAO website at www.gao.gov/cgi-bin/getrpt?GAO-06-436sp. If you or your staff have any questions concerning 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. Key contributors to this report are listed in Appendix IV. To examine the share of federal economic development funds that support rural areas today, we (1) developed a framework for identifying federal economic development funding; (2) determined the most informative classification system for differentiating between rural and urban areas; (3) used the economic development framework and classification system to identify rural areas and report the amount and share of economic development funding these areas have received; and (4) examined federal agencies’ reporting of economic development funds. We interviewed officials from the U.S. Departments of Agriculture (USDA), Commerce (Commerce), Defense (DOD), Housing and Urban Development (HUD), Labor (DOL), Health and Human Services (HHS), Interior (Interior), and Transportation (DOT). We also interviewed officials from the Small Business Administration (SBA), Environmental Protection Agency (EPA), Appalachian Regional Commission, Denali Commission, and Delta Regional Authority. Because there is no commonly accepted definition of what constitutes federal economic development, we developed a framework for discussing economic development using our prior reports and research studies by the National Council for Urban Economic Development, the Progressive Policy Institute, the Cornell Community and Rural Development Institute, and the Northeast-Midwest Institute‘s Center for Regional Policy. We also used information provided by federal program officials and external rural development groups, including the Aspen Institute Community Strategies Group, the Sonoran Institute, the Southern Rural Development Initiative, and the Progressive Policy Institute. We then used the framework to define activities that were generally accepted as being related to economic development and reviewed program descriptions from the Catalog of Federal Domestic Assistance (CFDA) to assess which programs fostered or assisted with economic development. We originally identified about 135 programs and held discussions with the administering agencies, regional commissions, and authorities on our framework and the programs selected. Based on those discussions we modified our framework and eliminated programs that did not meet the modified framework. In some cases we obtained more detailed information on programs beyond that in the CFDA program descriptions. We settled on 86 programs to include in our analysis. In finalizing the framework, we focused on economic development activities that directly affect the overall development of an area— particularly saving or creating jobs—rather than on activities that improve individuals’ quality of life, such as housing or general education. For example, we did include job training that had a direct impact on economic development in an area by, for example, preparing employees for a specific industry or business located in a particular area. However, we did not include general educational programs, housing loan programs, research and development programs, or other programs that do not directly impact the economic development of an area. To examine federal agencies’ reporting of economic development funds, we reviewed the extent to which agencies reported information to the Federal Assistance Award Data System (FAADS) for the 86 programs we selected for review during fiscal years 2002 through 2004. FAADS produces a quarterly file of standardized records on financial assistance awards made by federal agencies. Each transaction record identifies, by CFDA program code number, the type and amount of financial assistance, the type and location of the recipient, and the geographic place of performance. We assessed the reliability of the FAADS data by (1) performing electronic testing of the required data elements for obvious errors in accuracy and completeness, (2) comparing program totals by fiscal year to similar data from the Consolidated Federal Funds Report (CFFR) database, (3) reviewing related documentation, and (4) interviewing the Census Bureau official knowledgeable about the data. For those programs for which information had been submitted to FAADS, we checked the amounts against agency obligation data provided by the agency or the CFDA record. When there were significant discrepancies, we contacted the agencies to determine the reasons for the discrepancies. If the FAADS data were deemed incorrect, in most cases we obtained the corrected information from the agencies and replaced the FAADS information for our analysis. In cases where the discrepancy could not be resolved, we used the agency obligations data provided to us by the agency. Because HUD had submitted expenditure data instead of obligation information as required by FAADS, we obtained obligation information from HUD on each of the programs included in our analysis. In addition to the more than 20 programs for which we identified discrepancies, we also identified another 20 programs for which the agencies had not submitted any information to FAADS for one or more of fiscal years 2002 through 2004. For each of these programs, we contacted agency staff to determine why no information had been submitted to FAADS and what the obligation information amounts were for each of the fiscal years. Also, because the FAADS data provides detailed information on program recipients, such as zip codes, we requested that each agency provide us with similar information on program recipients so that we could geocode the information. Once we created the final database of spending for the 86 programs, we used the information in the file to identify the locality that received the funds. However, for approximately 50 percent of the funding, we could not identify a recipient below the county level. Based on this finding and consultations with USDA’s Economic Research Service, we decided to analyze the dollars flowing to rural areas using the dominant Rural-Urban Commuting Area (RUCA) approach. RUCA data is based on census tracts, but the State of Washington’s Office of Community and Rural Health has developed a system to classify counties based on their dominant RUCA code if census tract data is not available. In order to produce county-level RUCA estimates, we applied this approach to the entire country by assigning dominant RUCA categories to every county. These analyses allowed us to classify every county as urban or rural. Using the county-level RUCA file, we were able to assign a dominant RUCA code to over 99 percent of the program dollars. We also classified every county as urban or rural using ERS’s rural-urban continuum system, including those counties considered completely rural or that contained urban populations of less than 20,000 as rural counties, and other counties as urban counties. Another data issue involved pass-through programs, or programs for which the data showed the recipient to be the state government. For most of these programs, state governments subsequently passed these funds through to counties or local governments. However, we could not identify the subsequent recipients. Using the CFDA program descriptions, we determined that 12 of 86 programs appeared to meet this criterion, along with the portion of the highway spending program that went to state governments. For example, both DOT’s Formula Grants Program for Other than Urbanized Areas and HUD’s Community Development Block Grant/ State’s program showed no funding going to rural areas. Both these programs pass through funding to rural areas, but the data only coded the funding to the state capitals. If we had geocoded funding for such pass- through programs, the share of spending associated with urban areas, where state capitals are typically located, would have been overstated. Excluding the pass-through funding reduced the total spending we analyzed from about $200 billion to about $150 billion. Significant noncompliance by a number of agencies that had failed to submit obligation information for one or more programs, restricted our ability to use the CFFR database to identify how all economic development program funds were dispersed. While the reliability of the databases used by Census to prepare the CFFR has been tested, we did not know the extent to which agency data we obtained and analyzed directly from the agencies were reliable. As a result, we contacted agency officials to determine the controls used to ensure that the data they provided to us were reliable and accurate. Specifically, we requested information concerning the accuracy and completeness of the data, the use of the data in developing financial statements about the programs, and any reviews or audits of the quality of the data. The respondents indicated that the data were correct and told us why they believed the information was accurate. In addition, we questioned whether agency staff was aware of the FAADS reporting requirements and in some cases requested data directly from agencies. While the data we received directly from agencies were generally not as comprehensive as the CFFR requires, we found that the information was sufficient for our purposes. We conducted our review from January 2005 through December 2005 in accordance with generally accepted government auditing standards. The following table lists each agency program by CFDA number and program objective, the source we used to obtain fiscal year 2002-2004 funding data, and whether or not missing or corrected data was obtained from the agency. To bring private non-industrial forest land under intensified management; to increase timber production; to assure adequate supplies of timber; and to enhance other forest resources through a combination of public and private investments on the most productive sites on eligible individual or consolidated ownership of efficient size and operation. To stimulate technological innovation in the private sector, strengthen the role of small businesses in meeting Federal research and development needs, increase private sector commercialization of innovations derived from USDA supported research and development efforts, and foster and encourage participation, by women-owned and socially disadvantaged small business firms in technological innovation. To improve the quality of life in rural America by supporting and maintaining a network of State Rural Development Councils that create and facilitate cross- program collaborations. To assist public or private nonprofit organizations interested in providing sites for housing; to acquire and develop land in rural areas to be subdivided as adequate building sites and sold on a cost-development basis to families eligible for low- and very-low-income loans, cooperatives, and broadly based nonprofit rural rental housing applicants. To develop the capacity and ability of private, nonprofit community-based housing and community development organizations, and low income rural communities to improve housing, community facilities, community and economic development projects in rural areas. A foreign market access program that provides funding for generic technical assistance activities which take place abroad. The program provides cost- share assistance to small- and medium- sized U.S. agriculture and agribusiness organizations that desire to promote, enhance or expand the exports of U.S. agricultural commodities and products into eligible low-and middle-income foreign countries. With respect to nonfederal forest and other rural lands, to assist in the advancement of forest resources management; the encouragement of the production of timber; the control of insects and diseases affecting trees and forests; the control of rural fires; the efficient utilization of wood and wood residues, including the recycling of wood fiber; the improvement and maintenance of fish and wildlife habitat; and the planning and conduct of urban and community forestry programs. To share receipts from the national forests with the states in which the national forests are located. To share receipts from national grasslands and land utilization projects with the counties in which the national grasslands and land utilization projects are located. Provide accelerated assistance to rural communities faced with acute economic problems associated with federal, state, or private sector resource management decisions and policies that are located in or near a national forest and are economically dependent upon forest resources. Aid is extended to these rural communities to help them develop strategic action plans to diversify their economic base and to improve the economic, social, and environmental well- being of rural areas. To help rural areas analyze and assess forest resource opportunities, maximize local economic potential through market development and expansion, and diversify communities’ economic base. To provide funds, on a cost-share basis, for the construction of demonstration modern timber bridges and modern timber bridge technology transfer projects. Primary focus is to assist in the development and commercialization of new technologies that incorporate underutilize timber and related resources to the extent that is economically feasible. To assist small forest products businesses, community leaders, entrepreneurs, non-profits, and others turn small diameter and underutilized wood species into marketable forest products, including biomass energy. Programs may include: (1) technical assistance for processing and manufacturing of small diameter or low value hardwoods and softwoods; (2) prototype development of potential new products; (3) demonstration projects that showcase innovative uses for small diameter and low-value hardwoods and softwoods; (4)economic feasibility assessments related to using small diameter and low-valued hardwoods and softwoods; and (5) market assessments for using small diameter and low-valued hardwoods and softwoods. To provide basic human amenities, alleviate health hazards, and promote the orderly growth of the rural areas of the nation by meeting the need for new and improved rural water and waste disposal facilities. Through the Emergency Community Water Assistance Grant program, the Rural Utility Service (RUS) is authorized to help rural residents who have experienced a significant decline in quantity or quality of water to obtain adequate quantities of water that meet the standards of the Safe Drinking Water Act. To construct, enlarge, extend, or otherwise improve community facilities providing essential services to rural residents. Intermediary Re-lending To finance business facilities and community development. To assist public, private, or cooperative organizations (profit or nonprofit), Indian tribes or individuals in rural areas to obtain quality loans for the purpose of improving, developing or financing business, industry, and employment and improving the economic and environmental climate in rural communities including pollution abatement and control. To facilitate the development of small and emerging private business, industry, and related employment for improving the economy in rural communities. To provide water and waste disposal facilities and services to low-income rural communities whose residents face significant health risks. To establish and operate centers for rural cooperative development to improve economic conditions in rural areas by promoting the development of new cooperatives and/or the improvement of existing cooperatives. To provide for the establishment of empowerment zones and enterprise communities in rural areas to stimulate the creation of new jobs, particularly for the disadvantaged and long-term unemployed, and to promote the revitalization of economically distressed areas. To promote sustainable economic development in rural communities with exceptional needs. To assure that people in eligible rural areas have access to electric services comparable in reliability and quality to the rest of the nation. To assure that people in eligible rural areas have access to telecommunications services comparable in reliability and quality to the rest of the nation. To provide supplemental financing to extend and improve telecommunications services in rural areas. To promote rural economic development and job creation projects, including funding for project feasibility studies, start- up costs, incubator projects, and other reasonable expenses for the purpose of fostering rural development. To encourage and improve the use of telemedicine, telecommunications, computer networks, and related advanced technologies to provide educational and medical benefits through distance learning and telemedicine projects to people living in rural areas and to improve rural opportunities. To provide assistance to rural communities with extremely high energy costs. To promote long-term economic development in areas experiencing substantial economic distress and investments to support the construction of rehabilitation of essential public infrastructure and develop facilities necessary to generate high-skill, higher- wage jobs and private investment. To help states, sub-state planning units, Indian Tribes, and/or local governments strengthen economic development planning capability and formulate and establish comprehensive economic development, process and strategies designed to reduce unemployment and increase incomes. To promote economic development and alleviate underemployment and unemployment in distressed areas by (1) enlisting the resources of designated university centers in promoting economic development, (2) supporting innovative economic development projects, (3) disseminating information and studies of economic development issues of national significance, and (4) financing feasibility studies and other projects leading to local economic development. To assist state and local interests design and implement strategies to adjust or bring about change to an economy. Program focuses on areas that have experienced or are under threat of serious structural damage to the underlying economic base. Such economic change may occur suddenly or over time, and generally results from industrial or corporate restructuring, new federal laws or requirements, reduction in defense expenditures, depletion of natural resources, or natural disaster. Aids the long-range economic development of areas with severe unemployment and low- family-income problems; aids in the development of public facilities and private enterprises to help create new, permanent jobs. To provide trade adjustment assistance for firms and industries adversely affected by increased imports. To establish, maintain, and support manufacturing extension centers and services that improve the competitiveness of firms by accelerating the usage of appropriate manufacturing technology by smaller U.S.-based manufacturing companies. To also partner with states to develop such technical assistance programs and services. To assist various organizations identified by Congress to achieve objectives specified by Congress. To increase assistance by the DOD for eligible entities by furnishing Procurement Technical Assistance to business entities, and to assist eligible entities in the payment of the costs of establishing and carrying out new programs and maintaining existing programs. To assist local governments or states, on behalf of local governments, to undertake community economic adjustment- planning activities to respond to military base closures and realignments. To develop viable urban communities by providing decent housing; a suitable living environment; and expanding economic opportunities, principally for persons of low and moderate income. To develop viable urban communities by providing decent housing; a suitable living environment and expanding economic opportunities, principally for persons of low and moderate income. To provide for the establishment of Empowerment Zones, Enterprise Communities and Renewal Communities in urban and rural areas, to stimulate the creation of new jobs empowering low- income persons and families receiving public assistance to become economically self-sufficient, particularly for the disadvantaged and long-term unemployed and to promote revitalization of economically distressed areas. To return brownfields to productive use by assisting public entities eligible under the Section 108 Loan Guarantees program to carry out qualified economic development projects. Grant assistance must enhance the security of loans guaranteed under the Section 108 program or improve the viability of projects financed with loans guaranteed under the Section 108 program. To provide communities with a source of financing for economic development, housing rehabilitation, public facilities, and large-scale physical development projects. To expand the supply of affordable housing and access to economic opportunities in rural areas. To assist Indian tribes and Alaska Native villages in the development of viable Indian communities. To provide limited routine maintenance on paved, gravel, earth, and unimproved roads, bridges, and airstrips. To assist and support the inventory and prudent development of energy and mineral resources on Indian lands. To promote conserving, developing, and using fish, wildlife, and recreational resources for the sustenance, cultural enrichment, economic support, and maximum benefit of Indians. To provide funds for basic operating and maintenance services of non-education facilities that are owned or operated by the Bureau of Indian Affairs and located on reservations. To provide safe, functional, code-and- standards compliant, economical, and energy-efficient adult and/or juvenile detention facilities. To assist federally recognized Indian tribal governments, Native American organizations, and individual American Indians in obtaining financing from private sources to promote business development initiatives on or near federally recognized Indian reservations. To manage recreational resource values on the public lands administered by the Bureau of Land Management and to increase public awareness and appreciation of those values. To implement the National Fire Plan and assist communities at risk from catastrophic wildland fires by providing assistance in the following areas: provide community programs that develop local capability including: assessment and planning, mitigation activities, and community and homeowner education and action; plan and implement hazardous fuels reduction activities on federal land or on adjacent nonfederal land that mitigate the threat of catastrophic fire to communities and natural resources in high risk area; enhance local and small business employment opportunities for rural communities; enhance the knowledge and fire protection capability of rural fire districts by providing assistance in education and training, protective clothing and equipment purchase, and mitigation methods on a cost -hare basis. To provide financial assistance to the states and their political subdivisions for the preparation of Statewide Comprehensive Outdoor Recreation Plans and acquisition and development of outdoor recreation areas and facilities for the general public, to meet current and future needs. To assist persons to secure employment and labor market information by providing a variety of job search assistance and labor market information services without charge to job seekers and to employers seeking qualified individuals to fill job openings. To assist sponsors, owners, or operators of public-use airports in developing a nationwide system of airports adequate to meet the needs of civil aeronautics. To assist state transportation agencies in planning and developing an integrated, interconnected transportation system by constructing and rehabilitating the National Highway System, including the Interstate System; and for transportation improvements to all public roads except those functionally classified as local; to provide aid for the repair of federal-aid roads following disasters; to foster safe highway design; to replace or rehabilitate deficient or obsolete bridges; and to provide for other special purposes. To provide funds to the States to develop and maintain recreational trails and trail- related facilities for both non-motorized and motorized recreational trail use. To improve, initiate, or continue public transportation service in non-urbanized areas and to provide technical assistance for rural transportation providers. To foster innovation in public transit systems, through local demonstrations of promising, but risky, new technologies and service or operational concepts; to address economic and social issues resulting from human impacts on the environment and develop risk assessment methodologies, integrated assessments, and other analytical tools for effective policy formulation; to develop practical know-how for solving fundamental industry-wide problems, such as how to accommodate the travel needs of persons with disabilities, how to finance transit infrastructure construction, and how to meet the requirements of the Clean Air Act; and to support developing information and technical assistance to convey the results of research, technology development, and innovative demonstrations for adaptation and local implementation. To provide competitive grants to local governments, nonprofit organizations, and designated recipients of Federal transit funding to develop transportation services to connect welfare recipients and low-income persons to employment and support services. Job Access grants will be for capital projects to finance operating costs of equipment, facilities and associated support costs related to providing access to jobs. The Reverse Commute grants will assist in funding the costs associated with adding reverse commute bus, train, carpool or service from urban areas, urbanized areas, and other than urbanized areas to suburban work places. To assure that air transportation is provided to eligible communities by subsidizing air carriers when necessary to provide service. To increase the participation of minority institutions in federally funded programs. Also, to use the resources of minority institutions to develop training and technical assistance programs to enhance small women-owned and disadvantaged business enterprises to successfully compete for Department of Transportation contracts and projects. The program is also geared to attracting young talent to transportation-related careers. To help smaller communities enhance air service and increase access to the national transportation system. To create opportunities for self-sustaining economic development and improved quality of life in the Appalachian region. To provide a highway system which, in conjunction with other federally-aided highways, will open up areas with development potential within Appalachia where access to commerce and communication have been inhibited. To provide planning and development resources in multi-county areas, to help develop the technical competence essential to sound development assistance, and to meet the objectives stated under the Appalachian Regional Development program. To assist the Appalachian Regional Commission in accomplishing its objectives by expanding the knowledge of the region through state-sponsored research. 7(j) Technical Assistance To provide business development assistance to socially and economically disadvantaged businesses by contracting with qualified service providers who have the capacity to provide business development assistance to these businesses or individuals. To establish privately owned and managed investment companies to provide equity capital and long term loans to small businesses, and to provide advisory services to small businesses. To provide guaranteed loans for small businesses that are unable to obtain financing in the private credit marketplace but can demonstrate an ability to repay loans. To assist small businesses by providing long-term, fixed-rate financing for fixed assets through the sale of debentures to private investors. To assist women, low-income, and minority entrepreneurs, business owners, and other individuals possessing the capability to operate successful business concerns and to assist small businesses in areas experiencing lack of credit due to economic downturns. To create state revolving funds that will provide a long-term source of financing for constructing wastewater treatment facilities and implementing other water quality management activities. To create state revolving funds that will provide a long-term source of financing for the costs of infrastructure needed to achieve or maintain compliance with requirements of the Safe Drinking Water Act and to protect public health. To support Brownfields training, research, and technical assistance related to the following categories: (1) community involvement, (2) health impacts of Brownfields sites, (3) science and technology relating to Brownfields assessment, remediation, and site preparation, (4) integrated approaches to Brownfields cleanup and redevelopment, (5) economics of Brownfields cleanup and redevelopment, (6) results analysis, and (7) state, local and tribal government Brownfields programs. To provide training to facilitate assessment, remediation, or preparation of Brownfield sites. To establish or enhance the capacity for state and tribal response programs and to capitalize revolving loan funds and support insurance mechanisms for Brownfields Cleanup. To provide funding: (1) to inventory, characterize, assess, and conduct planning and community involvement related to Brownfield sites; (2) to capitalize a revolving loan fund (RLF) and provide sub-grants to carry out cleanup activities at Brownfield sites; and, (3) to carry out cleanup activities at Brownfield sites that are owned by the grant recipient. To support program activities of national or regional significance to alleviate the causes of poverty in distressed communities. To create new permanent employment opportunities for low-income individuals using four project designs priority areas: (1) expansion of existing businesses through technical and financial assistance; (2) self- employment/microenterprise; (3) new business ventures; and (4) non-traditional employment initiatives that lead to economic self-sufficiency for eligible participants. To provide financial assistance to Native American community organizations to develop and implement social and economic development strategies that promote self-sufficiency, improve social and economic conditions, and increase the effectiveness of Tribes and Native American Organizations in meeting social and economic goals. To support State efforts to enhance employment options for people with disabilities by building Medicaid infrastructure. To construct, renovate, expand, equip, or modernize health care facilities and other health care related facilities. In addition to those named above, Andy Finkel, Assistant Director; Emily Chalmers; Mark Egger; John McGrail; Rich LaMore; John Mingus; Marc Molino; and Tom Taydus made key contributions to this report.

Summary: GAO was asked to update its 1989 report on the distribution of economic development funding using newer tools now available for measuring the distribution of federal funds to rural areas. GAO agreed to (1) identify federal economic development programs, (2) determine the best way to identify rural areas for this report, (3) determine the amount and share of economic development funding that rural areas receive, and (4) discuss the way federal agencies report data on economic development funding. Based on prior GAO reports, other research studies, and information provided by federal program officials and external rural development groups, GAO developed a list of activities as criteria to identify economic development programs. This list included job creation, infrastructure development, and other activities that are generally acknowledged to directly affect overall economic growth. Using this list, GAO identified 86 federal programs in 10 federal agencies and 3 regional commissions and authorities that provide economic development funding. Because federal agencies use different criteria as to what constitutes rural, determining how much funding has targeted rural areas required determining which method of defining rural was the best for tracking funding. Classification systems that can track funding data at the census tract level or below can better differentiate between rural and urban areas because they better reflect the economic and social diversity than do county-based systems that are based on political boundaries. Because limitations in the data did not allow tracking all the funding data to local levels, GAO used a system that used population and commuting relationships to classify census tracts and then classify each county as rural or urban based on the county's dominant commuting pattern. The 86 programs in 2002-2004 provided approximately $200 billion in total economic development funding, about $150 billion of which could be tracked to the county level or below. However, the amount of funding provided to rural areas varied widely by program, agency, state, and region. These calculations were complicated by significant problems with the data from the programs that federal agencies were reporting to Census. Although all federal agencies are required to submit obligations data for their programs quarterly, 44 of the programs GAO analyzed did not report any data or reported incomplete or inaccurate data for all or part of fiscal years 2002, 2003, or 2004. As a result, the reported obligations were off by more than $11 billon. Further, some 19 programs provided no information on obligations of about $4.5 billion, and another 25 programs reported amounts that varied significantly from actual obligations. The FAADS reporting requirement has been in place since 1982. But a lack of knowledge among program officials about the requirement and poor oversight has affected compliance with it.