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.