The Congress established the Empowerment Zone (EZ) and Enterprise Community program in the Omnibus Budget Reconciliation Act of 1993 (P.L. 103-66, Aug. 10, 1993). The act also amended title XX of the Social Security Act to authorize the special use of Social Services Block Grant (SSBG) funds for the program. In addition, the act allows businesses located within the EZs to (1) receive tax credits on the wages paid to employees who live and work in the zones; (2) deduct higher levels of depreciation expenses than other businesses; and (3) borrow, at low interest rates, funds raised from the sale of tax-exempt bonds issued by the state or local government to be used for facilities and/or land. Finally, the act specifies that the Secretaries of Housing and Urban Development and Agriculture will designate the communities that are to participate in the program and have the authority to revoke a designation if the boundaries of an empowerment zone or enterprise community are modified, if a designated area is not complying with the program’s requirements, or if a designated area is not making significant progress in implementing the program. Communities that participate in the 10-year EZ program had to (1) meet specific criteria for characteristics such as geographic size and poverty rate and (2) prepare a strategic plan for implementing the program’s four key principles—creating economic opportunity, creating sustainable community development, building broad participation among community-based partners, and describing a strategic vision for change in the community. Each EZ must spend its SSBG funds in accordance with its strategic plan, which includes goals and measures, called performance benchmarks. The progress of each EZ in achieving its goals is to be based on the extent to which it accomplishes its performance benchmarks, not on how much federal money it spends. The benchmarks are set forth in a benchmark document that describes the activities that the EZ plans to implement and includes time lines for their implementation. The document can be modified to accommodate changes in the EZ’s needs or scheduling problems. The benchmark document is to serve the EZ, as well as HUD or USDA, as an important management tool and constitutes the primary basis for evaluating the progress being made. HUD and USDA have each issued regulations and guidance for implementing the EZ program. In addition, they have commissioned studies to help them evaluate the program and have required the EZs to report on their progress in implementation. HUD requires the urban EZs to submit periodic progress reports to its EZ program office. The program office sends these reports to the HUD field offices for assessment. These reports were submitted in the summer of 1996 and the summer of 1997, and the next reports are due by December 31, 1998, according to the coordinator for the EZ program. USDA requires the rural EZs to submit weekly progress reports to the field offices and semiannual progress reports to the headquarters Office of Community Development, which is responsible for the rural program’s overall implementation. Under the Taxpayer Relief Act of 1997 (P.L. 105-34), the Congress authorized a second round of EZs. This act provides for two urban EZs that are to operate under the same rules as the EZs authorized in 1993. In January 1998, the administration selected Los Angeles and Cleveland as the two new EZs. The act also provides for 20 new EZs—15 in urban areas and 5 in rural areas—that are to operate under slightly revised rules set forth in the act. Communities across the nation—including the existing enterprise communities and tribal areas—are eligible to apply for the new EZ designations. In October 1998, the Congress provided $55 million for fiscal year 1999 for the 20 new EZs—$45 million for the 15 new urban EZs and $10 million for the 5 new rural EZs. The six EZs that we visited—Atlanta, Baltimore, the Kentucky Highlands, the Mississippi Mid-Delta, New York City, and the Rio Grande Valley—have reported on their progress in implementing a variety of activities involving economic development, housing, public safety, health care, public transportation, education, and family self-sufficiency. For five of the six EZs, economic development activities (creating jobs, training workers, and providing access to capital) accounted for a larger portion of the planned first-phase expenditures than other activities. All six EZs reported that they are making progress in implementing their economic development activities; however, the extent of their progress varies. Generally, progress was greater in EZs where stakeholders had experience in implementation and could agree on their roles and responsibilities. Each of the six EZs has reported to either HUD or USDA on its progress in implementing the first phase of its planned activities. The reports prepared by the EZs that we visited often emphasized economic development activities (creating jobs and training workers) but usually included activities in other areas, such as housing and public safety. For example, as table 1 shows, the activities in the New York and Kentucky Highlands EZs were classified almost exclusively as related to economic development, while those in the other EZs were classified as both related and not related to economic development. Whereas the New York and Kentucky Highlands EZs focused on creating jobs, developing businesses, training workers, and providing access to capital, the Atlanta, Baltimore, and Rio Grande Valley EZs included activities that provided health care, housing, public transportation, education, family self-sufficiency services, and services for the elderly. The Mississippi Mid-Delta EZ included activities such as community beautification, housing, health care, public safety, and infrastructure improvement; however, almost all of its initial SSBG allocation supported economic development activities. (See apps. I through VI for details on each EZ’s activities as reported in 1997). Activities classified as related to economic development also generally accounted for a larger portion of the EZs’ reported SSBG allocations than other activities. As table 2 shows, the EZs allocated from 31 to 97 percent of their grant funds for economic development activities. The six EZs reported that they are making progress in implementing their economic development activities. However, the extent of their progress varies. Four of the EZs—Baltimore, the Kentucky Highlands, New York, and the Rio Grande Valley—have reported that they have initiated or completed many of their economic development activities. The two remaining EZs—Atlanta and the Mississippi Mid-Delta—have established one-stop capital shops, which are designed to provide comprehensive technical and financial assistance in a single location to small businesses. They also have made several loans and one grant to businesses but have made little progress on other economic development activities. In its performance review, the Baltimore EZ reported completing or initiating action on 17 of its 19 economic development activities. Officials from the EZ governing body confirmed this progress during our visit. Specifically, the officials said that, as of May 1998, they (1) had provided training that contributed to the placement of 100 residents in jobs, (2) had completed the privatization of neighborhood food markets that provide business opportunities within the zone, and (3) will continue their efforts to attract businesses and create or expand job opportunities. They also said that they had worked with Employ Baltimore—a city government employment development initiative—to place more than 1,100 of the zone’s residents in jobs throughout the city. Although the Baltimore EZ has begun to implement its system for getting zone residents into jobs, it is behind schedule largely because the establishment of a community-based structure for identifying potential community employees and offering career counseling, training, and placement services has taken longer than anticipated. The EZ has not yet established a community development bank, which, according to the EZ’s plans, will lend funds for business and residential development within the eastern side of the zone. The Kentucky Highlands EZ reported completing or initiating action on 18 of 20 economic development activities. During our visit, officials from the EZ said that the 1997 performance review generally reflected its progress. They noted that one loan fund had provided loans to businesses, resulting in the creation of 644 jobs as of March 31, 1998. Other activities that had been initiated included developing industrial parks, training workers for jobs in the manufacturing industry, and providing downtown revitalization loans to businesses. Of the two actions that had not been initiated, one was classified as uncertain and the other was found to be infeasible. Specifically, the EZ had not begun developing an airport that would accommodate larger airplanes because, according to EZ officials, funding was hard to obtain and a court ruling found that the airport’s board was improperly organized. The EZ’s efforts to establish a waste recycling plant were terminated after a feasibility study determined that there would not be enough waste available to make the plant cost-effective. Officials from the EZ said that the funds for this activity would be reallocated to other activities. According to its 1997 performance review, the New York EZ has initiated action on 20 of its 38 economic development activities, including (1) establishing a business resource and service center, which, according to the report, has held 26 business seminars and facilitated 27 loans; (2) establishing a credit union for use by the zone’s residents; and (3) revitalizing commercial facilities. Funding has been approved for the 18 activities on which action had not begun at the time the progress report was prepared. EZ officials told us that they had subsequently canceled their plans for an apprenticeship preparation program and had initiated actions on five other activities, including enrolling 233 residents in workforce preparation activities. The remaining economic development activities included efforts to increase tourism and expand workforce preparation initiatives. The Rio Grande Valley EZ reported taking action on all 10 of its economic development activities.