The Congress established the EZ/EC program in the Omnibus Budget Reconciliation Act of 1993 (P.L. 103-66, Aug. 10, 1993). Under the act, the communities that wanted to participate in the 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. The act also specified that the Secretary of Agriculture could designate up to 3 rural EZs and 30 rural ECs on the basis of their strategic plans. The act also amended title XX of the Social Security Act to authorize the use of the EZ/EC SSBG funds for the program and placed increased authority for funding decision-making with the local EZ/EC governance structures. Historically, the funds from the SSBG program that were allocated to the states could be used only for social service activities, such as programs to assist and feed children. However, under the EZ/EC program, the act expanded the permissible uses of the SSBG’s funds by allowing their use for such activities as purchasing or improving land and facilities or for providing cash payments to individuals for medical care. In addition to the EZ/EC SSBG funds, all of the designated communities are expected to receive several types of federal assistance. The businesses located in the EZs and the ECs are eligible for low-interest loans, resulting from the tax-exempt bonds issued by the state or local governmental unit, to be used to provide facilities and land for the businesses in the communities. In addition, the businesses located within EZs (1) are eligible to receive tax credits on the wages paid to the employees who live and work in the EZ and (2) may deduct higher levels of depreciation expenses. A number of federal departments and agencies also made a commitment to give all EZs and ECs special consideration in the competitions for funds from many other federal programs and to work cooperatively with them in overcoming regulatory impediments. The federal assistance received by the EZs and ECs must be spent in accordance with the communities’ strategic plans. These plans outline how the communities would achieve their goals, including ensuring the active participation of the members of the community, the local private and nonprofit entities, and the federal, state, and local governments. The EZs’ and ECs’ progress in achieving their goals is to be based on the performance benchmarks established by the communities, not on the amount of federal money spent. These benchmarks explain in some detail how the locality intends to achieve its goals. The benchmark document, which becomes a part of the overall plan, includes the specific projects that the EZ or EC will undertake and timelines showing when the projects will be instituted or completed. The benchmark document, which generally looks ahead 2 years, requires continuous review and modifications to accommodate the changes in the community’s needs as well as scheduling problems. These benchmark projects are to serve the EZs and ECs, as well as USDA, as an important management tool and provide the primary basis for evaluating the progress being made. The Department of Health and Human Services (HHS), USDA, and the states play key roles in administering the program. HHS makes grants to the states, and the designated state agency obligates the funds to the EZs and ECs as it receives, reviews, and approves requests from them to draw down funds for a particular benchmark project. In addition, the state must ensure that the requested expenditure is allowable under the state’s standards. USDA, as the lead federal agency for the rural EZ/EC program, is responsible for helping the rural EZs and ECs achieve their goals by evaluating their progress and providing technical assistance. The federal funds invested in the rural EZ/EC program, including loans, grants, and forgone tax revenues, will far exceed the $208 million in EZ/EC SSBG funds allocated to the program. In fact, we estimate that federal funds exceeding $1 billion will be invested in the program over its 10-year life. This estimate includes the EZ/EC SSBG funds, plus an estimated $428 million from tax incentives and about $600 million from USDA’s loan and grant programs. This $1 billion estimate does not include the other significant sources of investments in the program that will be provided by other federal agencies. Estimates from these sources were not available. If the program is successful, some offsetting benefits, such as loan repayments, increased tax revenue, and reduced welfare costs, should occur in the communities. The EZ/EC program has made three tax incentives available to the communities for economic development. The first two, available only to EZs, are (1) the Empowerment Zone Employment Credit, which provides qualified employers with a tax credit of up to $3,000 for each employee who lives and works in the EZ, and (2) the Empowerment Zone Expensing Allowance, which allows a qualified business to take a special depreciation deduction of up to $20,000 (for an annual total of up to $37,500) for equipment purchases each year. The third incentive, available to both the EZs and the ECs, is the Enterprise Zone Facility Bond, which provides up to $3 million in tax-exempt bond financing to qualified businesses for buildings or equipment. Using the data and assumptions from the Internal Revenue Service, we estimate that the cost of the EZ/EC tax incentives in rural areas will be about $428 million over the 10-year period. The EZs’ employment credit will account for $406.5 million of that total; the facility bonds and the expensing allowances will make up the remainder at $4.3 million and $17.2 million, respectively. USDA, HHS, and 13 other federal agencies have agreed to give special consideration to eligible EZ/EC applicants by giving them preferential treatment for funds from the agencies’ existing funding sources over the life of the program. Most federal agencies had not estimated the amount of support they expect to invest in the rural EZs and ECs over the 10-year life of the program. USDA, however, indicated that it alone intends to provide about $246 million to rural EZs and ECs over the first 4 years through existing funding sources such as its Rural Business Enterprise Grant program and the Water and Waste Disposal Loan and Grant programs. If this funding level is maintained over the 10-year life of the program, an assumption that USDA officials consider a reasonable expectation, USDA will provide about $600 million to EZ/EC communities. USDA officials noted that these funds, as well as those from the other agencies that have pledged to provide special consideration to EZ/ECs, represent existing appropriations that would be expended—not new moneys. In addition to the funds provided by federal agencies, the rural EZs and ECs are expected to obtain assistance from state, local, and private sources. Some EZs and ECs are using the EZ/EC SSBG funds as seed money to attract even larger amounts from nonfederal sources, such as foundations. USDA provided data showing that for the 3 EZs and 25 of the ECs, the communities were receiving more than one dollar from their state and local governments and from private and nonprofit organizations for every dollar of EZ/EC SSBG funds received. To the extent that the loans are repaid and that new jobs result in increased tax revenues and reduced welfare payments, the federal investment in the rural EZ/EC program will be offset. The 33 EZs and ECs have established the structures and procedures needed to implement their strategic plans. Nevertheless, the boards of directors for two of the ECs we visited were experiencing problems that could hinder their progress toward completing their benchmark projects. Overall, progress on these projects has varied widely. According to USDA officials, all communities have taken the initial necessary actions to manage and begin implementing their strategic plans, such as establishing a board structure and basic operating principles. These actions had to be formally agreed upon by the community, the state, and USDA in a memorandum of agreement. In order to complete a memorandum of agreement, the communities had to, among other things, establish their benchmarks and develop a budget for the first 2 years of implementation; create the bylaws and/or articles of incorporation for the group, known as the lead entity, that will manage the EZ or EC program; and establish the EZ’s or EC’s board structure. In addition, USDA reviewed the documents prepared by the lead entities to ensure that they had a policy to prevent conflicts of interest and strategies for ensuring broad participation within the community. We visited all three EZs and found that they were generally well-organized to manage the implementation of their strategic plans. For example, while the geographical boundaries of all of the EZs cut across several local government boundaries, such as county lines, they had all developed mechanisms for overcoming the potential problems in having the EZ work with more than one political entity. One EZ that spanned parts of four counties created four subzone boards to overcome the political divisions inherent in its organization. These subzones consider the communities’ proposals for implementing the benchmark projects that originate in their area. The proposals approved at the subzone level are then considered by the EZ’s full board. As of June 1996, nearly 1 year after the memorandum of agreement, the EZ reported some progress toward 45 of the 49 projects serving the subzones. Some of these projects served several subzones, while others served only one. Although the EZs appear to be well organized, two of the ECs that we visited were experiencing problems. For example, at one EC we visited, the board members were in such disagreement with the lead entity over the control of the EC funds that little business has been conducted, and the program has not been moving forward.