Summary

States and localities can use tax concessions, financial assistance, and other benefits to attract new businesses and make themselves more competitive economically. Federal loans and grants help finance many of these state incentives. Concerns have been raised over the extent to which federal dollars are used simply to relocate jobs from one community to another. This report answers the following questions: What economic development activities can major federal programs fund for the benefit of states and communities? What restrictions exist for using program funds to relocate existing businesses and jobs? For those programs with restrictions, what procedures have federal agencies established to ensure compliance with the restrictions? What types of incentives have states and communities used to attract businesses, and what role may incentives play in a business' decision to relocate? GAO examines eight programs in the following agencies: the Department of Commerce, the Department of Housing and Urban Development, the Department of Labor, the Department of Health and Human Services, the Environmental Protection Agency, the Department of Agriculture, and the Department of Transportation.

GAO noted that: (1) funds for the eight programs GAO examined can be used for a variety of economic development activities; (2) three of the programs, the Economic Development Administration's Public Works and Development Facilities Program, the Department of Housing and Urban Development's (HUD) Community Development Block Grant Program, and HUD's and the Department of Agriculture's Empowerment Zone and Enterprise Community Program, fund activities that focus primarily on the economic development of distressed areas; (3) two of the programs, the Department of Labor's Employment and Training Assistance for Dislocated Workers Program and the Department of Health and Human Services' Community Services Block Grant Program, focus on improving the economic viability of individuals by funding activities that help unemployed individuals qualify for and find new jobs and help low-income individuals and families obtain adequate jobs, education, nutrition, and housing; (4) the three remaining programs, the Environmental Protection Agency's Clean Water State Revolving Fund Program, Agriculture's Water and Waste Disposal Program, and the Department of Transportation's Surface Transportation Program, fund infrastructure projects in the form of wastewater treatment projects and other water quality projects and highway, mass transit, or other transportation projects where economic development of an area may be an offshoot; (5) of the eight programs, three have restrictions against using funds to relocate jobs, four do not address the issue of using funds to relocate jobs, and under one, legislation that would impose prohibitions against relocating jobs is pending; (6) agencies responsible for programs with relocation restrictions rely on various procedures to ensure compliance with the prohibitions; (7) states may use a variety of incentives, such as tax concessions, financial assistance, and other benefits, to encourage economic development and attract businesses; (8) also, when federal funds are used for an activity that the state or community would have undertaken anyway, those federal funds free up state money for some other activity, including incentives to attract businesses; and (9) studies have shown that when making decisions to locate in a particular area, businesses consider a variety of factors, such as workers' productivity, the efficiency of transportation facilities, and the community receptivity; incentives may or may not be a major factor in a firm's decision to locate to a particular area.