FY 2006 Performance Budget Justification
FY 2006 Budget Request Summary and Highlights

The Federal Co-Chair requests $65.472 million in direct appropriations for the Appalachian Regional Commission (ARC) to implement the Appalachian Regional Development Act (ARDA) Amendments of 2002, which authorizes the Commission through 2006. (This amount includes funds for 11 Federal full-time equivalent positions and half the funding for 48 non-Federal Commission full-time equivalent positions.) This request is substantially less than the authorized $92 million level and is vital for positioning the Appalachian region for vigorous, self-sustaining growth. The request is the same as the enacted appropriation for fiscal year 2005.

Appalachia's socioeconomic problems are widespread and generational. The region still does not enjoy the same economic vitality and living conditions as the rest of the country. The region continues to battle economic distress because its economy is disproportionately dependent on extractive industries and manufacturing, infrastructure development lags, and human capital and leadership deficits persist in many areas. Concentrated areas of high poverty, persistent unemployment, and low incomes—exacerbated by inadequate health care, educational disparities and out-migration—still prevent many Appalachians from participating fully in the American economy. Although the long-term problems of Appalachia have cost the nation dearly, the region continues to receive less federal assistance per capita than the rest of the country for economic development. (Analyses of the Consolidated Federal Funds Report for 2002 by ARC and the Census Bureau found that total direct federal expenditures and obligations in Appalachia were $783 less per capita than in the rest of the country. The total difference in federal grants alone is approximately $5.4 billion annually.)

Return on Investment

Historically, ARC projects have proven cost-beneficial. For example, a recent outside study, Evaluation of the Appalachian Commission's Infrastructure and Public Works Program Projects, examined 99 projects initiated and completed between 1990 and 1997. It found that there was a 33 to 1 return for every ARC dollar invested in terms of income from jobs created. For a one-time public investment in these economic development projects, there was approximately $9 of annual recurring personal income per public dollar invested. The investment in the Appalachian Development Highway System has resulted in efficiency benefits of $1.10 for each $1 invested; and economic development benefits of $1.32 for each $1 invested.

ARC was created with the vision of closing the socioeconomic gaps between the region and the rest of the U.S., and the agency has a strategic plan in place with a mission to be a strategic partner and advocate for sustainable community and economic development in Appalachia.

The ARC mission builds on the important assets that Appalachia possesses: a rich cultural heritage, substantial natural resources, a spirit of independence, and a dedicated workforce. ARC seeks to capitalize on these assets.

ARC achieves its mission by promoting economic and community development through a framework of joint federal and state initiative. No other agency of government is charged with addressing Appalachian problems and opportunities by simultaneously being an advocate, knowledge builder, investor, and partner at the federal, state, and local levels. Advocacy builds alliances among private and public organizations to focus technical, financial, and policy resources to assist the region. Knowledge building capitalizes on ARC's unique perspective to study regional issues through research, regional forums, advisory councils, and community meetings. Investing flexible funds provides seed capital, gap funding, and support for innovation while leveraging about ten dollars for each ARC dollar. The cumulative effect of this work over the years has helped transform the region, although much remains to be done.

Because of its partnership structure and flexible problem-solving approach, ARC is often able to identify and help fund innovative grass roots initiatives that might otherwise languish as missed opportunities, and to jumpstart new projects that help communities develop regional economic development opportunities. In many cases, ARC functions as a predevelopment agency, providing modest amounts of initial funding that are unavailable from other sources. ARC shares successes, so that initiatives like ARC's Appalachian Higher Education Program can be replicated effectively across the region.

ARC's grant funding is different than that of line federal agencies. For example, ARC:

Targets 50 percent of its funds to very narrowly defined distressed counties and/or distressed areas;
Funds small projects that would typically not meet the threshold of other federal economic development agencies but are essential for addressing deeply rooted regional problems,
Funds projects that use new approaches to tackle local problems;
Provides the critical dollars for many initiatives so that they qualify for other public and private sources of funds; and
Provides funding to assist distressed communities in conducting feasibility studies for capitalizing on economic opportunities.

Through the years, ARC has also effectively used its funds to help communities make better use of limited resources from other federal agencies, as the ARDA envisioned. ARC funds have been used to supplement and complement, not duplicate, funding from 12 federal agencies over the years. Combined federal, state, local, and private funds have provided a broad program of assistance to the region. In 2004, the Interagency Coordinating Council for Appalachia, chaired by the ARC Federal Co-Chair, has highlighted interagency collaboration and shared funding opportunities, with the aim of increasing attention to Appalachian problems among the line federal agencies.

There has been substantial and enduring payoff for ARC grants. A recent study of Commission infrastructure projects demonstrated that for every one-dollar invested by ARC between 1990 and 1997 Appalachia gained 33 dollars in long-term benefits.

ARC is a performance-driven organization, evaluating progress and results on an ongoing basis and relying on clearly defined priorities and strategies for achieving them. Based on performance information, ARC adjusts its strategies, emphasizing what works and discontinuing what does not, to ensure maximum return for taxpayers.

During FY 2004, the Commission completed a new Strategic Plan for 2005-2010 to refocus its resources and activities, setting a new set of goals and strategies for tackling Appalachian economic problems. The Plan envisions Appalachia reaching socioeconomic parity with the rest of the country. It focuses on the predominant inhibitors – regional isolation and preparedness for being economically competitive. This logic specifically addresses Congress' mandate set out in the Appalachian Regional Development Act of 1965, and its rationale for creating a federal/state partnership model cutting across traditional categorical federal programs. It ensures not only that the large federal highway investment in Appalachia does not result in roads to bypass or escape the region, but also provides the related investments that can catalyze economic development benefiting both the region and the U.S. economy as a whole. The four general goals are inter-related. Reducing isolation is necessary but not sufficient to ensure regional competitiveness. Investments in people, basic infrastructure, and job opportunities must be made as well. The logic model for these important goals and the accompanying set of critical strategies is included in the budget justification on page 24.

OMB has conducted a first PART review of the Commission program and issued a score of Adequate. The PART assessment awarded high scores for clarity of purpose, planning, and management. It also noted progress in developing outcome-related measures, but acknowledged the difficulty of performance measurement because ARC co-funds projects with other agencies. The Administration plans to continue focusing ARC efforts on distressed areas, revising performance measures, and sharing performance data and research results among federal agencies to better understand the link between federal investment and community change.

The Commission will continue to designate the most severely distressed counties and areas in the region as a strategy for targeting resources to the greatest need and addressing the priority for funding those areas under its 2002 reauthorization statute. The severely distressed designations identify the parts of the region that have substantial pre-developmental needs and few resources to address them through traditional federal programs.

ARC's four strategic goals will guide Area Development funding in FY 2006, enabling the Commission to address compelling needs in the region and to build on its assets:

Increase Job Opportunities and Per Capita Income. ARC will with its state, regional, and local, partners, create and retain jobs. ARC will continue to promote entrepreneurship in strategies to diversify the economy of Appalachia by emphasizing the region's unique assets such as its rich cultural heritage, natural resources, and natural beauty of the region are unique assets that can and should be a basis for strategies to diversify the economy of Appalachia.
Strengthen Capacity of the People to Compete in the Global Economy. Education and health care are essential components for Appalachian residents to compete in the world economy. Skills and training must be upgraded, and health-related problems must be reduced. Emphases will be placed on reducing the gap in college-going rates between Appalachia and the rest of the country. Additionally, efforts will focus on vocational training and moderate- to long-term on-the-job training. Health care efforts will focus on reducing the disproportionately high rates of chronic diseases such as cardiovascular disease, cancer, and diabetes. Gains in education and health will contribute to the region's workforce participation and productivity.
Develop and Improve Appalachia's Infrastructure. Clean water is the most basic infrastructure requirement for health and economic growth. Few Americans realize that many distressed Appalachian communities still lack this basic infrastructure. The Commission will continue to focus on essential water and sewer facilities. In addition, ARC will continue its emphasis on expanding access to high-speed telecommunications, which is critical to Appalachia's future. Without adequate broadband communications, the region's businesses and institutions will continue to lag behind the rest of the nation, and the potential for growth of technology-related industries will be impaired.
Build the Appalachian Development Highway System. Completion of the ADHS is critical to provide mobility and access to markets for Appalachian communities and businesses and reducing the historic geographic isolation of the region.

The Commission is also committed to implementing the President's Management Agenda. The ARC governance model is ideally suited for implementing it. Detailed discussion regarding progress is included as Appendix A.

Table 1 shows the general goals in the Plan and the performance targets for each goal in 2006. During FY 2006, ARC will achieve its goals by investing $15 million to increase job opportunities; $14 million to improve employability of the Appalachian workforce; $36.5 million to improve infrastructure, including $5 million for telecommunications; and approximately $450 million from the Highway Trust Fund to build approximately 25 additional miles of highway. The Commission will work with its partners in Appalachian states and communities to identify specific local projects that address the Strategic Plan. These investment areas will change over time as some problems are solved and new issues and needs emerge.

The performance plan anticipates that the 2006 ARC program would create or retain 20,000 jobs; position 20,000 Appalachians for enhances employability; provide basic infrastructure services to 20,000 households; provide broadband service to 5 communities for each $1 million invested in telecommunications; and build 25 miles of the ADHS. At least 50 percent of non-highway grant funds would benefit distressed counties and areas. Target investment ratios for grants would be 4 private sector dollars to each ARC dollar for economic diversification projects; 1 non-ARC dollar to each ARC dollar in employability projects; and at least 2 non-ARC dollars to each ARC dollar invested in infrastructure projects.

Table 2 summarizes the request for FY 2006. The attached budget justification explains and supports the Federal Co-Chair's request for resources to respond to this mandate.

Table 1 ARC Goals and 2006 Targets
General Goal	Targets for 2006
Increase Job Opportunites and Per Capita Income	Create/retain 20,000 jobs for Appalachians Achieve a 4:1 investment ratio for economic diversification projects Direct 50% of grant funds to benefit distressed counties/areas
Strengthen Capacity of the People to Compete in the Global Economy	Position 20,000 Appalachians for enhanced employability Achieve a 1:1 average investment ratio for employability projects Direct 50% of grant funds to benefit distressed counties/areas
Develop and Improve Infrastructure	Provide 20,000 households with basic infrastructure services Expand broadband service to 5 communities for every $1M invested Achieve a 2:1 average investment ratio for infrastructure projects Direct 50% of grant funds to benefit distressed counties/areas
Build the Appalachian Development Highway System to Reduce Isolation	Build 25 miles of the ADHS

Table 2 Summary of FY 2006 Request by Performance Goal ($ Millions)
	Program Funding	Local Development District Planning	Salaries & Expenses	Total Request
Goal 1: Increase Job Opportunities and Per Capita Income	12.8	1.1	1.1	15
Goal 2: Strengthen Capacity of the People to Compete in the Global Economy	11.9	1.1	1	14
Goal 3: Develop and Improve Infrastructure	30.1	3.2	3.2	36.5
Goal 4 Build the Appalachian Development Highway System				[450]*
Total Current Request	54.8	5.4	5.3	65.5

* Anticipated financing from the Highway Trust Fund under pending SAFE-TEA legislation

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