JULY 14, 1998

Mr. Chairman and Members of the Subcommittee: I am R. Scott Foster, President of the National Academy of Public Administration. I am here to provide testimony on behalf of the Academy's panel on economic development. Former Governor Dick Thornburgh, the chair of this panel and an Academy Fellow, wished to be here, but he is on a trip to South Korea.


The Academy is an independent, nonpartisan, nonprofit organization chartered by Congress to identify emerging issues of governance and provide practical assistance to federal, state, and local government on how to improve their performance.

To carry out this mission, the Academy draws on the expertise of more than 400 Fellows, who include current and former members of Congress, cabinet secretaries, senior federal executives, state and local officials, business executives, scholars, and journalists. Our congressional charter is one of two granted to research organizations. The other is held by the National Academy of Sciences which specializes in scientific research. The Academy's emphasis is on the design and management of government operations and programs.


Two years ago, the Economic Development Administration of the Department of Commerce asked the Academy to address the question, "What is the appropriate future role of the federal government in economic development activities?" The Annie E. Casey Foundation also provided support for the project.

The Academy convened a diverse panel of experts from the local, state and federal levels and also from the private sector. Some members of this panel have had distinguished careers specifically in economic development, and others have had experience in economic policy or related areas.

We reviewed the economic development policies and programs of all federal agencies, not just the programs of the Economic Development Administration. Our staff conducted field work in eight communities, including rural and urban areas. We interviewed economic development experts and studied the extensive literature on economic development including evaluations of federal and state programs. The panel then prepared its report, and convened a national meeting of economic development professionals from all parts of the country to discuss it.

I have brought copies of the report today, and ask for it to be entered into the record.

The panel did not address the specific issue before this Committee - reauthorization of the Economic Development Administration. Nonetheless, its findings and recommendations may provide useful information for the Committee as it considers such legislation.

Briefly, the report recommends a rethinking of the basic premises for federal economic development activities at the state, local, and regional levels.

Historically, federal development efforts have tried to increase overall national productivity and to help economically distressed and poor communities gain a share of the country's general prosperity. Toward these ends, the federal government has built and sustained a variety of organizations involved in economic development at every level of society. They include development agencies at the state and local levels, multicounty development districts, and community-based development corporations, not to mention various nonprofit organizations and working relationships with banks, industrial associations, and other private sector partners.

Among the panel's findings are the following:

The fundamental economic influences of the private sector and market forces must be incorporated into successful economic development plans.

Federal investments in development efforts are critical to many states and localities, but not all.

No single federal program is appropriate in all communities; however, the present multiplicity of programs imposes unnecessarily high transaction costs on states and localities and exacerbates inherent weaknesses in their approaches.

The meager federal investment in information sharing and technology severely constrains our nation's economic development efforts.

The panel proposed a new approach to meet economic development needs. It urges the federal government to help states and localities learn through better information, leverage all available resources, and link multiple federal initiatives to assist local communities.

In order to promote learning, the federal government should:

Help states and communities learn about state-of-art economic development practices.

Act to reduce the economic losses resulting from unrestrained bidding wars by states and localities to recruit or retain businesses.

Improve the quality of economic development decision-making and the assessment of policies and programs at all levels by gathering and disseminating state, regional, and local economic statistics and by reducing the fragmentation of the nation's statistical system.

In order to leverage state and local efforts, the federal government should:

Give states and communities incentives to design and implement effective regional or interjurisdictional development strategies.

Encourage investment in development strategies that offer opportunities to generate jobs and income over the longer term, rather than in high-visibility projects.

Give special assistance to states and communities seeking to create economic opportunities in distressed communities.

In order to make it easier for states and localities to link federal resources, the federal government should:

Substantially reduce the fragmentation of the federal economic development efforts.

Establish a permanent mechanism to provide overall policy-level guidance to other federal activities such as workforce training, environmental protection, technology and research, and other endeavors that contribute to economic development outcomes.

Reorient federal programs, especially business finance programs, towards strategies that address the underlying obstacles to obtaining credit.

Encourage states and localities to stimulate links among businesses to enhance overall economic performance.

The nation's economic development programs will be a critical factor in two of the most significant domestic policy challenges of the coming decades: America's adjustment and response to an increasingly competitive global economy and the recent transformation of social policy from one based on dependency to one that stresses opportunity and personal responsibility. A reformed federal approach to economic development will help states and communities make real and far greater contributions to addressing these issues.

EDA does not have the authority to implement all of the panel's recommendations. For example, it would take action by the Congress and leadership by the President to substantially reduce the fragmentation of the federal economic development effort.

However, EDA has taken the panel's recommendations to heart. On an informal basis, we have been watching EDA's actions to implement the recommendations under its statutory authority and have been pleased at many of the steps they have taken. Phillip Singerman, Assistant Secretary for Economic Development, recently provided to us a detailed list of these steps, and I ask that a copy of his letter be entered into the record. While we have not formally studied or assessed EDA's actions, it is clear that the agency has taken the panel's recommendations seriously and has taken some useful steps -- especially in the area of technical assistance and training, or as the panel put it, learning.

For example, Mr. Singerman's letter informs us that EDA is working to develop a methodology to assess the costs and benefits of state incentive programs. EDA has engaged a contractor to assess how federal statistical agencies can better serve the needs of economic development practitioners. EDA is seeking to strengthen the planning processes of the states and regions that it works with. And EDA has commissioned independent evaluations of its own programs, hopefully as a step towards encouraging the states and regions with which it works to evaluate their own efforts. Thoughtful, sound evaluations can be tremendously useful to economic development efforts in sifting the wheat from the chaff, sharing good ideas, and finding better ways that EDA and other federal agencies can support their work.

For many years, EDA has been at risk of being terminated. When we were doing the research for our study, we were told repeatedly about the chilling effect this had on the morale and the capabilities of the agency. EDA is now working hard to revitalize itself. We are pleased that the Academy report has been of some use to the agency in this process and hope that the Committee will also find the report useful in its work.


Mr. Chairman, this concludes my prepared statement. I would be pleased to answer any questions. Thank you.