U.S. Senate Committee on Environment & Public Works
U.S. Senate Committee on Environment & Public Works
Hearing Statements
Date:   04/29/2004
 
Statement of Hon. David A. Sampson
Assistant Secretary of Commerce for Economic Development
Economic Development Administration
Reauthorization of the Economic Development Administration

Chairman Inhofe, Ranking Member Jeffords, Subcommittee Chairman Bond, Subcommittee Ranking Member Reid and Members of the Committee, thank you for this opportunity to appear before the Senate Environment and Public Works committee regarding the reauthorization of the Public Works and Economic Development Act of 1965 (PWEDA), as amended.

We are at a critical time in our economic history and the decisions we make today will have profound impact. The challenges of today will require policymakers to be forward-looking and innovative. Tomorrow’s Challenges will not be answered with yesterday’s solutions.

Mr. Chairman, I am convinced that the only constant in economic development today is change. Nowhere else is this more evident than the scope of competition that American companies and communities face both domestically and from worldwide markets. American companies and communities must be able to operate in a worldwide marketplace and American political leaders must be in synch with business and labor leaders to adapt to this reality.

One significant step in this effort is to reauthorize the Economic Development Administration. I urge the Senate to quickly pass this legislation so the valuable program changes in this legislation can be employed to help the economy grow.

On October 21, 2003, the House of Representatives passed H.R. 2535, legislation to reauthorize the Economic Development Administration (EDA). While HR 2535 is not the same as S1134, legislation the Administration proposed to Congress on May 15 of last year and introduced by Chairman Inhofe and Bond in on May 22, the House bill is a bipartisan compromise that passed the House without dissent.

In 1965 EDA was created to help communities generate new jobs, retain existing jobs, and stimulate industrial and commercial growth in economically distressed areas of the United States primarily through the construction of infrastructure. Assistance is available to both rural and urban areas of the nation experiencing high unemployment, low per-capita income, or other severe economic distress.

EDA’s work to help communities was greatly advanced by my predecessor in the previous administration, Dr. Philip Singerman. His work with your committee in 1998 to reauthorize EDA for the first time in 16 years, set the stage for the improvements we seek in our proposed legislation. I believe his testimony today will be valuable to your efforts.

Today, EDA's mission is to lead the federal economic development agenda by promoting innovation and competitiveness, preparing American regions for growth and success in the worldwide economy. In order for EDA to achieve this mission and for the federal government to be successful in its overall economic development efforts we need a New Federal Economic Development Strategy for the 21st Century.

A New Federal Economic Development Strategy for the 21st Century

As I travel across the nation, it is clear to me that economic development is a top agenda item for almost everyone. However, it is also clear to me that America needs a smarter economic development strategy for the 21st Century. We need to set clear expectations and develop an overall strategy for these efforts by establishing a coherent design – including some common management goals and common performance measures among federal economic development programs.

What is the Federal Role?

The bottom-line of economic development is prosperity – a high and rising standard of living. Productivity and productivity growth are the fundamental drivers of prosperity and innovation is the key driver of productivity. President Bush has said, “The role of government is to create conditions in which jobs are created, in which people can find work.” The economic development focus of the Bush Administration is supporting innovation and competitiveness on a regional level across America. Increased innovation and competitiveness empowers distressed regions to attract private-sector investment thereby improving the opportunities for American workers.

Thinking Regionally

Economies are not hermetically sealed in artificial political boundaries. The dominant reality of economic development today is that all communities, cities, towns and counties alike, must think regionally and pool their resources to build a strong economic platform for growth. By pooling their resources regionally, communities can attract the private sector investment necessary to spur job creation, because it is the private sector that creates jobs and spurs economic growth.

Let me give you an example: I was in Georgia meeting with officials from four counties who were encouraging EDA to assist in the development of a development project in one of the four counties. I asked them, why three of the counties were asking us to invest in a county outside of their own. They told me that they understood that this project would be a driver of job growth for the entire region and it would benefit all of their constituents. By pooling their resources they could attract more private sector investment than if they each went it alone.

Encouraging regional collaboration should be one of the key goals for defining the federal role in economic development – and it is at EDA.

EDA is guided by the basic principle that distressed communities must be empowered to develop and implement their own economic development and revitalization strategies through close collaboration with the private sector, local governments, and universities. Based on these regionally-developed priorities, EDA partners with state or local governments, regional economic development districts, public and private nonprofit organizations, and Indian tribes to help them attract the critical private sector investment that is necessary to overcome long-term economic distress as well as sudden and severe economic dislocations due to natural disasters; the closure of military or other installations; changing trade patterns; or the depletion of natural resources.

Promoting America’s Immense Innovative Capacity

The innovative capacity of the United States has always been one of our greatest strengths. The innovation infrastructure of our country is built on over 200 years of invention, discovery, development and commercialization. It is an intricate system that exists no place else on Earth.

Innovation will drive the growth of American industry by fostering new ideas, technologies and processes that lead to better jobs and higher wages – and as a result, a higher standard of living. America’s capacity to innovate will serve as its most critical element in sustaining prosperity. New products and new production methods embedded in the oldest of our mainline manufacturing businesses will raise our productivity and ensure that our economy remains the most competitive in the world. Only by focusing on innovation and competitiveness can we ensure that the jobs created will be good jobs that provide a higher standard of living for Americans.

America’s economic infrastructure is dependent upon innovation and one key place innovation occurs is on America’s university campuses. One of EDA's investment priorities is to advance technology-led economic development by supporting the commercialization of university research and development efforts by linking them with regional economic development. We must foster technology transfer and entrepreneurial ecosystems, in which private industry, universities and communities can partner to drive economic expansion.

National Economic Development Strategy

EDA has a unique position in the national economic development strategy. Since its creation nearly forty years ago, EDA has invested over $12 billion dollars to help distressed communities create an environment conducive to sustained job growth and economic opportunity. This is a small fraction of the overall federal investment in economic development activities over the same period.

According to a General Accounting Office study of federal economic development programs conducted in 2000, there are at least 30 federal economic development programs, providing approximately seven billion dollars to support economic development activities. Some more recent analysis lists the budget for economic development at over $20 billion.

EDA’s fiscal year 2004 budget of $318 million may seem insignificant when compared to the nation’s $11 trillion economy. Indeed, it is critical to job creation and long-term economic growth for the overall economy that the much larger macroeconomic policies in President Bush’s Six Point Economic Plan are passed by Congress as well.

These critical six items are:

• Making Health Care Costs More Affordable.

• Reducing the Lawsuit Burden on Our Economy.

• Ensuring an Affordable, Reliable Energy Supply.

• Streamlining Regulations and Reporting Requirements.

• Opening New Markets for American Products; and

• Enabling Families and Businesses to Plan for the Future with Confidence by Making Tax Cuts Permanent.

However, at the local and regional level, EDA has a proven ability to provide catalysts for economic growth in areas the marketplace bypasses or that are experiencing sudden and severe economic dislocation. The legislation before the Senate to reauthorize EDA will enhance our ability to address these important economic needs. EDA’s legislation was crafted with the following three principles:

· Being flexible to deal with change;
· Enhancing our coordination with other federal programs; and
· Rewarding Results.

Increased Flexibility

As I travel across the country talking with our economic development partners, they repeatedly comment on the value to them of our programs’ flexibility. They like the existing flexibility of our programs, but note that EDA can do better in some areas. We’ve listened to their ideas about increasing that flexibility while maintaining, even increasing, accountability for taxpayers’ dollars.

To increase our flexibility, we have reorganized our workforce to improve and streamline our internal operations and through our reauthorization we are seeking to transform EDA into a flexible, forward-looking federal resource that focuses on investing in economic infrastructure that will promote development of regional engines of economic growth.

Many of the Administration’s proposed changes included in both S1134 and the version that passed the House are related to this objective. For example, H.R. 2535 clarifies that certain non-profit organizations and special units of government are eligible for EDA assistance. As key players in the economic development arena, it is important that we be able to work along side community development corporations and municipal utility districts to promote strategies that will result in economic growth. These types of entities were not envisioned when EDA was created in 1965.

This Administration’s proposal allows the savings, from construction projects completed under budget, to be recaptured to fund additional economic development projects. Under current law, these funds are either returned to the federal treasury or are used to improve the project. EDA needs the flexibility to use these funds to invest in additional projects in distressed communities. The House has agreed to allow the EDA the opportunity to utilize these funds for additional projects but modified the language to allow recipients of EDA funds to keep under-run costs as an increase in the federal share of their grant.

Finally, both the Administration’s bill and the House version eliminate the provision in our law dealing with overcapacity (Section 208). This provision was relevant to our programs when EDA made large loans to entire industry-sectors but has proven to be administratively burdensome to both our grantees and our staff. We would also note that communities providing mandatory matching funds will not invest in projects creating over-capacity because they will not be viable over the long term and the private-sector will not invest in a project unless market demand exists. We will use investment policy guidelines and our regulations to achieve the purposes of this section in a less burdensome manner.

Enhancing Our Coordination With Other Federal Programs

A highly trained and skilled workforce is crucial to our economic growth. The legislation we sent to Congress proposes several changes to existing law to promote coordination among federal economic and workforce development programs, such as those authorized under the Workforce Investment Act. The House bill includes similar provisions.

The President has stated that a better-educated workforce means America is more productive resulting in more jobs and higher paychecks. This Administration is committed to developing closer linkages between workforce development and economic development. I have been working closely with my counterpart at the Department of Labor’s Employment and Training Administration to build these linkages. Our proposed statutory changes would make it easier for these partnerships to be built at the local level.

Additionally, the House added a provision to require EDA to coordinate our efforts with other economic development programs, which dovetails with our ongoing efforts to partner on a government-wide basis to coordinate federal Economic Development Efforts.

Rewarding Results

EDA has demonstrated through measurable outcomes the value of its leading programs. We have adopted a Balanced Scorecard as a tool to measure our performance and scored relatively well in the Office of Management and Budget’s Program Assessment Rating Tool (PART).

But these achievements are not enough. We have also focused the agencies core values on results. Our values include:

R esponsibility
E ntrepreneurship
S ecurity
U rgency
L eadership
T eamwork
S uccess

Responsibility: We act with integrity and respect for others and are accountable for our actions.

Entrepreneurship: We seize opportunities in the midst of change and take market-based risks, challenging the status quo. We seek partners with similar attributes.

Security: We enhance economic security. At work, we operate in a safe, secure, and alert work environment.

Urgency: We act now – with alacrity.

Leadership: We develop leaders, communicate concisely, and exhibit a high degree of professionalism. We make tough choices.

Teamwork: We are passionate about economic growth and build synergy by collaborating. We expand relationships.

Success: We set high goals, stretch our abilities, and exceed expectations. We focus on critical items first and commit to implement them fully.

EDA evaluates its programs by measuring the results in such areas as the number of jobs created and the amount of private-sector funds leveraged. Correspondingly, EDA also requires its grantees to measure the results of their projects.

This Administration expects high levels of results from EDA’s investments and commits to providing recipients an incentive to reach these performance goals. When an EDA-funded project provides excellent results taxpayers gain: prompt project implementation, better overall stewardship of taxpayer resources, faster creation of higher-skill, higher-wage job opportunities, and timely investment of private sector funds -- all of which help communities become more competitive and economically vibrant.

Rewarding Performance

EDA’s proposed legislation contained a performance-based incentive recognizing the importance we place on achieving results and the critical role that our partners play in transforming distressed communities into successful, economically stable communities. Currently, applicants have an incentive to overstate the number of jobs they anticipate creating because job creation is a large part of the evaluation criteria. The Administration hopes to temper this incentive by offering a 10% bonus award for projects that exceed their job performance targets. This funding for the 10% bonus would come from the elimination of the 10% bonus for projects that flow out of the economic development districts, as described below.

The House was very supportive of the concept, but altered the delivery mechanism of this incentive. The House creates a performance based incentive program that would reward high performance with a straight bonus, rather than EDA’s proposed credit, of up to 10% of the project cost that can be used on other eligible activities.

For example, if the city of Stillwater, Oklahoma received a $1 million grant from EDA that promised to create 200 jobs and attract $35 million in private sector investment and the project created 450 jobs and attracted $60 million in private sector investment, it would be eligible for an EDA performance award of $100,000. This $100,000 could be used by the city of Stillwater for improving the project, for another EDA project, or it could be used as non federal matching funds for other federal grants the city may be seeking.

This House provision retains the pro-results intent of the Administration while rewarding local recipients with additional flexibility to make this reward a useful goal. We believe that by recognizing high performance recipients with a significant and tangible incentive-based reward, this provision will raise the performance bar across the board for all EDA recipients. It will also help EDA evaluate projects at the front end of the process as it will encourage applicants to focus on achievable goals for the projects in submitting their applications.

The House also made an additional performance incentive change. The Administration’s proposal calls for the elimination of the current 10% bonus for projects that flow out of economic development districts under section 403 of the statute (42 U.S.C. 3173) because participation in the economic development districts is high. The Administration believes the current 10% bonus could be better spent to incentivize performance, as outlined above. The House bill similarly deletes the current 10% bonus for economic development district projects, but also has added a 5% planning performance bonus similar to the 10% performance award. This 5% planning bonus would go to recipients who utilized an economic development district to process and support an economic development project. Projects in a region not covered by an EDA approved Economic Development District would not be eligible for this award.

Revolving Loan Funds

One component of results is being a good steward of the taxpayer’s money. At EDA, no where is this more important than our revolving loan fund (RLF) program.

Twenty–seven years ago EDA created the first economic development RLFs. Today, with a portfolio of over six hundred RLFs, worth approximately $1 billion, EDA believes that it is both necessary and appropriate to implement much needed management reforms to ensure the continued effectiveness and accountability of these funds. In its reauthorization proposal, EDA seeks new authority to correct technical issues to ensure the efficient operation and financial integrity of our Revolving Loan Fund Program.

Financial Integrity and Accountability of the Revolving Loan Fund Program

Over the past three-and-one-half years, the Department Of Commerce’s Office of Inspector General has conducted 46 audits of EDA Revolving Loan Funds. The seriousness of financial integrity problems in the revolving loan fund program is demonstrated by the several file cabinets full of documents we have had to review to resolve significant problems. All but a handful of these audits revealed serious instances of non-compliance or failure to safeguard RLF assets, including

1) Unused RLF assets due to start-up delays or insufficient demand for loans;
2) Ineligible loans or borrowers, and failure to properly document loan decisions; and,
3) Poor accounting and financial management practices, including failure to safeguard and protect RLF assets.

The Inspector General reported significant problems for Revolving Loan Funds operated in every region of the nation, by many different local, state and regional development organizations. These 46 audits cover a significant portion of EDA’s overall portfolio and I believe are indicative of problems with the program. We must act now to avoid much larger problems in the future to make sure this economic development tool remains a viable option.

The Administration’s proposed legislation provided EDA with the authority to write specific regulations addressing basic financial accountability standards that every EDA RLF must meet. These uniform standards will then be incorporated into the Single Audit Act compliance requirements. This will allow certified public accountants conducting RLF audits to verify the financial integrity of EDA RLFs on a regular basis.

These changes in our RLF program will produce positive effects on our partners around the country. With a more robust audit, EDA need only require an annual report from our RLF’s instead of the semiannual reports currently required.

Additionally, over sixty EDA RLF operators manage from two to four EDA RLFs, capitalized at different times from different EDA appropriations, such as a Long Term Economic Deterioration (LTED) RLF, a defense adjustment RLF, or created following a natural disaster. The proposed technical corrections will enable EDA to merge multiple RLFs into a single, efficient fund per operator, thereby greatly simplifying the administrative and reporting burden for both the grantees and EDA. In many instances RLFs will decrease from four reports to one more comprehensive report, annually, and numerous RLF operators will decrease from eight reports to one report, annually. These changes will reduce bureaucracy, improve accountability, and save valuable staff time and resources for both our RLF operators and EDA.

The House has accepted these changes with one clarification. The House made clear that the consolidation is an option of the RLF operator, not a mandate from Washington. That is a helpful distinction that the Administration accepts.

Transfer of RLFs to Third Parties for Liquidation:

The legislation also seeks new authority to transfer RLF portfolio assets to third parties for liquidation. Due to issues of non-compliance or simply for the convenience of the parties, EDA, in some cases, needs to terminate an RLF. To date, the uncertainty of how to deal with, and pay for, the liquidation of an outstanding portfolio of loans has seriously impaired EDA’s ability to dispose of these assets in a timely manner. By allowing EDA to arrange the transfer of the RLF portfolio to a third party, the new law will enable EDA to arrange for the orderly or timely disposition of an RLF while paying for the necessary costs of liquidation activities from the assets of the RLF being terminated.

The House accepted this provision in HR 2535.

Release of the Federal Interest in EDA RLFs:

Finally, at the request of the RLF community, the Administration seeks new authority to closeout existing RLFs by allowing the repayment of the initial grant used to capitalize an RLF after a period of twenty years, similar to the release of EDA’s interest in public works grants after 20 years. Although EDA does not directly fund RLFs, it does provide grants to local governments and non-profits that in turn set up revolving loan funds. Unfortunately, the House did not accept this change to our RLF program in HR 2535.

It is important to note that this provision is a very modest change to current law. Current law provides that an RLF grant recipient can cut its strings with the federal government by compensating the Federal government for the Federal share of the value of the RLF property. As an incentive to encourage a gradual reduction in the number of RLFs outstanding, our proposed provision would allow a RLF grant recipient to cut their strings with the federal government by repaying the amount of the initial grant only.

This provision would apply to RLFs that have demonstrated and sustained financial and program performance. I believe that after twenty years any high performing RLF will have provided considerably more new jobs and increased leverage of private-sector investment than originally anticipated.

We anticipate that the proposed buy-out option will be particularly attractive for the best performing RLFs and will become an important performance incentive for all RLFs. The ability of an RLF to closeout their grant from EDA after 20 years of successful management will provide EDA a powerful new management tool and RLFs with a strong incentive to increase their efficiency.

Further, this new authority will help EDA to correct the historic and growing imbalance of finite EDA resources available to monitor and administer an ever-increasing number of RLFs. Without Congressional action, RLFs will become less attractive to economic development professionals as they are perpetual, federally regulated, grants despite possible changed circumstances. The gradual reduction of EDA’s RLF portfolio will enable EDA to effectively utilize its staff for higher quality administration of the remaining grant portfolio. It will allow us to recognize our economic development successes from the last twenty years and move on to future challenges.

Comments on Additional House Changes

HR 2535 made several other changes to the Administration’s proposal.

As part of the last minute negotiations on the bill, a section of the House bill raised the federal share of all planning grants to be a minimum of 65%. Currently this share is 50% - 100% for Native American planning grants. I would like to point out to the Senate that this change in federal minimum percentage will have no real dollar impact for economic development districts. Since we have more districts than funding, everyone will receive the same amount of money. What this does do, however, is lower the local cost share and that may negatively impact planning activities as EDA is “buying” less of a product.

Similarly, HR 2535 did not include the Administration’s flexible language relating to program funding. The Administration sought language to set the budget for the current year at the President’s request with such sums as necessary for the next 4 years. The House has instead chosen to authorize program funding at $2.25 billion over 5 years.

HR 2535 also places a rider that expands the boundaries of the Appalachian Regional Commission. The Administration opposed similar language in H.R. 3550, the Transportation Legacy Act. Moreover, this provision is not related to EDA reauthorization and should be removed. I encourage the Senate to pass a clean bill.

Brownfields and Brightfields

The House also added sections 218 and 219 related to Brownfields and Brightfields. These provisions purport to allow EDA to engage in redevelopment of projects utilizing brightfield technology or in brownfield areas.

I appreciate the interest that the Committee has shown in EDA’s brownfields activities, which have represented a significant part of EDA’s investment activities over the past five years. From FY 1999 through FY 2003, EDA has made 269 investments in brownfields totaling $266,579,653, or 15% of EDA’s total program appropriations during that time period. That works out to an average of 54 brownfields investments annually, with an average brownfields expenditure of $53,315,931 per fiscal year.

We look forward to continuing our pro-active work in brownfields investments, especially given the anticipated BRAC round scheduled for FY 2005. Our major goal with the legislation is to be able to continue this work with maximum flexibility in accord with EDA’s funding priorities and investment policy guidelines. The provisions that tie EDA to the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) in the House bill and in legislation that passed this committee in the 107th Congress cause us particular concern.

These provisions attempt to graft a set of definitions, obligations and limitations from CERCLA onto EDA’s brownfields activities that are not consistent with EDA’s brownfields work. The CERCLA provisions, as written, would radically alter and ultimately wither EDA’s current brownfields work.

CERCLA brownfields provisions are directed towards a clean-up program, because that is the focus of CERCLA -- to authorize the Federal Government to fund and perform, establishing liability for, and reimbursing the Superfund for – environmental clean-up.

On the other hand, EDA’s investments in brownfields rarely involve even the most residual clean-up activity. Our work is directed to a completely different end -- development of an existing project site to create jobs and get it back on the tax rolls.

The consequences of EDA being bound by the CERCLA provisions would be extreme. As the most obvious example, funding under this section could not be applied to former military bases as CERCLA does not consider military bases to be “brownfields.” EDA does. What’s more, EDA recipients would be unable to claim reimbursement for the cost of any federal compliance, as they are currently allowed to do. This is of particular concern as it relates to our work with Indian Tribes. Currently, federally recognized tribes are eligible for 100% grants from EDA. This provision would weaken our ability to fund brownfields development on Indian lands. But the real overall effect would be to limit and steer EDA’s existing brownfields activities towards those involving clean-up of polluted sites, and we believe that would ultimately end EDA’s program. Of course, EDA is not seeking to in any way relieve a responsible party from liability under CERCLA nor provide funds to a party to undertake clean-ups required under CERCLA, since to do so would undercut the “Polluter Pays” principle on which CERCLA is founded.

I am confident that a mutually agreeable provision can be drafted that strengthens our work to redevelop brownfields sites. I stand ready to work with the Committee to craft a solution to this issue, with consultations, technical drafting assistance and other assistance you require.

I also urge the Committee to retain section 701 of H.R. 2535 which provides a general authorization of appropriations for EDA’s programs without imposing special limits for brownfields redevelopment or other programs which could limit EDA's flexibility to respond to a variety of economic situations.

Moreover, the section on Brightfields contains a demonstration program for economic redevelopment using solar sources. EDA is not opposed to pursing the right Brightfields project provided it is consistent with our goals to create as many jobs and attract as much private sector support as possible. Again, the goals of the House’s Brightfields language can be furthered using existing EDA program authority.

Summary

The Administration’s legislative proposals and HR 2535 contain valuable program enhancements, critical to EDA’s continued success. They will safeguard the financial integrity of EDA’s programs while ensuring a more flexible and forward looking organization to meet the challenges of the 21st Century.

The testimony from my colleagues that you will hear from today demonstrates exciting new growth opportunities in the area of economic development. To take advantage of these opportunities the Administration’s legislation focuses on:

1) Increasing flexibility to allow us to take advantage of these exciting opportunities;
2) Enhancing coordination to work in a comprehensive fashion with other agencies to achieve results; and, most importantly,
3) Rewarding the performance of our most successful partners.

I urge that the Senate act quickly to pass legislation to give EDA and our partners across the nation serving regions in economic distress the economic development tools necessary achieve the President’s goal to leave “no demographic or geographic area behind in the pursuit of more fully participating in the American Dream.”

Thank you for the opportunity to testify before you today and I look forward to answering your questions about this legislation.