Congressional Actions Challenge Economic Development Revamp
May 2, 2005

Reprinted from SSTI Weekly Digest, a publication of the State Science and Technology Institute

42 Democratic Senators joined one Independent and 23 Republicans in passing a Republican measure that blocks the key element of the White House plan to consolidate most economic development programs within the Department of Commerce's Economic Development Administration (EDA).

The fate of the Advanced Technology Program and the Administration's entire reorganization of federal economic development efforts also took hits, as parts of a series of Congressional votes on the budget. However, these votes are only the first step in a along budget process.

Senate Saves CDBG with Coleman Amendment
The amendment to the budget authorization bill sponsored by Senator Norm Coleman (R-MN) prevented the transfer of the Community Development Block Grant Program (CDBG) from the Department of Housing and Urban Development (HUD) to the Commerce Department and fully funds CBDG at fiscal year 2005 funding authorization levels. The House Budget Authorization also kept CDBG within HUD.

While the Administration's FY 2006 budget request proposed consolidating or eliminating at least 28 programs totaling more than $6.7 billion in FY 2005 (see table from Feb. 14 Digest), transferring CDBG to EDA was seen by many analysts as critical for the Administration to proceed with creation of its $3.7 billion "Strengthen America's Communities" fund within EDA. Without the more than $4 billion of CDBG appropriations, the proposed EDA fund would require an injection of new funds, an unlikely prospect with the size of the federal deficit.

House Hearing on EDA Highlights Challenges to Change
The Senate vote on the Coleman Amendment saving CDBG took place at the same time the House Committee on Transportation and Infrastructure held a hearing on the Administration's proposed changes to the Economic Development Administration (EDA) structure. Besides the lack of funds, Strengthening America's Communities is running into other hurdles as well, it seems, with its proposed elimination of EDA's existing grant programs, funded at $253 million in fiscal year 2005.

Congress reauthorized EDA less than six months ago, leaving some of the Administration's Republican allies in the House questioning the magnitude and sweeping nature of the proposed changes.

"For this new program to succeed, it is going to have to be built on the basis of a successful model," said U.S. Rep. Bill Shuster (R-PA), chairman of the Subcommittee. Shuster recommended that EDA act as that model, as it has demonstrated success in the past and received a "moderately effective" ranking from the Office of Management and Budget (OMB).

The Administration's initiative would consolidate 18 programs within multiple agencies into one new grant program to be administered by the Department of Commerce (DOC). The Strengthening America's Communities Grant Program would allocate resources to state and local governments to invest in distressed communities and regions, while the Economic Development Challenge Fund, a bonus grant program, would provide grants to low-income communities facing economic challenges that have already taken steps to improve current conditions. The 18 programs slated for consolidation received approximately $5 billion in FY 2005, but the Administration has proposed cutting this to $3.71 billion for FY 2006, the first year of the program, according to the Committee on Transportation and Infrastructure.

Assistant Secretary of Commerce for Economic Development David Sampson, testifying in support of the initiative, said the programs needed to be merged because there is a high degree of duplication and overlap in addition to weak accountability measures. These 18 programs cannot demonstrate after 30 or 40 years that they have made a meaningful contribution to economic development goals, Sampson said.

Tensions arose during the hearing when Subcommittee Ranking Member Eleanor Holmes Norton (D-DC) accused Secretary Sampson of changing his mind from what he said six months ago during testimony for reauthorization of EDA. According to Norton, when Sampson previously testified to the subcommittee, he was supportive of the programs' performance and made no mention of weak accountability measures. In response, Sampson said he was focused purely on EDA's reauthorization at the time and not the 18 programs they were discussing now. He referred to the assessment of these programs as an OMB initiative that was outside of his portfolio.

According to Norton, $18 billion would be lost in private investment under this consolidation. Sampson responded by stating that, in leveraging the experience of DOC and their history of working with these funds, private investment would grow, producing greater results for most impoverished communities.

Four other witnesses representing local governments and economic development programs testified during the hearing on the benefits of the programs slated for consolidation. They expressed concern that these benefits would be lost under the new initiative, leading to increased distress on their communities.

More information, including audio of the hearing, is available at: http://www.house.gov/transportation/pbed/

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