Economic Development

Limited Information Exists on the Impact of Assistance Provided by Three Agencies Gao ID: RCED-96-103 April 3, 1996

The Appalachian Regional Commission, the Commerce Department's Economic Development Administration, and the Tennessee Valley Authority are three of the federal agencies whose programs provide economic development assistance to local communities. Recent congressional debate has centered on the impact of the economic development aid provided by these three agencies and the "performance ratios" they calculate--a comparison of the total dollars invested or planned for an economic development project with the dollars contributed by the agency itself. The performance ratio is seen as a measure of the extent to which other federal, state, local, or private sector investment is attracted to a project as a result of the agency's investment. This report (1) reviews studies that evaluate the impact of economic development of these three agencies' programs and (2) determines how the performance ratios used by the three agencies were calculated.

GAO found that: (1) there is no study that establishes a strong causal link between agencies' economic development assistance and positive economic effects beyond particular locations, projects, and programs; (2) only two of the several studies reviewed attempted to assess the overall impact of ARC and EDA assistance on economic development and they only showed marginal linkage between programs and economic development; (3) there are no studies on the TVA nonpower programs' economic impact; (4) the lack of definitive research is due to the difficulty of linking a program's impact to economic improvements and isolating its effects from other causes; (5) no study attempted to address the issues of whether one region's economic growth came at the expense of another's or whether federal funds replaced state and local spending; and (6) each of the 3 agencies calculated its 3-to-1 performance ratio by dividing total investment dollars by the investment dollars it provided, but the agencies' definitions of total investment dollars differ and calculations are made to only a portion of their programs.



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