IMAL WIBUC WMKKS PROGRAM U.S. DEPARTMENT OF COMMERCE • Economic Development Administration JANUARY 1978 It me Digitized by the Internet Archive in 2012 with funding from LYRASIS Members and Sloan Foundation http://archive.org/details/localpublicworkOOunit MMAI PUBLIC HORKS NUM.lt AH Creating Jobs Through Public Works Projects in Areas of High Unemployment SIATUS REPORT a o J o & ■3 c *»■*"" <°. \ J *r ES o« ^ r 4TES U. S. DEPARTMENT OF COMMERCE Juanita M. Kreps, Secretary Sidney Harman, Under Secretary Robert T. Hall, Assistant Secretary for Economic Development JANUARY 1978 FOREWORD The Public Works Employment Act enacted in May 19 77, which estabished a $4 billion program of local public works projects, is a key feature of President Carter's economic recovery program. The legislation and its implementation are products of close and continuing coordination between the Congress and the Administration. There also has been frequent communication with State and local officials as well as other involved participants. The purpose of this interim status report, which was prepared by Beverly L. Milkman, is to continue that process of communication. The Local Public Works Program (LPW II) is directed at providing a fiscal stimulus to the economy; increased job opportunities; and needed public facilities. Its genesis lay in the previous $2 billion LPW Program (LPW I) enacted by the Congress in July 1976. This report traces the develop- ment of the LPW II Program, beginning with the legacy left by LPW I -- a legacy that included more than 22,000 unfunded project applications for more than $20 billion in public works projects from State and local governments. In addition to tracing the development of the LPW II legisla- tion, this report describes the LPW II Program design formulated by Agency leadership, as well as the implementation of that design, which involved awarding $4 billion in 8,555 public works projects to more than 4,000 State and local governments in a period of 72 days. The report also discusses the program's management and some key program issues. Also presented are ini- tial data on the program's impact and preliminary conclusions. As I have stated on numerous occasions, I am proud of the role EDA has played in designing and carrying out the LPW II Program -- the largest undertaking of its kind since the public works programs of the 1930 's. EDA, the primary Federal economic development agency, undertook this important task in addition to its efforts to help strengthen the Nation's economi- cally lagging urban and rural areas. To a considerable extent, the LPW Program in addition to its economic stimulus efforts will also help to improve the economic development prospects of many of these chronically depressed communities. Given the importance of this program, the Agency will continue to report on LPW's progress and will be carefully evaluating the results for future guidance to public policy in this area. Robert T. Hall Assistant Secretary for Economic Development - i - TABLE OF CONTENTS Page FOREWORD i SUMMARY V I . PROGRAM DESIGN 1 A. Predecessor Program — LPW I 1 B. Administration Proposal for LPW II 7 C. Enactment of Legislation 7 D. LPW II Objectives and Considerations 13 E. LPW II Allocation System 15 F. LPW II Project Selection System 18 G. Congressional Oversight Hearings on LPW II Policies and Procedures 20 II. PROGRAM IMPLEMENTATION 21 A. Allocation of Funds 21 B. Processing and Approval of Projects 29 C. LPW I and II Program Characteristics 32 III. SELECTED PROGRAM ISSUES 41 A. Unemployment Data 41 B. Ten Percent Minority Business Enterprise Requirement 44 C. Other Program Issues 50 IV. PROGRAM MANAGEMENT 51 A. LPW Management Committee 51 B. Administrative Organization and Staffing .... 51 C. Refinement of LPW Project Data 52 n - Page D. LPW Monitoring Activities 52 E. Project Audits 54 F. Evaluation of LPW Program 54 G. Public Works Investment Study 56 V. PROGRAM IMPACT 5 8 A. LPW Construction Expenditures 58 B. Employment Impacts of the Local Public Works Program 59 C. LPW Facilities 65 VI. PRELIMINARY CONCLUSIONS 75 APPENDIX — PROCEDURES FOR CALCULATING STATE ALLOCATIONS 7 9 - ill - LIST OF ILLUSTRATIONS Page Table 1 - LPW State Funding 22 LPW I State Funding 23 LPW II State Funding 24 Table 2 - Timing of LPW II Approvals 31 Table 3 - LPW Funding by Area Unemployment Rate 3 3 Table 4 - LPW Funding by Area Population 34 Table 5 - LPW Funding by Type of Applicant 36 Table 6 - LPW Project Costs 37 Table 7 - Duration of Project Construction 39 Table 8 - Other Funding for LPW Projects 40 Table 9 - Summary of LPW Project Types 6 8 Table 10 - Types of LPW Projects 69 Table 11 - LPW II Project Categories by Applicant Type 70 Table 12 - Types of LPW Work Activity 72 - iv - SUMMARY A. PROGRAM EVOLUTION In January 1977 President Carter recommended a $4 billion public works program to the Congress as part of the Adminis- tration's two-year economic stimulus proposals. This program of financial assistance for State and local government public works projects was proposed for the interrelated purposes of: • stimulating the national economy and dis- tressed local economies through the infusion of Federal public works funds; • generating employment opportunities, parti- cularly in construction trades and related industries and services; and • constructing or rehabilitating useful public facilities . In proposing the $4 billion program, the President expanded upon an earlier Congressional initiative, which originated in the July 1976 enactment of legislation authorizing a $2 billion countercyclical public works program. This Local Public Works Capital Development and Investment Act of 197 6, which provided 100 percent Federal grants for State and local public works projects, was implemented by the Department of Commerce's Economic Development Administration (EDA) during the first two quarters of the 1977 Fiscal Year. In accordance with its countercyclical objective, the legislation authorizing the $2 billion Local Public Works Program (LPW I) required a decision on each project application within 60 days of its submission and further mandated that projects were to be under construction within 90 days of their approval. These provisions were unprecedented in the history of Federal public works assistance. The procedures developed to administer the LPW I Program in- cluded unlimited submission of project applications and selection among those applications on the basis of a complicated seven-factor scoring formula. Local and State governments -- uncertain as to how their various project proposals would fare in the competition -- took no chances. Instead of submitting a few priority projects, many applicants sent EDA all pending public works proposals, regardless of how important they were to the area at the time of LPW I. As a consequence of this and the widespread demand for such projects, EDA's Regional Offices received approximately 25,000 applications totalling more than $24 billion during the six-week LPW I application - v - submission period. By early February 1977, the Agency had approved more than 2,000 projects under LPW I, leaving an unfunded residue of 22,000 applications representing more than $20 billion in funding requests. B. PROGRAM DESIGN In recommending an additional $4 billion for State and local public works projects as part of an overall economic recovery program, President Carter cited the demand reflected by the unfunded LPW I applications, as well as the need to improve upon the project selection system employed under LPW I. Con- sulting regularly with the Congress, EDA's new leadership designed a system for implementing the LPW II Program based on six overall policy objectives: • to maximize the fiscal stimulus effect of the program by starting construction as soon as possible and shortening the periods within which the construction would take place; • to target funds to areas of highest unemploy- ment in each State in order to reach the areas of highest economic distress and to minimize effects on wages and prices; • to reduce the previous round's funding inequities among different areas and types of governmental units ; • to place maximum emphasis on local decision-making in the selection of projects; • to make the program more predictable by allowing eligible applicants to know in advance how their projects would fare, thus avoiding unrealistic expectations and excessive application submissions, as well as facilitating State and local planning; and • to increase the program's efficiency by reducing the administrative workload on LPW applicants as well as EDA. Other considerations that guided EDA officials in formulating the new procedures included the need to achieve equity by taking into account LPW I funding in distributing LPW II dollars and the desirability of using non-funded LPW I appli- cations to the extent possible. - vi - In early May 19 77, Congress passed the Public Works Employ- ment Act of 1977, a bill that authorized a $4 billion LPW II Program containing the major provisions proposed by the Admin- istration. In addition, Congress passed the Economic Stimulus Appropriations Act, which appropriated the full $4 billion to carry the program out. President Carter signed both measures on May 13, and Secretary of Commerce Juanita M. Kreps announced LPW II State allocations on May 16. Later that week, EDA officials testified before both the House and Senate Public Works Committees to review the proposed procedures for implementing LPW II. These procedures, which met the objectives identified above, consisted of methods for: • allocating funds to eligible areas and types of governments; and • selecting projects to be funded within those allocations . Fund allocation was accomplished on the basis of area unemploy- ment statistics and participation of various types of government under LPW I, while project selection within certain basic guide- lines was determined by State and local officials in accordance with their own priorities. C. PROGRAM IMPLEMENTATION After receiving the general approval of the House and Senate Committee members for the proposed LPW II procedures, EDA proceeded to implement the program. Preliminary planning targets for State and local governments were announced on June 9, followed by Indian tribe allocations on June 20, final State and local government allocations on July 15, and pocket-of-poverty allocations on August 1. Eligible applicants, including school districts, prioritized projects within these planning targets and either resubmitted LPW I applications or submitted new applications to reflect those priorities . Secretary Kreps announced approval of the first group of LPW II projects on July 21. Between that date and September 30, EDA staff -- primarily temporary personnel hired specifically for the LPW Program — processed and obtained approval of 8,555 LPW II projects, more than four times the 2,062 projects approved under LPW I. The funding of $4 billion in public works projects within a 10-week period was a formidable task. During the final two weeks of the 1977 Fiscal Year, 4,086 projects involving $1.8 billion were processed and approved. - vn - D. AREA, APPLICANT AND PROJECT CHARACTERISTICS The LPW II Program represented an improvement over LPW I. Excluding unemployment data for Indian reservations and Territories, which are either incomparable or nonexistent, LPW II compares to LPW I as follows: • percentage of project funding in areas with unemployment rates above the national average - 6 3.4% under LPW I - 72.0% under LPW II • average unemployment rate for areas receiving funds 8.9% under LPW I - 9.4% under LPW II • percentage of project funding in areas with unemployment rates of 9 percent or more - 46.2% under LPW I 54.1% under LPW II • percentage of project funding in areas with less than 6.5 percent unemployment - 23.3% under LPW I - 13.8% under LPW II • percentage of funds to cities of more than 50,000 population, which had 45.9 percent of the Nation's unemployed between March 1976 and February 1977 - 38.4% under LPW I - 47. 1% under LPW II • participation by 100 largest cities - 65% under LPW I 93% under LPW II (The remaining cities had received a disproportionate share of the LPW funds in LPW I and therefore did not receive any LPW II funds.) - VI 11 - • number of communities under 5,000 population receiving funds - 570 under LPW I 1,580 under LPW II • number of communities under 2,500 population receiving funds 38 5 under LPW I 1,000 under LPW II • number of State governments receiving projects 15 under LPW I 50 under LPW II • number of county governments receiving projects - 190 under LPW I 901 under LPW II (another 78 used their planning targets to fund other applicants' projects) • LPW project funding from other sources $205 million under LPW I $1.04 billion under LPW II The improved performance in directing a greater proportion of the funds to areas with higher unemployment rates is more noteworthy because unemployment had declined somewhat between the LPW I and II periods. In addition to the LPW II approach's improved performance in the above categories, the average LPW grant under the second round was $469,000, as compared to $952,000 under LPW I. As a result, the length of time required to complete project con- struction should decrease, thereby accelerating construction and materials expenditures and increasing the fiscal stimulus impact. Applicants' estimates indicate that 62.5 percent of LPW II projects representing 36.4 percent of the funds will be completed in less than a year. This compares favorably with LPW I estimates, which indicate that only 46.8 percent of all projects representing 23.7 percent of the LPW I funds will be completed within the same time period. ix - E. CONSTRUCTION EXPENDITURES As of December 31, 1977 , construction was underway or com- pleted on all 2,062 LPW I projects and 85 percent of the 8,555 LPW II projects. In the case of the LPW II projects, the 1,500 on which construction had not begun either had not reached the 90-day construction start deadline or were granted extensions to that deadline for such causes as bidding problems and weather conditions. By the same date, disbursements under the LPW I Program had reached $922 million or 50 percent of the $2 billion appropriation. In addition, LPW II disbursements were proceeding at a faster pace than anticipated, with more than $40 million recorded only three months after completion of the project approval stage. Since disbursements follow actual expenditures for labor, equipment, and materials, the approximately $962 million in LPW I and II disbursements is a conservative reflection of the impact of LPW construction expenditures to date. F. JOB GENERATION It is premature to report on the employment generation effects of the program. Estimates have been made using a variety of techniques including computer models and the extrapolation of grantee reports which are now starting to flow in. Reliable data on the employment impact of the program will not be available until completion of the comprehensive evaluation which is now underway. Rough estimates of the employment impact of the LPW program, however, can be made at this time based on experience from previous comparable programs. Analyses of those programs suggest that overall LPW (Rounds I and II) will generate about 176,000 person-years of employment on site or in con- struction support industries, and an additional 249,000 person-years of employment will be generated elsewhere in the general economy through the infusion of the $6 billion. It should be noted that out of the estimated 425,000 person-years of employment many more different individuals will have periods of employment or "jobs." As the employment generation aspect of LPW is so critical in judging the worth of public works as a fiscal stimulus instrument, this aspect of the LPW Program is being studied carefully. G. FACILITY DEVELOPMENT Both LPW I and II funded useful public facilities that will add to the capital stock of communities throughout the country. Water and sewer systems, streets, bridges, port facilities, community centers, municipal office buildings, and schools are - x - among the wide variety of projects being constructed. Badly needed police and fire stations, detention facilities, and hospitals and nursing homes also received funding through the LPW I and II Programs. In addition, cultural and recreational projects such as museums and gymnasiums accounted for some LPW funds. Under LPW II the facilities should prove more relevant to community needs since the projects were chosen on the basis of local priorities, which was not the case under LPW I. Applicant-selected LPW II projects also differed from LPW I projects in that a greater percentage of LPW II funds were used to finance infrastructure directly related to long-term economic development. Another interesting aspect of the LPW II selections is their indication that city/town governments place greater priority on infrastructure directly related to economic development than do State and county governments, which emphasized general purpose government and related facil- ities. In addition to generating short-term jobs in construc- tion and related industries and providing needed public facilities, it is expected that these types of projects will stimulate or facilitate local growth leading to permanent employment opportunities in the private sector. Other types of projects may also produce such effects, but not as rapidly. H. TEN PERCENT MINORITY BUSINESS REQUIREMENT The LPW II legislation contained the unprecedented requirement that at least 10 percent of each LPW grant be expended with minority businesses: contractors or suppliers. EDA, which has received considerable assistance from Members of Congress and other Executive Branch agencies and offices, including White House staff, has assigned highest priority to efforts to implement this provision. In addition to making it possible for minority firms to obtain technical and financial assistance from public and private organizations, EDA officials have made it clear to LPW grant recipients, as well as representatives of the construction industry and financial institutions, that the Agency is committed to meeting the 10 percent requirement. This commitment is also reflected in the procedures developed by the Agency to implement the requirement, including the establishment of a special unit in Washington to monitor implementation . As of December 31, grantee estimates subsequent to bid openings suggested that for projects representing $2.2 billion or 55 percent of LPW funding, $315 million or 14 percent would go to minority businesses. However, this figure is only a prelimin- ary estimate and must be viewed from that perspective. Information on the remaining 45 percent of LPW funding will be in shortly. We are hopeful that the objectives of this provision will be met. Also by December 31, the Small Business - xi - Administration reported that it had approved $31.5 million in surety bond guarantees and $9 35,000 in loan guarantees for minority contractors participating in the LPW II Program and in need of such assistance. I. PROGRAM MANAGEMENT Immediately following the award of LPW II grants, EDA established an LPW Management Committee to insure proper post-approval implementation of the LPW Program, including the 10 percent minority business requirement. Composed of key staff from each EDA organizational unit with major LPW responsibilities, the Committee meets periodically to establish policies and procedures in such areas as post-approval organi- zation and staffing; project monitoring procedures, including tracking of grant recipients' expenditures; and ways of determining bona fide minority firms. Since the level of staffing needed to monitor in-depth each of the approximately 10,600 LPW I and II projects would be prohibitively high, EDA staff designed a management system that focuses on a few project elements critical to the success of the LPW Program. Specifically, these involve LPW I con- struction starts within the 90-day statutory deadline, expeditious disbursement of LPW I and II funds, and implementa- tion of the 10 percent minority business requirement. A sample of at least five percent of LPW II grantees is being monitored on site as one means of ascertaining compliance with the special LPW II legislative requirements, and to check the various assurances made by LPW grantees as part of their contractual obligations. The 10 percent minority business enterprise provision will receive special emphasis. Post-approval activities also include in-depth evaluations of both the LPW I and LPW II Programs in accordance with Administration and congressional intent. The three types of evaluation being conducted by Commerce staff and outside experts are: • an administrative analysis of the procedures employed in implementing the program; • an evaluation of the macroeconomic or aggregate impact of LPW I and II; and • an evaluation of the microeconomic or local impact of the LPW Program. It is anticipated that these analyses will substantially advance the state of knowledge concerning the use of public works as a fiscal stimulus tool. - xn - J. PRELIMINARY CONCLUSIONS Final conclusions on the overall effectiveness and utility of both the LPW I and LPW II Programs must await completion of the comprehensive evaluations of both efforts. However, it is possible at this time to draw a number of initial conclusions concerning specific aspects of the LPW I and II Programs. These conclusions relate not only to the capacity of Federal, State and local governments to carry out the programs, but also to the achievement represented by the LPW II approach. • Countercyclical public works projects can be processed, approved, and under construction within a relatively short period of time. Applications for public works projects can be reviewed and approved expeditiously by a Federal agency, and State and local governments are capable of having construction underway within less than 90 days of project approval. • Economic stimulus objectives can be successfully combined with other goals, such as the generation of employment and the provision of needed public facilities. • It is possible to target countercyclical public works funds to areas of greatest unemployment within each State and territory. • It is also possible to fund countercyclical projects in accordance with the priorities of State and local governments, including school districts . • Countercyclical public works funds can be dis- tributed among the different types of govern- ments that have responsibility for administering capital improvement programs. • An area and applicant allocation approach to distributing countercyclical public works funds generates funding from other sources -- Federal, State and local, thus enhancing the program's fiscal stimulus impact. • Public works programs can be adapted to help promote minority business entrepreneurship. - xin - • When it is desirable to generate a fiscal stimulus a residual stock of State and local government public works projects is available in every area of the country. In general these are useful projects that in many cases will stimulate or facilitate new permanent employment opportunities in the private sector. • Improved unemployment and other data are needed to better allocate and target funds in this type of public works program. • Despite the speed displayed by EDA and State and local governments under the LPW Program, a standby public works program is needed for possible future economic downturns to insure expeditious program implementation at the time when the fiscal stimulus would produce maximum effects. These preliminary conclusions suggest that the LPW II approach was an effective one. In the final analysis, however, the success or failure of the LPW Program must be judged by the extent to which it provides a fiscal stimulus, employment opportunities, and needed public infrastructure. Further reports, including the comprehensive evaluations, will provide updated information on these and other issues related to the LPW Program and the efficiency of public works as a fiscal stimulus tool. - xiv - CHAPTER ONE PROGRAM DESIGN A. PREDECESSOR PROGRAM - LPW I 1. History of Enactment Following several months of debate and consideration of other similar proposals, Congress passed the Public Works Employment Act of 1976 in mid-June 1976. This bill, which was transmitted to President Ford for signature subsequent to Senate passage on June 23, authorized two antirecessionary programs. The first was contained in Title I of the bill -- the Local Public Works Capital Development and Investment Act -- and will here- after be referred to as the LPW I Program. Together with the countercyclical revenue-sharing program for State and local governments authorized in Title II of the bill, LPW I was designed to promote economic recovery by stimulating national and local economies. On July 6, President Ford vetoed the bill, citing such factors as its inflationary impact and the high cost of producing jobs under the two programs it authorized. In his message, the President also emphasized that the $3.95 billion in Federal spending required by the bill would be an " . . . intolerable addition to the budget . . . "1/ Congress responded to the President's action by voting to override the veto: first in the Senate by a vote of 73 to 24 on July 21; and the following day in the House by a vote of 310 to 96. Thus, the Public Works Employment Act of 19 76 became law on July 22, 19 76, although funds were not available until late October. 2 . Legislative Mandate Under the LPW I Program established by this legislation, the Secretary of Commerce, acting through the Economic Develop- ment Administration (EDA) , was authorized to approve up to $2 billion in 100 percent grants to any State or local govern- ment for public works projects that would stimulate employment. These funds could also be used to provide supplemental grants for other Federally funded public works projects, as well as State or locally funded projects. Eligible activities included construction, renovation, repair, or other improve- ments to public works projects; funds were also available for completion of plans, specifications, and cost estimates of such projects. 1/ Gerald R. Ford, "Veto-S. 3201, Message from the President of the United States," July 6, 1976. - 1 - In accordance with the LPW I Program's antirecessionary objective, the legislation mandated the prescription of pro- gram regulations and procedures within 30 days of enactment, and further required that decisions on each project application be reached within 60 days after receipt of the application. The Act also prescribed a start-up time for LPW projects, stipu- lating that on-site labor had to begin on all projects within 90 days of project approval. These requirements were without precedent in the history of Federal public works programs. In addition to these stringent time frames, the LPW I legisla- tion contained several other requirements regarding the program's implementation. Prime among these was the stipulation that if the national unemployment rate for the three most recent conse- cutive months exceeded 6.5 percent, 70 percent of all funds appropriated were to be directed to projects from areas with unemployment rates in excess of the national rate. The remaining 30 percent of the funds were to finance projects from areas with unemployment rates below the national average, with those above 6.5 percent accorded priority consideration. Area unemployment rates were to span the three most recent consecutive months for which uniform, accurate data were available . Among the LPW I Act's unique features was its stipulation that in determining an area's unemployment rate, consideration could be given to unemployment in adjoining areas from which the labor force for an LPW project might be drawn. Thus, relatively affluent communities within commuting distances of areas with high unemployment could draw upon the unemploy- ment statistics of the distressed areas. This provision of the Act came to be known as a license to "gerrymander." The legislation also required that consideration be given to the income levels and extent of underemployment in project areas. In addition to addressing the characteristics of areas to receive funds, the LPW I Act instructed EDA to assign priority to local government projects, including school dis- trict projects, and to consider the extent to which proposed projects would contribute to the reduction of unemployment. Special emphasis was placed on considering unemployment and underemployment in construction and related industries. 3. Program Implementation Within this legislative framework, EDA proceeded to prepare for the LPW I Program, beginning with the issuance of draft guidelines on August 23. At the same time, LPW I application forms were made available to the public in conformance with the statute's requirement. However, since no funds had been appropriated to carry out the program, EDA announced that applications would not be accepted unless funds were actually appropriated and then apportioned to the Agency by the Office - 2 - of Management and Budget (OMB) . Agency leadership also testified on August 31 before the Subcommittee on Economic Development of the House Public Works and Transportation Committee on the draft guidelines, explaining the rationale for the procedures outlined in that document. On September 22, 1976, the Senate agreed to the Conference Report on the appropriations bill for the Public Works Employment Act of 19 76, thus concluding the necessary congressional action. The bill provided $2 billion, of which up to $10 million could be used for administrative expenses, including costs for program evaluation. Citing the futility of another confrontation with Congress on the Employment Act programs, President Ford approved the bill on October 1, 1976. In his signing statement, the President called upon the appropriate departments to make a thorough assessment of the program to determine: • how many jobs are created; • how much it costs the taxpayer to create each job; and • the impact on inflation. 2/ Anticipating a three-week lag between Presidential approval and actual apportionment of funds by OMB, EDA prepared to begin accepting applications on Tuesday, October 26. As part of the preparation process, the draft guidelines issued in August were revised to reflect congressional and public comment and republished on October 18. Among the key features of the program prescribed by those guidelines were a seven-factor project scoring formula for project selection purposes, a $5 million limit on each grant, and the absence of any limit on the number of project applications and submissions. The guidelines also spelled out the procedure developed by EDA for dividing the $2 billion (minus administrative funds) among the States and Territories. Although the legislation dictated that no State should receive more than 12.5 percent nor less than .5 percent of the appropriation, it was silent on what criteria to employ to insure an equitable distribution among States. The approach designed by EDA accounted for the magnitude (numbers) and severity (rate) of unemployment in the various States and territories . £./ Excluding EDA administrative 2/ Gerald R. Ford, "Statement by the President on Signing H.R. 15194 Into Law," October 2, 19 76. 3/ See the Appendix for a comprehensive explanation of the EDA approach, which was also used in allocating funds under the LPW II Program. - 3 - costs and subject to statutory minimum and maximum funding levels, 6 5 percent of the appropriation was divided among the States and territories based on each entity's share of total national unemployment for the three most recent con- secutive months for which data were available. The other 35 percent of the appropriation was allocated on the basis of the relationship of each State's unemployment rate for the three most recent consecutive months for which data were available to the national rate for the same period. Under the LPW I Program, the three-month period used for both numbers of unemployed and unemployment rates consisted of May, June, and July 1976. A press release issued by EDA on October 18 communicated the results of applying this procedure to the LPW I appropriation, ranging from the maximum $250 million allocation for California to the minimum $10 million for such States as Arkansas, Delaware, and Montana. 4/ In that October 18 press release, EDA also announced that the Agency's six Regional Offices would begin accepting project applications on Tuesday, October 26. Between October 26 and the December 3 cutoff date for initial project submissions, EDA's Regional Offices received more than 25,000 applications, 22,000 of which -- representing $20 billion in requests -- were acceptable at the time of submission or corrected prior to the December 9 deadline for resubmissions. Within each State, these projects competed in two categories: projects from areas with unemployment rates above the national average (7.78 percent) ; and projects from areas with rates below the national average. Seventy percent of each State's LPW I allocation was set aside for funding the former; 30 percent was set aside for the latter. Within these categories, projects were selected for funding on the basis of a weighted seven-factor formula designed by EDA to reflect legislative intent. These factors and the weights assigned to them were: • the project area's unemployment rate (25 percent); • the number of unemployed in the project area (30 percent); • the relationship of each project's labor costs to its total costs (30 percent); • the per capita income of the project applicant's jurisdiction (15 percent) ; 4/ The final LPW I State funding levels are presented in Table 1 on page 22. - 4 - • the project's potential for providing long-term benefits (an additional 5 to 10 percent) ; • the type of applicant, i.e. , local verus other forms of government (an additional 3 to 5 percent) ; and • the project's relationship to approved plans or programs (an additional 5 percent) . In late December when this project scoring approach was imple- mented, it was determined that an additional procedure was need- ed to avoid undue concentrations of funds in some areas. Fund- ing benchmarks were established for areas based on each area's percentage of State or, when necessary, county unemployment. Projects were then selected according to score until the level of funding awarded to an area exceeded its benchmark. However, each area received its highest scoring project regardless of the extent to which it caused the benchmark to be exceeded.!/ Employing this approach, EDA selected approximately 2,000 applications representing $1.99 billion for final processing; denied all other projects on December 23; and began announcing project approvals on December 27, thus meeting the 60-day deadline for project decisions. Approvals continued through early February 1977, with project construction initiated in some cases during March 1977. Detailed data on the results of this LPW I approach are presented in Chapter Two in conjunction with the results of the LPW II system. 4. Major Program Weaknesses It was evident from the inception of the LPW I Program that certain program design and operational problems existed. More- over, other weaknesses surfaced during program implementation. Prime among these was the legislative requirement that 30 per- cent of all LPW I funds be used to support projects from project areas with rates at or below the national average. Since all States had sufficient projects in the 70 percent category to utilize their entire allocation, it was necessary to make the 70-30 division on a State-by-State basis. Thus, projects from the different project area categories competed against each other within a State. Although this system of competition within categories sounds quite reasonable, in practice it caused significant problems and inequities. For example, in New Jersey applicants with project areas whose unemployment rates ranged between 7.78 percent and 11.37 percent received no funds, while many applicants from areas with rates below 7.78 percent received assistance. In some cases, a tenth of a percentage point was the margin by which a project was assigned to the 70 percent category, where it had a minimum chance of 5/ When projects tied, that project (or projects) which caused the area's benchmark to be exceeded by the least amount was funded. - 5 - selection, rather than to the 30 percent category, where it would have been in a much more favorable position. This inequitable situation was further complicated by the fact that there were two sources for this critical unemployment data: the Bureau of Labor Statistics (BLS) and State Employment Security Agencies (SESAs) . These sources covered different reporting periods, normally April, May and June for BLS data, and the most recent three-month period available from the SESAs. Thus, the competition was not based on uniform data. A related problem was the fact that using the most recent three-month un- employment data provided an unfair advantage to areas that experi- ence seasonal employment swings. Another major problem was caused by the considerable latitude given applicants in delineating project areas: the license to gerrymander cited earlier. Applicants were required to pro- vide justification for extended project areas in terms of the labor needs of the project, the ratio of unemployed persons to the number of jobs to be created, and commuting patters within the project area. However, relatively affluent areas within commuting distance of economically distressed cities were still able to include the cities in their project areas. Consequently, the projects submitted by such places often scored higher than city projects, despite efforts to avoid such situations by in- cluding the income level of the applicant's jurisdiction as a factor in the scoring formula. Although the unemployed residents of the nearby cities are likely to obtain some of the construc- tion jobs generated by such projects, the long-term project benefits generally accrue to residents of the jurisdiction in which the project is located. Moreover, funding such projects resulted in assisting places that were better able than neigh- boring distressed communities to finance public works improvements on their own. The other major problem recognized by Agency leadership during LPW I implementation^./ concerned competition between Indian and non-Indian projects. Unemployment rates for Indian communities are based on different data sources and calculated on different bases than those for other areas. Although rates of unemployment are significantly higher in Indian communities, these differences appear to magnify the gap. Under the LPW I Program, Indian projects directly competed with non-Indian projects, and projects submitted by Indian tribes received such high scores on the basis of unemployment rates that they generally ranked higher than those of other areas. Therefore, 6/ Other major problems were identified by the Agency's new leadership following the change in Administration. These problems, which were addressed by the Carter Administration's LPW II proposals, are discussed later in this chapter. - 6 - even though the undue concentration procedure was employed, Indian projects received a disproportionately high percentage of LPW I funds in many States. With regard to the undue concentration procedure, it should be noted that it too had a critical weakness recognized by Agency leadership. That weakness was that each area received its highest scoring project, regardless of the concentration of funding caused by such a procedure. In one particularly disturbing case, this resulted in a small community receiving half of the State's total allocation. B. ADMINISTRATION PROPOSAL FOR LPW II On January 31, 1977, President Carter proposed to the Congress a two-year $31.2 billion economic recovery package. In describing that package, he identified the following guiding principles: continuity and consistency; speed of implementation; fairness, i.e., beneficial to those persons and communities with the greatest needs; effectiveness in terms of ability to manage the programs responsibly; and limited permanent budget costs. U A major component of the President's proposed package was an immediate $4 billion authorization increase for emergency public works projects like those funded under LPW I. He proposed that $2 billion of the increase be appropriated in Fiscal Year 1977, followed by an additional $2 billion in Fiscal Year 1978. In making this recommendation, the President acknowledged the need for program modifications, observing that LPW I had "... left some hard-pressed communities with inadequate funding, while their more affluent neighbors had had substantial programs approved . . . . " His statement reflected the review being undertaken by the Secretary of Commerce to determine whether the LPW I legislative 70 percent/30 percent fund distribution requirement should be changed. In addition to indicating that the Administration would propose legislation after completion of the review, the President's message reported that in the interim he had directed the Secretary to do everything possible under existing law to direct greater amounts of money into areas of high unemployment . .§/ C. ENACTMENT OF LEGISLATION 1. Introduction of House and Senate Bills On January 4, 19 77, prior to receipt of the incoming President's economy recovery proposals, a bill — H.R. 11 --was introduced in the Plouse of Representatives to increase the authorization 7/ President Carter, "Message to Congress on Economic Recovery Proposals," January 31, 1977. 3/ Ibid. - 7 - of the Local Public Works Capital Development and Investment Act of 1976 from $2 billion to $6 billion. 9/ This was followed by action in the Senate on January 25. On that date, a bill — S. 427 -- was introduced that not only increased the authorization level of the LPW Act to $4 billion, but specified certain program changes. 10 / The 70 percent/30 percent dis- tribution of funds, for example, was changed to 85 percent/ 15 percent. In addition, $2 billion was authorized for making 100 percent grants to fund project applications received during LPW I, while the remaining $2 billion was authorized for making 8 percent grants to fund new applications. 2 . House and Senate Hearings Hearings were subsequently scheduled by the Senate Committee on Environment and Public Works' Subcommittee on Regional and Community Development and the House Committee on Public Works and Transportation's Subcommittee on Economic Development. These hearings focused on implementation of the LPW I Program, the Subcommittees' respective bills, and other possible modifications to the Local Public Works Capital Development and Investment Act of 1976. Testifying for the Commerce Department at the hearings, which began in late January, were John W. Eden, the outgoing Assistant Secretary for Economic Development, and Juanita M. Kreps , the new Secretary of Commerce. In both the House and Senate, Assistant Secretary Eden's testimony preceded Secretary Kreps'. Addressing the House Subcommittee on January 27 and the Senate Subcommittee on February 2, he focused on the accomplishments and problems of LPW I. The former will be reflected in Chapter Two of this document in conjunction with data on LPW II, while the major problems perceived by the outgoing EDA leadership were described above. In addition to citing LPW I accomplishments and problems, Assistant Secretary Eden explained that to insure a smooth transition in the administration of the LPW Program, he had been working since January 21 with Robert T. Hall, his designated successor as Assistant Secretary for Economic Development. 9/ Introduced by Congressman Roe for himself and Congress- persons Johnson of California, Wright, Harsha, Howard, Hammer schmidt , Roberts, Anderson of California, Ginn, Mineta, Levitas, Oberstar, Nowak, Brademas, Ashley, Sisk, McFall, Rostenkowski, Slack, Patten, De la Garza, Meeds, Alexander, Jordan, and Rose. 10 / Introduced by Senator Randolph for himself and Senators Burdick, Culver, DeConcini, Gravel, Hart, Heinz, Humphrey, Kennedy, and Stafford. In her subsequent testimony before the House on February 3 and the Senate on February 4 , Secretary Kreps discussed the Administration's objectives in recommending an immediate expansion of the LPW Program, as well as the guiding principles of the effort underway to identify desirable changes to the LPW legislation. Although they were phrased somewhat differently, the general LPW objectives for the $4 billion program identified were : • to stimulate the national economy and dis- tressed local economies through the infusion of Federal public works funds; • to generate private sector employment opportunities, particularly in construction trades and related industries and services; and • to construct or rehabilitate useful public facilities consistent with local priorities. The guiding principles -- some of which will be discussed in more detail later in this chapter — included simplification of the regulations and allocation process, consideration of local priorities, and emphasis on assisting communities experiencing the most severe levels of distress. In addition, Secretary Kreps emphasized the need to maximize use of the existing body of applications in carrying out the expanded program and the importance of having uniform nationwide criteria for evaluating project applications. In closing, Secretary Kreps assured the Congress that this responsibility for short- term problems would not prevent the Agency from fulfilling its primary role of addressing the long-term economic problems confronting many areas and regions. 3 . Preliminary EDA Recommendations Immediately following the February hearings, EDA staff, on the basis of discussion with Administration officials, transmitted to subcommittee staff preliminary recommendations for legis- lative changes to H.R. 11. These recommendations expanded upon the objectives and principles articulated by Secretary Kreps in her testimony, such as consideration of local priorities. Other preliminary recommendations included elimination of the 70 percent/30 percent division of funds, use of unemployment data covering 12 months, establishment of a separate fund for Indian projects, elimination of the legislative license to gerrymander project areas, and the provision of priority consideration to projects not funded - 9 - under LPW I solely because of an EDA error. In addition to explaining the rationale for the various proposed amendments, the EDA staff papers included legislative language for accomplishing the changes. 4 . House and Senate Action These preliminary proposals and continuing dialogue between EDA and subcommittee staff helped shape the revised LPW bills that were reported out of the House and Senate Public Works Committees on February 16 and March 4, respectively. Key elements common to both were authorization of an additional $4 billion and, in accordance with EDA's preliminary recommendations, Indian and error project set-aside funds, use of unemployment data for the most recent 12-month period, and attention to local priorities. In the Senate bill, how- ever, the 85 percent/15 percent distribution of funds (except in States with unemployment rates above the national average) was retained, while the House bill allowed the submission of additional project applications. The Senate bill also stipulated that school districts be accorded the same priority given to local government projects; directed the President to study public works investment in the United States; and specified that funds be allocated among States using the LPW I 65/35 formula (Appendix) . Continuing the legislative process, the full House considered H.R. 11, as revised, made a number of changes, and passed it by a vote of 295 to 85 on February 24, 1977. The further- revised bill, which was referred to the Senate on February 28, contained several new provisions. Included among these were: • a requirement that at least 10 percent of every LPW grant be expended for minority businesses ; • expansion of the definition of public works projects to include the transportation and provision of water to drought-stricken areas; and • inclusion of the Trust Territory of the Pacific Islands in the definition of the term "State." In addition, the House bill retained a section giving priority and preference to building projects that would result in con- serving energy. - 10 - On March 10, the full Senate considered S. 427 and H.R. 11; amended and passed S. 427; and then voted to amend H.R. 11 by substituting the text of S. 427 as passed. In addition to including the items described above, the amended S. 427 contained such new provisions as: • the 10 percent minority business requirement as passed by the House, with the qualification that there should be accommodation in areas with less than 5 percent minority populations; • a requirement for a second, albeit different, Presidential study of public works investment; and • authorization to substitute drought or other emergency assistance projects for any projects approved under LPW II. On April 5, the House considered the Senate amendment to H.R. 11 and amended the bill again to make it identical to the version that had passed the House on February 24. The following day, the Senate rejected the House's amendment and agreed to the House's request for a conference to resolve differences on the measure. The compromise bill that emerged on April 2 8 from the House- Senate Conference Committee generally coincided with the Administration's preliminary recommendations, as well as informal assistance provided by Agency staff during the course of the legislative process. The major provisions of the bill were as follows: • authorization of an additional $4 billion for grants of up to 100 percent for State and local government public works projects involving construction, renovation, repair, completion of plans and specifications, and related activities ; • requirement that program regulations and procedures be prescribed within 30 days of enactment; decisions on each application be made within 6 days of submission; and initiation of on-site labor begin within 90 days of project approval; - 11 - • use of unemployment data for the most recent 12- month period for which data were available; • prioritization of projects from areas with unem- ployment rates above the national average (unlike LPW I, there was no specific division of funds among areas with unemployment rates above or below the national average) ; • allocation of funds to states on the basis of 65/35 formula used administratively in LPW I. This formula provided funds to States on the basis of their number of unemployed and ratio of unemployment relative to other States. However, a state minimum of three-fourths of one percent of the appropriation, or $30 million, was mandated; • establishment of separate funds for Indian projects, LPVJ I error projects, and Territorial projects ; • limitation of LPVJ II applications to requests received prior to December 23, 1976, except in certain cases, including instances where additional applications were necessary to expend any allocation made as a result of EDA regulations; • establishment of equal priority for school district projects and those of general purpose units of government; • consideration of State and local project priorities ; • requirement that 10 percent of each grant approved under the LPW II Program be expended for minority enterprises; • stipulation that except under unusual circumstances all materials used on the LPW II projects be pro- duced, mined, or manufactured in the United States; preferential hiring treatment be accorded qualified disabled veterans and qualified Vietnam-era veterans; and buildings be designed and constructed in accordance with established standards for insuring accessibility to the handicapped and elderly; - 12 - • a requirement that the Secretary of Commerce carry out a study of public works investment in the United States and the implications for the future of recent trends in such investment. In addition to agreeing upon legislative provisions, the Conference Committee issued a statement on LPW II Program Policies, which generally supported the procedures being developed by EDA for use in implementing the program. These procedures will be discussed in a subsequent section of this chapter. 5 . Passage of Public Works Employment Act of 1977 On April 29, the Senate agreed to the Conference Report and the House followed suit on May 3. Ten days later on May 13, President Carter signed H.R. 11, which contained the Public Works Employment Act of 1977 that authorized an expanded LPW Program, as well as H.R. 4876, the Economic Stimulus Appropriations Act, which included $4 billion for the LPW II Program. In signing the bills, the President expressed his pleasure at the close cooperation between the Administration and the Congress that characterized the development of the LPW II legislation. He also noted the program's emphasis on generating jobs in the private sector, as well as the fact that the construction it authorized would be administered by State and local governments. D. LPW II OBJECTIVES AND CONSIDERATIONS Because EDA -- in close consultation with Congress -- had been developing LPW II implementation procedures during the legis- lative process, Agency officials were in a position to testify before the House and Senate Public Works Committees within five days after enactment of the LPW II legislation. Assistant Secretary Robert T. Hall, accompanied by key staff, appeared before the Senate Committee on May 17 and the House Committee on May 19 to explain EDA's plans for implementing the LPW II Program and to seek Congressional comment and counsel. Draft regulations and a general overview of EDA's proposed procedures were offered for the record; copies of each had previously been made available to Committee members. 1 . Policy Objectives The testimony opened with a brief discussion of the overall policy objectives established for the LPW II Program on the basis of the direction provided by Congress in formulating and adopting the Public Works Employment Act of 1977; - 13 - analyses of the application file created in the LPW I Program and the experience gained in that program; and extensive com- munication with representatives of local governments, members and staff of the Public Works Committees, and other concerned parties. Working from that foundation, EDA formulated the following six overall policy objectives for the LPW II Program: • to maximize the fiscal stimulus effect of the program by starting construction as soon as possible and shortening the periods within which the construction would take place; • to target funds to areas of highest unemploy- ment in each State in order to reach the areas of highest economic distress and to minimize effects on wages and prices; • to reduce the previous round's funding inequities among different areas and types of governmental units ; • to place maximum emphasis on local decision-making in the selection of projects; • to make the program more predictable. The nature of the LPW I system — competition among all pro- jects in a State on the basis of a complicated formula -- prevented areas from knowing in advance how they would fare. In addition to hindering area planning, not knowing how much funds an area would receive often led to false expectations; and • to increase the program's efficiency by reducing the administrative workload on LPW applicants as well as EDA. 2 . General Considerations A number of general considerations and requirements that influ- enced EDA in developing the proposed LPW II procedures were also identified and discussed. A major consideration involved the distribution of $2 billion in funds during LPW I. To insure equity, the LPW I distribution had to be taken into consideration in administering the $4 billion LPW II Program. That is, the two phases of the LPW Program had to be treated as a single $6 billion program with each applicant's previous funding considered in determining the assistance it should receive under the new program. - 14 - Another consideration was the desirability of using, to the extent possible, non-funded applications from LPW I received by December 23, 1976. The purpose of using applications already on file was to speed up the implementation of the program, and to reduce administrative costs on the part of both applicants and EDA. A final general consideration involved recognition of the varying needs of the different levels of government in different States. The participation of county governments in public construction, for example, varies from State to State, and it was felt that some recog- nition of this difference was necessary in distributing LPW II funds. To accommodate the considerations identified above within the framework of the LPW II legislation and the overall policy objectives, it was proposed to completely alter the nature of the project selection process as it existed during LPW I. There were two major components of the new system: • first, the procedures by which funds were allo- cated to eligible areas and types of governments; and • second, the methods for selecting projects to be funded within those allocations. E. LPW II ALLOCATION SYSTEM Under the LPW II Program, EDA proposals called for allocating funds to eligible State governments, Indian tribes, county govern- ments, city and township governments/school districts, and pockets of poverty as defined by the legislation. 1 . Initial Set-Asides In accordance with the new legislation, an Indian set-aside of $100 million and a procedural error set-aside of $70 million would be deducted from the $4 billion available for the LPW II Program. In addition, $15 million would be set aside for program administrative costs and $20 million for territories. Within the Indian set-aside, each reservation or tribal land would have its own planning target. 2 . State Allocations After subtracting the Indian, territorial, error, and admin- istrative set-asides, $3,795,000,000 would remain available for allocation to the States according to the 65/35 formula in the - 15 - law. As described in the Appendix, this formula considers both the number of unemployed and the unemployment rate in excess of 6.5 percent. Each State's allocation was limited by the law to a .75 percent minimum and 12.5 percent maximum. 11 / 3. Intra-State Allocations From each State's allocation, amounts would first be set aside for: • State government applications (amounting to eight percent) ; and • "pocket of poverty" areas , which would be in cities with populations of 50,000 or more not otherwise eligible for assistance. EDA proposed that these areas be required to have populations of at least 4,000 and unemployment rates of at least 8.5 percent for the most recent 12 months. As recognized by the Congress, pockets of poverty represented special situations that had to be treated somewhat differently. The approach EDA developed for handling these types of areas was to establish pocket of poverty set-asides for each State based on the number of cities within the State with the poten- tial to contain such pockets. Allocations based on this approach ranged from zero in States lacking such cities to the maximum of $20 million in any one State. Within these State allocations, EDA proposed to establish individual pocket of poverty allocations for those places that wished to submit projects. The individual allocations would be based on the same 65/35 formula used to establish State allocations. After deducting the State government and pocket of poverty set-asides from the State allocations, the remaining funds would be used to establish sub-state planning targets. These would be established for eligible "areas" within a State which, as recommended in the Conference Report, were those with unemployment rates equal to or above 6.5 percent or the State average, whichever was lower. Three kinds of "areas" would be included in this allocation of a State's funds : 11 / At the time of Assistant Secretary Hall's testimony, the State allocations had already been announced. - 16 - • primary cities ; that is, cities with populations of 5 0,000 or more; • balance-of-counties ; that is, the remaining territory in counties with primary cities; and • counties with no primary cities These planning targets would also be calculated on the basis of the 65/35 formula. Within these eligible areas, planning targets would be estab- lished for certain types of sub-state applicants. These were: • county governments/school districts; • primary city governments/school districts; and • non-primary city governments/school districts County governments would be given planning targets which would be a percentage of the county-wide planning target. This percentage would differ among States since the level of county government activity varies from State to State. Subsequent modifications to this approach allowed school districts to draw upon county government projects under certain circumstances, such as when a district serves an entire county. Primary city governments/school districts would draw upon the primary city's planning target. Those funds would be avail- able for projects of the city government and any fiscally independent school districts applying for projects that primarily serve the city. Non-primary city governments/school districts would be covered by the planning target for the area of the county that does not include the primary city. In general, this planning target would be divided among those cities, townships, and villages that submitted applications during LPW I, although there would be exceptions to this approach. The suballocation would be based on the 65/35 formula, and each jurisdiction's unemploy- ment data would be calculated by EDA according to the "census share" method. 12/ 12 / See page 42 for a discussion of data problems associated with employing the census share approach with communities under 2,500. - 17 - In determining the planning targets available during LPW II for each of the above areas and applicants, consideration would be given to LPW I funding. This would be accomplished by calculating planning targets on the basis of a $6 billion program and then subtracting any previously approved projects to determine the amount of money remaining for LPW II. Under this approach, some eligible areas or applicants within a State might not receive round two funding because of dis- proportionate funding in the first round. 4 . Minimum Planning Target During the House and Senate hearings, EDA officials discussed with Committee members the possibility of setting a minimum amount below which planning targets would not be established. Subsequent to the hearings, it was decided to establish a $75,000 minimum planning target for eligible areas and applicants. This decision reflected EDA's concern that projects below that level would not generate substantial employment and would not provide for the construction of public works projects with significant long-term investment values. The $75,000 minimum was also included for the purpose of making the program administratively manageable, i.e., enabling EDA to process and approve all projects by the September 30, 1977 deadline. It should be noted that in accordance with the LPW II principle of funding projects on the basis of local priorities, individual projects under $75,000 were approved when recommended by applicants with planning targets. F. LPW II PROJECT SELECTION SYSTEM EDA' s proposed procedures for selecting projects within allocations or planning targets were also discussed. Since the selection of projects within the error set-aside differed from the other project selection procedures, it was discussed separately. That approach allowed funding of only two types of projects out of the error set-aside: • error projects from areas not eligible under the second round; and • error projects in eligible areas that were designated as priorities by their applicants but could not be accommodated with their plan- ning targets. In this case, the portion exceeding the planning target would come out of the $70 million error set-aside. The rationale underlying the decision to fund LPW I error projects out of LPW II planning targets to the extent possible - 18 - stemmed from the combined $6 billion program approach employed under LPW II. If no error had been made and the project had been funded under LPW I, the applicant's LPW II planning target would have been reduced proportionately and perhaps eliminated. Consequently, to allow the applicant to receive funding for the LPW I project out of the error set-aside as well as the full LPW II planning target calculated without regard to the LPW I error project would compound the LPW I error by over- compensating the applicant under LPW II. 1 . Applicant Priorities In all other cases, the proposed approach to selecting projects within planning targets was relatively straightforward. The different categories of applicants 13 / would be asked to prioritize projects within their planning targets. The pro- jects prioritized could be their own or those of other applicants. In the case of the city/school district applicants, it would be up to the Mayor/Council and any eligible local School Board to jointly prioritize their projects in order to expend the city's planning target. In cases where either the Mayor and/or School Board could not reach an agreement with the other, EDA would choose among their projects, considering such factors as labor intensity, long-term benefits and energy conservation. LPW grants would be limited to $5 million since larger projects require more time to construct, thereby delaying the fiscal stimulus. 2 . Relationships Between Pending Projects and Allocations To insure that all areas and applicants had the opportunity to receive their planning targets, no projects would be funded which exceeded a planning target. An applicant whose pending projects did not fit within its planning target would have five options. It could: • reduce the scope of the project; • substitute a smaller project; • find other sources of funding for the amount of the project which exceeded the planning target; 13/ State governments, Indian tribes, county governments/ school districts, primary city governments/school districts, non-primary city governments/school districts, and pockets of poverty. - 19 - • use its funds to endorse the project of another applicant; or • not spend its planning target. (In this case, EDA would administratively reallocate the funds else- where in the area, if feasible.) Any applicant that had insufficient projects pending to meet its individual planning target could: • submit new applications up to the amount of its planning target; or • endorse the projects of another applicant and use all or part of its planning target on such projects. In addition, any applicant with pending projects could sub- stitute others as necessary to reflect changing local needs and priorities. G. CONGRESSIONAL OVERSIGHT HEARINGS ON LPW II POLICIES AND PROCEDURES Although a few issues, such as how to treat certain school district projects, remained unresolved after the House and Senate hearings, the Committees generally approved the pro- cedures proposed by the Agency to implement the LPW II Program. To summarize, the basic elements of that approach were: • maximum emphasis on areas of highest unemployment; • equitable planning targets for eligible areas and types of applicants (with the exception of those affected by disproportionate funding under LPW I) ; • additional project submissions, substitutions, or endorsements as necessary to reach or stay within the planning targets or meet local needs; and • local prioritizing and selection of those projects to be funded. In a relatively short period of a few months, the most ambitious public works program since the Depression was designed and enacted, and funds were made available. The task of implementing this program now rested with EDA. - 20 - CHAPTER TWO PROGRAM IMPLEMENTATION A. ALLOCATION OF FUNDS 1. State Allocations On May 16, Secretary Kreps announced the LPW II State allocations ascertained in accordance with the legislative mandate. The allocations were calculated on the basis of unemployment figures for the 12-month period between March 1976 and February 1977, when the national average unemployment rate was 7.6 percent. Under the formula contained in the LPW II Act, 65 percent of the funds (minus the various set-asides) were divided among the States and Territories on the basis of numbers of unemployed, and 35 percent were divided among the States and territories with unem- ployment rates above 6.5 percent according to their unemployment rate. 14/ Regardless of the outcome of applying this formula, the Act also required that each State receive a minimum of .75 percent of any appropriation! 5/ and that no State receive more than 12.5 percent. Given the $4 billion appropriation, this meant that each State received at least $30 million; the four Territories cited in footnote 15 received at least $20 million; and $500 million was the maximum any State could receive. However, the maximum level was not needed, since application of the formula revealed that no State was entitled to more than $500 million. The State allocations announced on May 16 represented the minimum level of funding to which each State was entitled under LPW II. Because of Indian projects, error projects, and use of deobligated LPW I funds, many States received -- during the course of the LPW II Program -- more than the allocations announced on May 16. Table 1 and Maps 1 and 2 on the following pages reflect what each State and Territory actually received under each round of the LPW Program -- with one exception. Deobligated LPW I funds that were " respent" during LPW II are counted as LPW I obligations since they derived from the $2 billion LPW I appropriation. 16/ Thus, Table 1 reflects LPW I funding of $1.99 billion ($2 billion minus $10 million for administration and evaluation) and LPW II funding of $3,985 ($4 billion minus $15 million for administration) 14 / See the Appendix for details. 15 / The Territories of Guam, Virgin Islands, American Samoa, and the Trust Territory of the Pacific were not to receive aggregate funding of less than .5 percent. 16 / All other tables and text in this chapter consider projects financed with deobligated LPW I funds as LPW II projects. Thus, LPW I projects total $1,963 billion and LPW II projects represent $4,012 billion. - 21 - TABLE I LPW STATE FUNDING STATE/ 1 TERRITORY LPW I FUNDING LPW II FUNDING TOTAL Alabama $ 19,975,916 $ 33,431,039 $ 53,406,955 Alaska 10 239 381 45 586 273 55 825 654 Arizona 12 993 311 81 009 885 94 003 196 Arkansas 10 289 418 30 000 000 40 289 418 California 245 660 822 479 883 005 725 543 827 Colorado 12 221 707 30 572 600 42 794 307 Connecticut 47 602 794 80 674 949 128 277 743 Delaware 10 006 451 30 052 611 40 059 062 District of Columbia 10 000 000 30 000 000 40 000 000 Florida 138 025 258 157 397 809 295 423 067 Georgia 25 064 945 76 681 000 101 745 945 Hawaii 10 064 463 30 058 443 40 122 906 Idaho 10 047 611 30 565 686 40 613 297 Illinois 63 772 954 89 763 859 153 536 813 Indiana 22 317 362 39 893 970 62 211 332 Iowa 11 778 586 30 000 000 41 778 586 Kansas 10 104 431 30 263 286 40 367 717 Kentucky 16 348 665 30 000 000 46 348 665 Louisiana 25 743 968 34 664 529 60 408 497 Maine 10 000 000 30 067 250 40 067 250 Maryland 19 594 130 39 282 000 58 876 130 Massachusetts 50 942 240 133 604 398 184 546 638 Michigan 157 172 092 213 849 035 371 021 127 Minnesota 17 094 588 30 686 587 47 781 175 Mississippi 10 000 948 31 885 591 41 886 539 Missouri 19 488 670 36 590 999 56 079 669 Montana 10 000 078 32 978 144 42 978 222 Nebraska 10 207 348 30 522 617 40 729 965 Nevada 10 466 407 31 564 954 42 031 361 New Hampshire 10 093 861 30 000 000 40 093 861 New Jersey 103 009 570 218 327 868 321 337 438 New Mexico 10 301 328 41 169 553 51 470 881 New York 233 264 768 493 707 570 726 972 338 North Carolina 28 440 68 3 45 454 280 73 894 963 North Dakota 10 073 644 30 000 000 40 073 572 Ohio 58 799 581 156 680 362 215 479 943 Oklahoma 16 455 034 50 979 927 67 434 961 Oregon 29 137 685 56 735 604 85 873 289 Pennsylvania 86 780 973 1C2 446 863 269 227 836 Rhode Island 17 304 581 31 533 000 48 837 581 South Carolina 13 655 985 30 259 130 43 915 115 South Dakota 10 257 425 34 795 210 45 052 635 Tennessee 24 106 216 30 619 118 54 725 ,334 Texas 54 694 253 91 240 689 145 934 942 Utah 10 072 534 30 281 000 40 353 534 Vermont 11 265 317 30 000 000 41 265 317 Virginia 22 028 824 40 455 500 62 484 324 Washington 40 131 670 79 220 381 119 352 051 West Virginia 11 259 592 30 000 000 41 259 592 Wisconsin 21 376 137 34 821 041 56 197 178 Wyoming 10 335 643 30 000 000 40 335 643 Puerto Rico 119 475 784 164 653 000 284 128 784 American Samoa Guam Virgin Islands 10,205,695 20,000,000 30,205,695 Trust Territory • of the Pacific Islands TOTAL $1,989,751,327 $3,984,910,615 $5,974,661,942 1 *Rounded to nearest dollar. These figures do not include administrative costs of $10 million in LPW I and $15 million in LPW II. - 22 - 2 . Major Substate Allocations On June 9, Secretary Kreps announced the preliminary substate allocation of LPW II funds for more than 10,000 eligible areas. 17/ These planning targets represented a further break- down of the State allocations. Within these targets, governments, including school districts, could set priorities for projects to be funded under LPW II. Following correction of these preliminary allocations, Secretary Kreps announced final plan- ning targets for State and local governments on July 15. While recognizing the burden placed on some governments by these changes and the lapse of time between the preliminary and final allocations, EDA officials concluded that the need to insure accuracy of planning targets -- and thereby program equity -- took precedence over other considerations. The correction process was a complex, time-consuming undertaking that was accomplished between June 9 and July 15 through the full-time, concentrated efforts of key EDA technical staff. During that period, it was necessary to identify the specific location of each of the more than 20,000 funded and unfunded LPW I applications and the type of applicant involved. This information was essential to the substate allocation process, since LPW I funding was considered in developing LPW II planning targets and, in general, communities under 50,000 were only eligible for LPW II assistance if they had submitted an application under LPW I. The problem was twofold. First, there was the difficulty of accurately identifying the approximately 38,000 organized juris- dictions nationwide, including townships and villages. Within States, different types of jurisdictions often share the same name. For example, in New Jersey there is a Dover City in Somerset County and a Dover Township in Ocean County. Even more confusing is a situation such as that in Chenango County, New York, which contains Afton Town and Afton Village and Oxford Town and Oxford Village. Under such circumstances, it was not always possible to determine from the LPW I application form which jurisdiction had submitted the funding request. This 17 / Of the more than 10,000 eligible areas, approximately 4,000 actually received planning targets. The 6,000 other areas did not receive targets because their targets were below the $75,000 minimum; they were over- funded under LPW I; or LPW II funds available within their State, county, or balance-of-county area were exhausted in places of greater unemployment. - 25 - difficulty was compounded by the lack of uniform Federal coding for jurisdictions. The General Services Administration city codes, for example, do not include codes for thousands of incorporated areas, which are, however, contained in the Office of Revenue Sharing' s file of cities and townships. The other major difficulty resulted from the fact that in com- pleting their LPW I application forms, numerous LPW applicants reported project location on the basis of a post office address or an unincorporated neighborhood within their jurisdiction. This information was in many cases misleading to EDA staff attempting to determine which jurisdiction should be assigned an LPW II planning target. For example, some school districts reported project locations as their post office addresses, when in fact the project was located in a township or village with a different name. The location of unincorporated areas was particularly difficult to ascertain, since such places do not appear on maps, are not included on any Federal or State lists, and often are known only to long-time area residents. Deter- mining whether such unincorporated places were located in incorporated areas was also a difficult but essential component of the process associated with the assignment of planning targets. As a result of these types of complexities, it was necessary to review individually each LPW I application to identify the correct project location information. This information was then used to derive accurate LPW II planning targets. Since changes in one jurisdiction's planning target caused modifications to planning targets of other jurisdictions in the same county or balance-of- county area, the effects of the corrections were in some cases rather widespread. Nonetheless, they were necessary to insure an equitable distribution of the LPW II funds. The final substate allocations announced on July 15 included planning targets for: • State governments; • county governments/school districts; • primary city governments/school districts; and • non-primary city governments/school districts. State governments ' allocations were eight percent of each State's combined LPW I and II allocation minus funds for any State govern- ment projects approved under LPW I. EDA arrived at the eight percent figure from analysis of the LPW I application file. In that file, the funds requested by State government applications represented approximately eight percent of the funds requested by all LPW I applications. - 26 - Prior to calculating eligible local governments' planning targets within each State from the remaining funds, amounts were set aside for pocket-of-poverty areas. As indicated in Chapter One, these were areas with at least 4,000 persons and at least 8.5 per- cent unemployment rates in cities over 50,000 that were not other- wise eligible for assistance (i.e., areas with unemployment rates below 6.5 percent or the State average, whichever was lower). The total pocket-of-poverty deduction from each State's allocation was based on the number of potential pocket cities: $1 million for each city, with a maximum pocket-of-poverty set-aside of $20 mil- lion. These funds were not targeted to individual urban areas until August 1, since it was necessary to complete the time- consuming process of identifying potentially eligible pockets and their levels of unemployment prior to assigning planning targets. The steps followed will be described later in this chapter. After subtracting the State government and total pocket-of- poverty set-asides from each State's allocation, EDA ' s system distributed the remaining funds to eligible local governments and school districts. Using the 65/35 allocation formula, funds were allotted to three types of eligible areas: primary cities, balance-of-county areas, and counties with no primary cities. In accordance with the LPW II legislative history, eligible areas were defined as those with unemployment rates exceeding 6.5 percent or the State average, whichever was lower. Within eligible areas, allocations were then made to eligible govern- ments . As described in Chapter One, county governments in eligible areas were given planning targets that were a percentage of the county-wide allocation (i.e., the sum of the allocations of all eligible areas -- primary city, balance of county, etc. -- within the county). This percentage varied from State to State, since the level of county government activity varies among States. Following extensive discussions with representatives of counties and county organizations, as well as Members of Congress, EDA officials decided to use county governments' participation in LPW I as an approximation of county government activity. Therefore, within each State, the county government percentage was based on the relationship between the funds requested by county governments within that State and total funds requested within that State during LPW I. County government funds could be used to finance projects lo- cated in or primarily serving eligible areas, including pockets of poverty. School districts serving all or a major proportion of the county population were able to draw upon county funds. In such situations, counties and school districts jointly prioritized projects. Primary city governments/school districts in eligible areas re- ceived the full allocation for the primary city area, minus that area's proportion of the county government percentage. Projects were then selected according to the city/school district priorities. Non-primary city governments in eligible areas also shared their planning targets with local school districts. - 27 - As a rule, such jurisdictions received targets if they had submitted applications during LPW I, although there were exceptions. Their proportion of the funds available in the "balance-of-county" area was determined by applying the 65/35 formula to the balance-of-county allocation, after subtracting the county government's funds. 3 . Other Substate Allocations On June 20, the planning targets were announced for individual Indian tribes and Alaskan native villages . These targets represented a breakdown of the 2.5 percent ($100 million) Indian set-aside specified by the LPW II legislation and the $71 million received by Indians under LPW I. In dividing up the $171 million among tribes and villages, EDA used population data as a determining factor, since consistent unemployment data were not readily available. The planning targets were calculated by apportioning $1,000 per person up to a population of 200 and $270 per person for each additional tribal member or Alaskan native. Funds approved under LPW I were then subtracted to arrive at each LPW II tribal planning target. Final funding under these targets ranged as high as $20 million for the Navajo Tribe. Between June 9 and mid-July, areas wishing to participate in pocket- of -poverty funding submitted data to EDA to qualify for that component of the LPW II Program. In a few cases, these included areas in cities that were technically eligible for LPW II funding but, because of overfunding in other areas under LPW I, did not receive planning targets. As indicated in the preceding section, these areas were competing within their States for funds in the State pocket-of-poverty set-aside, which at the outset consisted of $1 million multiplied by the number of ineligible primary cities, with a $20 million State maximum. After assessing the data submitted and the procedures employed to gather it, EDA identified valid pockets of poverty. On August 1, planning targets were announced for each of these areas. The targets were calculated by the same process used in other situations. In each State, all LPW I approvals in cities with identified pockets were added to the State LPW II pocket-of-poverty set-aside. (In some cases, State set-asides were reduced prior to determining individual area planning targets because the number of areas that submitted data fell below the number of cities with potential pockets.) This amount was then divided among qualified pockets on the basis of the 65/35 formula. To obtain LPW II planning targets, all LPW approvals for that city were subtracted from the single pocket's total LPW I and II allocation or proportionately - 28 - from the combined LPW I and II allocations for all pockets. As with other types of areas, once pockets of poverty received planning targets, local officials and other eligible applicants, including school districts, prioritized projects located in the pocket for funding under LPW II. Because of the LPW II Program's September 30 deadline for obligating funds, as well as such factors as the 60-day decision deadline on all projects, it was necessary to treat all planning targets established after July 15 (June 20 in the case of Indians and August 1 for pockets of poverty) as final. Nonetheless, in cases where errors were discovered subsequent to those dates, EDA made every effort to accom- modate the area or applicant involved. B. PROCESSING AND APPROVAL OF PROJECTS 1. Organizational Structure As noted previously, up to $25 million was made available to EDA for use in administering the LPW I and II Programs . 18/ These funds were and continue to be used primarily for support- ing temporary staff to implement and monitor the programs, although they have also covered the costs of office space, furniture, supplies, transportation, and other related expenses In addition to the temporary LPW personnel, EDA detailed a number of permanent staff members to assist in carrying out LPW activities. During the LPW II peak processing period, temporary staff numbered 500, and perhaps as much as 25 percent of EDA's regular program staff was associated with the program. The basic processing of LPW projects under rounds one and two was handled in EDA's six Regional Offices. All applications were submitted to these offices, whose staffs performed the necessary legal, environmental, civil rights and other reviews, and prepared the documentation associated with making grant awards. Although the different offices varied in terms of the organizational structure established to carry out these functions, all had some form of LPW unit, as well as expanded legal, environmental, and civil rights staffs. In some cases these specialists were located in the LPW unit, while in others they worked with EDA's permanent legal, civil rights, or environmental staff. 18 / It should be noted that it may be necessary to request additional administrative funds to insure adequate program management in FY 1978 and 1979. - 29 - Following basic processing in the Regional Offices, documentation on each LPW project was transmitted to EDA's Washington headquarters for final review and approval. There LPW unit staff checked the project folders for accuracy and completeness prior to forwarding to the Assistant Secretary for approval. Other temporary LPW staff in Washington provided assistance to regional staff on particularly complex or con- troversial legal, environmental, and civil rights issues. Formulating procedures for implementing the 10 percent minority business enterprise requirement, for example, was undertaken by Washington staff, who had greater access to the provision's sponsors and potentially helpful national organizations, as well as other Federal agencies. Temporary staff also responded to the tremendous volume of correspondence generated by LPW I and II, and designed and have begun conducting evaluations of the programs. Another major area in which additional staff were required was EDA's computer operation, which was responsible for carrying out the programming necessary for the implementation of both LPW I and LPW II. 2 . Timing of LPW II Approvals Secretary Kreps announced approval of the first group of LPW II projects on July 21. In that group, which consisted of projects totaling $11 million, were projects from major urban areas such as New York City and Philadelphia and rural communi- ties such as Antlers, Oklahoma. As illustrated in Table 2 on the following page, project approvals began to accelerate in early September, following a relatively slow start. By August 31, EDA had announced the approval of 1,935 projects representing just over $1 billion in LPW II funds. During the following two weeks, an additional 2,534 projects totaling $1.2 billion were approved, while in the final two weeks of Fiscal Year 1977, the Agency broke all previous records by processing and approving 4,086 projects for almost $1.8 billion. By midnight September 30, 1977, EDA had approved 8,555 LPW II projects representing a total of $4,012 billion. 19/ These projects were located in every State and territory, and represented the Federal Government's largest single counter- cyclical public works program since 1936. 19 / As explained in footnote 16, the $4,012 billion figure includes some deobligated LPW I funds. - 30 - TABLE 2 TIMING OF LPW II APPROVALS (Cumulative ) PERCENT OF PERCENT OF APPROVED BY PROJECTS FUNDING August 1 .6% 1.1% August 15 5. 3% 7.2% September 1 22. 7% 26. 1% September 15 52. 3% 56. 3% September 30 100.0% 100.0% - 31 - C. LPW I AND II PROGRAM CHARACTERISTICS 1. Types of Areas As explained in Chapter One, a major objective of the LPW II Program was to direct funds to areas of greatest distress in every State. The use of planning targets based on area unem- ployment was the operational approach used by EDA to accomplish this. Under this approach, the average unemployment rate of areas that received LPW II grants was 9.4 percent, as contrasted with an average rate of 8.9 percent under the LPW I Program. 20/ Moreover, 72.0 percent of the LPW II funds went to areas with unemployment rates above the 7.6 percent national average, while only 63.4 percent went to such places under LPW I. Similarly, places with unemployment rates above 9 percent received 54.1 percent of the LPW II funds versus 46.2 percent under LPW I. Areas with rates below 6.5 percent, on the other hand, received only 13.8 percent of the funds under LPW II, as compared with 23.3 percent of the LPW I funds. Table 3 on the following page provides a further breakdown of LPW I and II funding by area unemployment rate. In addition to impacting areas of more severe unemployment, LPW II also improved upon LPW I by providing funds to areas with greater numbers of unemployed. During the March 1976 - February 1977 period covered by the LPW II Program, the average number of unemployed persons nationwide was 7.3 million. Of this number, 45.9 percent resided in cities of 50,000 or more. Under LPW II, these areas received 47.1 percent of the funds, as compared with 38.4 percent under LPW I. As illustrated in Table 4, both cities above 100,000 and those between 50,000 and 100,000 fared better under LPW II. The greater benefits to urban areas under LPW II are also exemplified by the parti- cipation of the 100 largest cities. Under LPW I, only 64 such places received funds, while 93 received funds under LPW II. Moreover, those seven cities that did not receive LPW II funding had obtained more than their fair share of the total $6 billion LPW appropriation during LPW I. In addition to doing a better job of targetting funds to urban areas in proportion to their unemployment, the LPW II approach resulted in a wider distribution of projects. For example, substantially more rural communities received projects under LPW II, with 1,580 places of less than 5,000 obtaining projects as compared to 57 under LPW I. Even communities under 2,500 population fared better, despite the fact that unemployment data were not available for some towns in this category. Approximately 1,000 such communities received funding under LPW II, as con- trasted with 38 5 under LPW I. Consequently, the average size 20 / Because unemployment data are not available in comparable forms for Indian reservations and Territories, they are not reflected in these or subsequent unemployment data. - 32 - TABLE 3 LPW FUNDING 3Y AREA UNEMPLOYMENT RATE UNEMPLOYMENT RATE PERCENT OF PROJECTS PERCENT OF FUNDING LPW I LPW II LPW I LPW II Over 20% 15% to 20% 12% to 14.9% 9 to 11.9% 7.6% to 8.9% 2.4% 3.8% 7.1% 2 6.0% 16.1% 2.4% 4.2% 10.4% 2 8.9% 18.6% 1.8% 4.4% 9.6% 3 0.4% 17.2% 2.0% 4.4% 12.3% 35.4% 17.9% Total Above National Average 55.4% 64.5% 63.4% 72.0% 6. 5% to 7. 5% 4 % to 6.4% Below 4% 11.7% 24.4% j • -D "6 13.2% 16.2% 2.9% 9.2% 20.9% 2.4% 11.1% 12.1% 1.7% Total Below National Average 39.6% 31.8% 33.0% 2 4.9% TOTALS 95.0%* 96. 8%* 95.9%* 96.9%* Average Unemploy- ment Rate 1 LPW I - 8.9% LPW II - 9.4% * Does not include Indian or Territorial projects - 33 - TA3LE 4 LPW FUNDING 3Y AREA POPULATION POPULATION PERCENT OF PROJECTS PERCENT OF FUNDING LPW I LPW II LPW I LPW II Over 100,000 19.0% 16.4% 30.3% 35.4% 50,001 to 100,000 6. 6% 9.5% O "19- 11.7% 25,001 to 50,000 10.6% 10.3% 10.8% 10.6% 10,001 to 2 5,00 15. 7% 16. 1% 14.6% 13.2% 5,001 to 10,000 9.4% 12.2% 8. 0% 7.2% 2,501 to 5,00 9. 3% 10.1% 7. 3% 5. 8% Under 2,50 17.6% 14. 5% 10. 8% 6.6% Multi-Area or No Data 6.7% 7.6% 6.0% 6. 5% TOTALS 94.9%* 96.7%* 95.9%* 97.0%* * Does not include Indian or Territorial projects - 34 - of the communities that received funds under LPW II was 202,000 considerably less than the 363,000 average size under LPW I. 2 . Types of Applicants In designing the LPW II fund distribution system, EDA officials recognized the importance of increasing the involvement of both State and county governments as they are major providers of public works. Under LPW I, only 15 State governments received project funding, and those projects represented only 5.7 percent of the LPW I dollars. As shown in Table 5, State government projects accounted for 10.3 percent of the LPW II funding. More importantly, all 50 State governments had an opportunity to participate in the program, as each received a planning target representing eight percent of the total State allocation. County governments also fared better under LPW II. While the percentage of funding received by such governments increased only slightly from 12.3 percent to 13.5 percent, the number of county governments obtaining project grants rose considerably. Under LPW I 190 county governments received 2 37 projects; under LPW II 901 counties secured funding for 1,471 projects. More- over, another 78 counties received planning targets but chose to use them to finance other applicants' projects within the county area. 3 . Project Characteristics Project costs were substantially higher under the LPW I Program than under LPW II. Table 6 illustrates that this was true for EDA project costs, as well as total project costs. Under LPW II, the average EDA project cost was $469,000, less than half of the $952,000 average cost under LPW I. The average total project cost varied also: $1,052,000 under LPW I as opposed to $591,000 under LPW II. Similarly, 56 percent of all LPW I projects exceeded $500,000, while only 29 percent of LPW II projects surpassed that level. This diminished project size under LPW II is expected to result in more rapid completion of projects and, as a result, greater countercyclical impacts. With the exception of State and Indian projects, there was little difference in the total project costs of the various types of applicants under LPW II. The average total project costs for county governments, city/town governments, school districts, and special purpose authorities were all between $540,000 and $586,000. State projects were considerably larger, with an average project cost of $980,000. Indian projects, on the other hand, were smaller, averaging $419,000. Under LPW I, somewhat the reverse was true, with all types of applicants but States having higher average project costs. School districts, special purpose districts and, to a lesser - 35 - TABLE 5 LPW FUNDING BY TYPE OF APPLICANT APPLICANT TYPE PERCENT OF PROJECTS PERCENT OF FUNDING LPW I LPW II LPW I LPW II STATE COUNTY CITY/TOWN SCHOOL DISTRICT SPECIAL PURPOSE AUTHORITY INDIAN 5.9% 11.5% 63.2% 11. 8% 3.1% 4.6% 6.1% 17.2% 58. 3% 13.7% 1. 3% 2.9% 5. 7% 12. 3% 58.6% 16.4% 3. 3% 3. 7% 10. 3% 13.5% 59.8% 12.4% 1.5% 2. 5% TOTALS 100.0%* 100.0% 100.0% 100. 0% Does not add due to rounding - 36 - TABLE 6 LPW PROJECT COSTS TOTAL PROJECT COST PERCENT OF PROJECTS PERCENT OF FUNDING LPW I LPW II LPW I LPW II $100,000 or Less $100,000 to $250,000 $250,001 to $500,000 $500,001 to $1,000,000 $1,000,001 to $3,000,000 $3,000 ,001 to $5,000 ,000 $5,000,001 or More 3.6% 16. 3% 2 4.2% 25. 8% 22. 7% 6.0% 1.4% 17. 3% 29.6% 24.0% 15.6% 10. 5% 2. 1% .9% . 3% 3.0% 9.2% 18.9% 33. 3% 2 4.5% 5. 8% 2. 8% 10.6% 16.9% 21.0% 29.9% 13.2% 5. 5% TOTALS 100.0% 100. 0% 100.0% 100.0%* Average EDA Cost LPW I - $ 952,000 LPW II - $469 ,000 Average Total Project Cost LPW I - $1,052,000 LPW II - $591,000 Does not add due to rounding - 37 - degree, cities and towns had considerably higher project costs, suggesting that these types of applicants reduced the scope of their projects under LPW II to conform to their planning targets. Table 7, which represents LPW grant recipients' estimates of project duration, confirms the expectation that LPW II projects will be completed more rapidly. Of the LPW II projects, 62.5 percent representing 36.4 percent of the funds are estimated to be completed within 12 months. The preceding discussion differentiates between LPW project costs and total project costs to reflect the fact that in some instances EDA's Local Public Works grant financed only a portion of a project, while other sources supplied the remaining funds. This "leveraging" effect was much more pronounced under LPW II, when eligible applicants received planning targets that reflected their unemployment as opposed to their pending applications. Overall, LPW II stimulated the expenditure of an additional $1.2 billion in local, State, and other Federal agency funds. Of this amount, $1.04 billion or 87 percent was stimulated under LPW II, as reflected in Table 8, which displays funding from other sources by size of project. On the average, only 9.5 percent of project costs under LPW I were financed by other sources. Only among projects with total costs exceeding $5 million did other funds represent more than 5 percent of those costs. Under LPW II, on the other hand, 21 percent of the total project costs were financed with other funds. Projects over $5 million again contained the largest percentage of other funding, as would be expected given the $5 million limit on LPW grants. A final interesting LPW II project characteristic relates to the extent of resubmission of LPW I applications. As indicated in Chapter One, resubmissions were encouraged wherever possible to maximize program efficiency by limiting the administrative workload on LPW applicants and EDA staff. However, EDA officials recognized that local priorities and needs might have changed between LPW I and LPW II; that there would be differences between pending projects and planning targets; and that LPW I submissions were in some cases based on local judgments as to how projects might score under the LPW I formula, as opposed to local priorities. Consequently, EDA procedures permitted applicants to substitute or add projects to make changes in projects' scopes. Despite this latitude, 71 percent of the LPW II funds were used to finance projects originally submitted under LPW I. Similarly, approxi- mately 60 percent of the LPW II projects were LPW I resubmissions. Thus, approximately 5,100 of the LPW II projects, representing $2.8 billion, had already been reviewed to some extent by EDA staff during LPW I, therefore decreasing the burdens of both the EDA staff and the applicants and accelerating program implementation, 38 - TABLE 7 DURATION OF PROJECT CONSTRUCTION NUMBER OF MONTHS PERCENT OF PROJECTS PERCENT OF FUNDING LPW I LPW II LPW I LPW II Under Three Three to Five Six to Eleven 4. 7% 10.4% 31.7% 5. 7% 17.6% 39.2% 3.4% 3. 5% 16. 8% 1.6% 7.1% 27. 7% Total Under One Year 46.3% 62. 5% 23. 7% 36.4% Twelve to Seventeen Eighteen to Twenty-three 30. 7% 10. 1% 27. 6% 5.9% 36.0% 20. 7% 35.0% 16.0% Total Between One and Two Years 40. 8% 33.5% 56. 7% 51.0% Twenty- four to Twenty- nine Thirty and Above 5. 6% 1.8% 3.1% .2% 13. 7% 2. 1% 10.9% 1. 1% Total Over Two Years 7.4% 3. 3% 15. 8% 12.0% No Data 5.1% .7% 3.9% . 7% TOTALS 100. 0%* 10 0.0% 10 0. o%* 100.0%* AVERAGE DURATION LPW I - 12.6 mos. LPW II - 10.4 mos. Does not add due to roundinc - 39 - TABLE 8 OTHER FUNDING FOR LPW PROJECTS TOTAL PROJECT COST (LPW FUNDS PLUS OTHER) OTHER FUNDS/PERCENT OTHER FUNDS LPW I LPW II $100,000 or Less $100,001 to $250,000 $250,001 to $500,000 $500,001 to $1,000 ,000 $1,000,001 to $3,000,000 $3,000,001 to $5,000,000 $5,000,001 or More $95,652 ( 2.0%) $1,26 2,4 46 ( 2.1%) $5,240 ,480 ( 2.8%) $13,200,324 ( 3.4%) $35,159,494 ( 4.6%) $20,993,908 ( 4.2%) $12 8,5 67,993 (53.0%) ^2,960,135 ( 3.2%) $23,430,460 ( 5.4%) $55,261,056 ( 7.5%) $108,113,472 (11. 3%) $290,475,296 (19. 3%) $172,472,192 (24.0%) $394,278,472 (64.0%) TOTALS $205,320,302 $1,047,041,083 Percent Other Funds 9.5' 2 0.7% - 40 - CHAPTER THREE SELECTED PROGRAM ISSUES A. UNEMPLOYMENT DATA 1. Legislative Mandate As explained in Chapter One, the inequity associated with using data for a three-month period to reflect area unemployment led the Administration and Congress to agree upon the desirability of using twelve-month data under LPW II. Consequently, the LPW II legislation stipulates that State allocations be based on average unemployment data for the preceding twelve-month period 21 / and that: . . . if for the twelve most recent consecutive months, the national un- employment rate is equal to or exceeds 6 1/2 percent per annum, the Secretary shall (1) expedite and give priority to applications submitted by States or local governments having unemployment rates for the twelve most recent con- secutive months in excess of the national unemployment rate . . . In a statement on Program Policies included in the House-Senate Conference Report, the conferees expressed their intent that where unemployment data were not available from the Department of Labor's Bureau of Labor Statistics (BLS), EDA was to request such information from State Employment Security Agencies (SESAs^ Concurrently, however, the conferees stipulated that the Secretary of Commerce was to determine that such unemployment data were accurate. 2 . Limitations of Data As recognized by the House-Senate conferees on the LPW II legislation, OMB Circular A-46 requires Federal agencies to use data provided by BLS. However, at the time LPW II was being implemented, BLS routinely provided unemployment data only for States, counties, communities with populations above 50,000, and prime sponsor areas designated under the Comprehensive Employment and Training Act. BLS could provide 21 / With the exception that no State whose unemployment data was converted for the first time in 1976 under a new methodology to the benchmark data of the current popula- tion survey annual average compiled by the Bureau of Labor Statistics was to receive a percentage of such funds less than the percentage of funds allocated to that State under LPW I. - 41 - data for places under 50,000 or urban neighborhoods if a SESA had used BLS-prescribed procedures (i.e., the census share method) to calculate such data. However, such calculations often are extremely complicated and were not at that time routinely performed by most SESAs . Thus, under LPW II BLS unemployment data were not readily available for communities under 50,000 or places potentially eligible for LPW II pocket- of-poverty funding. A more serious problem existed with regard to certain communities with populations under 2,500. Among these communities, there were two categories of places for which Decennial Census unemployment data were not available: • those for which the Bureau of Census would not provide data because to do so would violate the legal requirements protecting individual confidentiality; and • those for which statistics were developed that the Bureau regarded as unreliable or inaccurate. Whereas the census share approach could be used to calculate data for other communities under 50,000, it had no utility for places under 2,500. The census share method involves determining the relationship between unemployment in a community and unemploy- ment in the corresponding county at the time of the Census, and then applying that ratio to county unemployment data for the period in question. For example, if a particular community had 1,000 of the 10,000 unemployed persons in a county in 1970, its share of the 15,000 unemployed in the county for the March 1976-February 1977 LPW II period would be 10 percent or 1,500. Obviously, this census share approach could not be employed for those communities identified above for which no 1970 data were available. 3. EDA Approach For eligible cities between 2,500 and 50,000, as well as those cities under 2,500 for which Census data were available, EDA utilized the census share approach to calculate unemployment statistics for the LPW II period. This approach, which was approved by OMB, was taken because other demands on the SESAs and BLS precluded them from providing the necessary data within the time constraints associated with the LPW II Program. The alternative would have been for EDA to obtain data directly from local governments. Such an effort would have presented enormous logistical problems since EDA would have had to work with thousands of mayors, city managers, and other officials unfamiliar with the BLS census share method. - 42 Moreover, information supplied on a city by city basis by mayors and other local officials would have had to be key- punched into machine-readable form for use by EDA; yet another time consuming process. Most significant, data supplied on an individual community basis would have afforded little prospect of meeting the statutory requirements of standardization, verification and comparability, or the time constraints imposed by the LPW II legislation. For communities under 2,500 for which EDA could not obtain 1970 Census unemployment data, planning targets were ordinarily not provided. However, in a number of instances were no unemploy- ment data were available for any communities within an eligible county or balance-of-county area, population data were used as a proxy for unemployment data. While it is possible that an alternative to the census share procedure for estimating the unemployment of such small towns could have been developed, to have done so would have delayed the implementation of the LPW II Program to the point where its primary purpose would have been jeopardized. Further, to have done so would have created the additional problem of merging such estimates with the census share estimates for other cities. The combination of two different sets of statis- tics could, for example, lead to a situation where the sum of all statistics for the cities in a county would be greater than, or less than, the BLS figure for the county. The only reasonably available surrogate for the unemployment statistics was population figures which, as noted above, were used in some instances. However, EDA could not use such popu- lation statistics in any project area in which there were available census share unemployment statistics for one or more eligible applicants because population statistics and unemploy- ment statistics are incompatible in this context and could not be readily and equitably utilized by EDA. For pocket-of-poverty areas in ineligible or non-funded cities over 50,000, EDA required SESA certification of unemployment data submitted by the area. In cases where potential applicants other than the city government sought pocket-of-poverty designa- tion, clearance by the city executive was required to avoid over- lap of pockets of poverty within the city. 4 . Overall Results All communities between 2,500 and 50,000 with pending projects and located in eligible areas received planning targets reflect- ing their fair share of area unemployment. The more than 2,000 - 43 - communities in this category accounted for almost half of all LPW II projects and approximately 35 percent of the LPW II funds. Despite the data problem associated with some communities under 2,500, many such places fared well under LPW II. Approximately 1,000 communities under 2,500 received LPW II funds directly or through county or State projects, as compared with 385 under LPW I. LPW II grants in such places totaled almost $265 million, Under LPW I, such towns received $213 million, bringing the total LPW funding going to towns under 2,500 to almost $500 million, or 8 percent of the $6 billion LPW appropriation. Another point that should be made with regard to towns of this size is that their economic problems tend to be of a long-term structural nature, as opposed to cyclical. Consequently, it is more appropriate to address their needs through EDA ' s regular economic development programs than through fiscal stimulus efforts like LPW. It should also be noted that county projects very often provided employment and facilities that will benefit these smaller communities. B. TEN PERCENT MINORITY BUSINESS ENTERPRISE REQUIREMENT 1. Legislative Mandate As noted in Chapter One, the LPW II legislation contained the unprecedented requirement that at least 10 percent of the amount of each LPW II grant should be expended for minority business enterprises. These were defined by the legislation as "... a business at least 50 per centum of which is owned by minority group members or, in case of a publicly owned business, at least 51 per centum of the stock of which is owned by minority group members." The Act identified minority group members as citizens of the United States who are Negroes, Spanish-speaking, Orientals, Indians, Eskimos, and Aleuts. The legislation did not include the Senate bill's provision per- mitting some reduction in the 10 percent minority business enterprise (MBE) requirement in areas with less than 5 percent minority populations. However, it did provide the Secretary of Commerce with the authority to waive the requirement in situations where it was unreasonable to expect fulfillment of this provision. 2. EDA Posture In response to enactment of the 10 percent MBE requirement, EDA launched an intensive management effort directed toward insuring that at least $400 million of the $4 billion appropriation went to minority contractors and suppliers. From the outset, it was recognized that implementation of this requirement was perhaps the single most challenging task in a program replete with challenges and demands previously considered unattainable. Prior to the LPW II Program, less than one percent of the public - 44 - works funds expended by Federal, State, and local governments were going to MBEs . As a result, few possessed the experience, capital, credit, or bonding capacity to compete successfully for prime contracts. In addition, few non-minority prime contractors were accustomed to working with minority subcontractors or suppliers, and, understandably, most had no desire to abandon established relationships to work with minority firms with which they had no previous experience. In general, the efforts made by many contractors to meet the 10 percent provision have been encouraging. To overcome these and related problems in carrying out the MBE requirement, an implementation approach has been developed that combines strongly supportive public statements on the require- ment, rigorous standards and procedures for its enforcement, and expanded assistance to minority construction and supply firms. Commerce Department officials, White House staff, and Members of Congress have on numerous occasions expressed publicly their commitment to meeting the MBE requirement, and President Carter has cited it as one means of helping to address the economic needs of minority citizens. The public statements have been backed up with numerous meetings to discuss MBE particpation and request assistance from minority contractors and suppliers, majority contractors, representatives of surety companies and lending institutions, and LPW grant recipients. Concurrently, EDA staff have developed and enforced strict procedures for implementing the 10 percent MBE provision. These procedures were designed to insure that prime contractors seek out and use qualified minority subcontractors and suppliers They include detailed instructions for LPW II grant recipients to follow in dealing with bidders, as well as reporting requirements to enable EDA to monitor grantees' performance. In addition, as discussed in a subsequent subsection, increased Federal aid in the form of surety bonding guarantees, loans, and other types of assistance have been made available to minority firms desiring to participate in the LPW II Program. 3 . Preliminary Data on MBE Participation The strong commitment to meeting the 10 percent MBE requirement is reflected in the preliminary data being received on the involvement of minority firms in the LPW II Program. Although final data on MBE participation in the Program will not be available until the comprehensive evaluation of the Program is completed, preliminary data are now available from forms - 45 - submitted by LPW II grantees. These data reflect grantees' estimates of MBE participation subsequent to bid openings. As of December 31, 1977, preliminary data indicated that for projects representing $2.2 billion or 55 percent of LPW II funding, $315 million or 14 percent would go to MBEs. Although the final amount or percentage going to MBEs will not be known until information is received on the 45 percent of the LPW funding, we are hopeful of fulfilling the provision's objective. For that reason, the data should be viewed merely as indications that grantees are reporting to EDA on the extent to which the 10 percent MBE requirement is being met; that they are optimistic about MBE participation; and that EDA is monitoring progress toward meeting the requirement so that timely responses can be made to potential problems, including assuring to the extent feasibile that the MBEs which do participate are bona fide under the Program's requirements. 4 . Technical and Financial Assistance As indicated above, the past exclusion of minority firms from the vast majority of public works construction projects made it likely that many such firms would need technical and financial assistance to take advantage of the 10 percent MBE provision. Consequently, several steps have been taken to increase the level of aid available and to insure that minority firms are aware of its availability. In mid-June 1977, EDA signed an agreement with the Department of Commerce's Office of Minority Business Enterprise (OMBE) committing OMBE-funded organizations to provide all possible assistance to minority firms wishing to participate in LPW II. EDA subsequently provided OMBE with $1 million to enable its grantees in 25 cities with large minority populations and substantial LPW II planning targets to hire additional staff for six to nine months to work with those minority firms. These OMBE-af filiates ' staff have been assisting minority firms with financial, management and technical problems during the LPW II bidding process and will continue to provide aid to successful bidders as needed. OMBE has also provided valuable assistance in identifying bona fide MBEs, and in December began detailing 0M3E staff to EDA Regional Offices to assist in the verification of firms whose claims to MBE status have been questioned. EDA also obtained agreement from the Small Business Administra- tion to provide working capital loan guarantees and surety bond guarantees to qualified MBEs, particularly in 25 key cities. In addition, SBA agreed to provide technical and management assistance through its regular programs to minorities desiring to participate in LPW II. SBA has also extended aid to grantees and prime contractors seeking to identify qualified minority contractors and suppliers. EDA in turn agreed to reimburse SBA for expenses associated with the 10 percent effort, including the hiring of additional personnel. SBA had guaranteed 262 - 46 - surety bonds representing $31.5 million in contracts for minority firms participating in LPW II projects as of December 31, 1977. By the same date, SBA had approved 17 working capital loans totaling $935,000 for minority firms. In addition to obtaining assistance for minority firms from OMBE and SBA, EDA has provided funds to the National Association of Minority Contractors; the National Institute for Advanced Studies; and the Urban Development and Management Corporation to engage in a wide range of technical assistance with minority firms. Those organizations have been particularly helpful in evaluating the qualifications of MBEs for which expenditures are proposed. To further assist grantees and contractors in meeting the 10 percent MBE requirement, EDA has contracted with the F. W. Dodge Company to provide detailed LPW project information to minority contractors on a timely basis. The Dodge Company sends daily construction reports on all EDA LPW projects in a specified geographic area to minority assistance groups located in that area, including OMBE offices, OMBE-funded organizations, and SBA offices. The three EDA-funded contractor groups cited above also received these reports. OMBE, SBA and minority contractor groups disseminate these reports to their clients. The Dodge reports are issued at various stages of bidding and provide minority contractors with useful project information such as material, service and supply requirements. In 119 cities where the Dodge Company maintains a construction plans center, minority contractors are being allowed to use this facility during the critical bidding process. Dodge identifies projects subject to the 10 percent MBE requirement on each report. EDA-funded university centers, whose staff are experienced in providing financial, management, and technical assistance to small businesses, have also assisted minority firms desiring to participate in the LPW II Program. 5. Monitoring of MBE Requirement As outlined earlier in this section, EDA's commitment to successful implementation of the MBE requirement has been mani- fested in a number of ways. In addition to taking numerous steps to implement the requirement and working closely with other Federal agencies and private lending and bonding institutions to assist minority contractors and suppliers, the Agency established a special 10 percent MBE unit in Washington which is vigorously enforcing special MBE monitoring procedures. - 47 - A particularly complicated aspect of the 10 percent MBE require- ment has been its implications for the competitive bidding process. To encourage negotiation with minority prime con- tractors, EDA has indicated its willingness to grant waivers of the Federal competitive bidding requirement to those grantees who request such a waiver. Within the competitive bidding pro- cess, EDA's procedures stipulate that only contractors whose bids include 10 percent utilization of MBEs be judged responsive Grantees must report their estimates of MBE participation immediately subsequent to bid openings and if such estimates fall below 10 percent, EDA requires that grantees demonstrate how they will meet the requirement. As of December 31, 1977, almost all grantees' estimates met the 10 percent requirement, a reflection of that fact that most bidders for prime contracts have indicated that they will spend at least 10 percent of their funds for MBEs. There have, predictably, been cases where grantees sought waivers of the 10 percent MBE requirement at this phase in the project implementation process. 22 / as of December 31, EDA had received 32 waiver requests. Of these, 16 were approved; 12 were denied; and 4 were pending. Waivers have been approved only in areas where no qualified MBEs are available to perform the type of work required by the LPW project. Considered in conjunction with the fact that approximately 8 5 percent of the LPW II projects are under construction, these statistics suggest that in many cases the problems associated with recon- ciling the MBE requirement with the competitive bidding process are being resolved. The next major step in the MBE monitoring procedure comes when project construction is 40 percent complete. At that point, grantees are required to report MBE expenditures through executed contracts, and if MBE participation is less than 10 percent, EDA may withhold the second letter of credit needed by the grantee to complete the construction. The letter of credit will normally be issued only after the grantee provides specific details, including MBE names, as to how the 10 percent requirement will be met. 6 . Identification of Legitimate MBEs A related monitoring responsibility is the extremely difficult task of determining whether or not a proposed MBE is in fact a bona fide minority firm. Since the objective of the 10 per- cent MBE requirement will only be met if bona fide minority 22 / Almost 1,000 waiver requests were sought by grantees prior to the bidding process, but these were all denied as being premature in that they were submitted prior to receipt of contractor bids and, therefore, any evidence that minority subcontractors or suppliers were not available. - 48 - contractors and suppliers receive at least 10 percent of the LPW II funds, the identification of legitimate minority businesses is essential to the success of the MBE effort. Drawing upon the knowledge of organizations and individuals with appropriate experience, EDA developed standards for use in determining the legitimacy of MBEs . These standards address such issues as minority group owners' or stockholders' control over management, their proportion of earnings, and the nature of the services to be performed by the MBEs (i.e., legitimate work versus functioning as a conduit for services or supplies actually furnished by a non-minority firm) . In addition to providing grantees with these standards defining MBEs and the types of expenditures that qualify as legitimate MBE services, EDA requires additional information about the supposed MBE when: • the MBE is not on the list of MBEs maintained at EDA's Regional Offices; or • a complaint is received concerning the MBE or the contract involved. Under such circumstances, the MBE usually must provide informa- tion on the firm's owners and its contractual arrangements. Among the issues EDA attempts to resolve through this approach is distinguishing between two types of new or expanded firms: the "bona fide MBE" that hopes to take advantage of the 10 percent requirement to develop into a permanent, independent, competitive company, and the "front MBE," also created to take advantage of the LPW II provision but only as a conduit for supplies or services furnished in substance by a non-minority firm. In the event the information received from an alleged MBE is not satisfactory, EDA may require additional material, such as copies of the firm's organization papers and contracts. Field investigations of the firm's operations may also be instituted. If the information and/or investigation reveal that the firm is not a bona fide MBE, EDA will require that the 10 percent MBE participation be met by engaging other qualified MBEs if they are available. 7 . Court Challenges to Constitutionality As expected, the 10 percent MBE requirement and EDA's procedures for enforcing it have been challenged in a number of court actions. Most of these have been filed by State or local chapters of the Association of General Contractors of America, together with one or more prime contractors. Of the 27 such actions to date, only two have resulted in unfavorable decisions and one of those had no impact on the LPW II Program, applying - 49 - only to any future public works program. The other unfavorable decision was very limited in its impact. However, both rul- ings are being appealed. Moreover, two key opinions have been issued by judges denying preliminary injunctions of the LPW II Program. Both of these indicated precedent setting support of EDA's procedures and affirmation of the requirement's constitutionality. 8 . Impact of MBE Requirement on Construction Starts Although the progress of construction starts under LPW II is discussed in Chapter Five, it should be noted in this context that difficulties associated with the 10 percent MBE require- ment have caused some grantees to miss the 90-day construction start deadline. However, this has occurred in a relatively low percentage of cases. As of December 31, only about 130 projects have had to be given extensions to work out MBE difficulties. C. OTHER PROGRAM ISSUES Prior to implementation of the LPW Program, it was anticipated that problems would arise in connection with two other issues Under LPW I and II, there was concern that a substantial number of projects would be denied because of insufficient time to adequately explore potentially adverse environmental impacts. This possibility was particularly disturbing with regard to LPW II, when such projects might represent a community's most pressing public works need and, therefore, its highest priority project. Although this problem occurred, the incidence of denials due to conflicts between LPW time constraints and environmental responsibilities was extremely low. Relatively few areas failed to receive priority projects as a result of environmental requirements. The other potential problem area related to the LPW II statute's requirement that projects of school districts and general pur- pose units of local government receive equal priority. As dis- cussed in Chapter Two, the procedures developed by EDA to carry out this requirement and maintain the local priority principle called for joint prioritizing of projects by school district officials and mayors/city councils or county officials, which- ever was appropriate. In cases where agreement was not reached, procedures were developed to enable EDA staff to select projects using uniform criteria. Contrary to fears that school district board members and local officials would often disagree, this occurred in less than 150 cases throughout the country and, consequently, did not pose any significant problems. - 50 - CHAPTER FOUR PROGRAM MANAGEMENT A. LPW MANAGEMENT COMMITTEE On October 12, 1977, Assistant Secretary Hall formally established an LPW Management Committee to insure proper implementation of the LPW II Program and to improve the management of LPW I projects. This intra-agency management oversight effort replaced the LPW Task Force which coor- dinated the design and initial implementation of the program. The LPW Committee is headed by the Director of EDA ' s Office of Administration and Program Analysis. Its membership con- sists of key staff from EDA's Local Public Works unit, the Office of Public Works, the Office of the Assistant Secretary, the Office of the Deputy Assistant Secretary for Economic Development Operations, the Office of the Chief Counsel, the Office of Civil Rights, and the Office of Administration and Program Analysis, as well as the Special Assistant for the Environment and a representative from the Agency's Regional Offices . Since its establishment, the full Committee has met on a weekly basis, with meetings of sub-committees occurring more frequently. In addition, the Committee has briefed the Assis- tant Secretary and his Deputies at appropriate intervals and as necessary to obtain decisions on major issues. B. ADMINISTRATIVE ORGANIZATION AND STAFFING Among the Committee's primary responsibilities was to make recommendations on the organizational framework and staffing levels needed to carry out post-approval project monitoring activities. Following consideration of various alternative organizations, a team approach for both Washington headquarters and EDA's six Regional Offices was adopted. At the regional level, this consists of multidisciplinary teams composed of public works staff, lawyers, civil rights and environmental specialists to monitor post-award LPW activities in specific areas, such as southern California or Alabama/Mississippi. In Washington, these teams cover entire regions and are composed only of public works staff from the LPW unit. However, each team has access to Washington-level civil rights , environmental and other staff as necessary. Additionally, a Washington unit has been established to coordinate monitoring activities related to the 10 percent minority business enterprise requirement. The approach developed to manage the LPW Program involves con- centration on a few key aspects of the Program, as opposed to in-depth monitoring on each of the more than 10,000 LPW I and II projects. This approach, which is briefly described below, - 51 - involves substantial reliance on grantee reports and moni- toring of special LPW II legislative requirements through field inspections of at least five percent of the LPW projects. Although staff levels will vary somewhat, it is envisioned that the average number of temporary staff implementing LPW during Fiscal Year 1978 will be around 500. During Fiscal Year 1979, it is estimated that the LPW temporary work force will average 250. In this regard, it should be noted that staff turnover is traditionally extremely high among temporary employees, par- ticularly those who are most capable. Since the LPW temporary staff has in general been composed of unusually competent individuals, there has been a relatively high turnover rate, which has complicated implementation of LPW post-approval activities . C. REFINEMENT OF LPW PROJECT DATA A major task begun immediately following the September 30, 1977 completion of the LPW II project approval phase was the correc- tion and expansion of the project data contained in EDA's com- puterized files. By mid-December, basic data -- such as grant amount, project location, and area unemployment rate -- on each of the 8,555 LPW II projects had been placed in the computer file and checked for accuracy. In addition, efforts were under- way to obtain supplementary data, such as information on how many projects were utilizing solar and other alternative energy sources . D. LPW MONITORING ACTIVITIES 1 . Program Reporting and Monitoring One of the first assignments undertaken by the Committee was to establish a format and schedule for keeping Agency leadership apprised of overall LPW Program progress on a timely basis. The management reporting system developed as a result involves periodic reports to the Assistant Secretary and Regional Offices These reports, which are prepared by LPW staff in Washington, provide summary information on a national basis and by EDA region on: • LPW II construction starts; • extensions granted on the 90-day start deadline and primary reasons for those extensions; • minority business enterprise (MBE) participation estimates by grantees subsequent to bid openings; • MBE participation figures reported by prime contractors following contract awards; • disbursements for LPW I and II; and - 52 - • status of lawsuits related to the LPW Programs. As necessary, these reports recommend actions to initiate activities or resolve problems. 2 . Project Management As previously indicated, the project monitoring approach for- mulated under the Committee's auspices concentrates on key elements of the LPW Program as opposed to comprehensive examin- ation of every project. Emphasis is placed on construction starts, expeditious disbursement of funds, and the 10 percent MBE requirement, which was discussed in Chapter Three. In the case of construction starts, Regional Office LPW team members maintain close contact with grantees throughout the 90-day period, reminding them of the emergency nature of the program and their assurances that construction could be under- way within 90 days. If construction has not been initiated within 80 days, a warning telegram is transmitted to the grantee. Construction is considered underway only if EDA has received both a certificate from the grantee stating that on- site labor has begun and a copy of a certified payroll from one or more construction contractors. As reflected by the data pre- sented in Chapter Five, relatively few time extensions have been granted; most grantees have met the statutory deadline. Several steps have been taken to expedite the disbursement of LPW funds, including procedures designed to increase the speed with which the Agency processes grantees' request for letters of credit and amendments to those letters of credit. Since this is the method by which grantees obtain LPW funds, accelera- tion of EDA's processing responsibilities is critical to the success of efforts to expedite LPW disbursements. Strict dead- lines for each of the processing procedure have been imposed; computerized exception reports identify cases where EDA is behind schedule so corrective actions may be taken; and a special arrangement has been negotiated with the Treasury Department to reduce their processing time to five days. An improved system has also been devised for monitoring LPW I and II expenditures. Under this system, which will be opera- tional in early February, disbursements to grantees will be com- pared with actual and projected construction activity documented by grantees on their Quarterly Project Performance Reports. This comparison will enable LPW staff to identify problem projects; that is, cases where grantees have failed to draw down Federal funds from their letters of credit in proportion to the estimated costs of the work completed. In such cases, contact will be made with grantees to determine the causes of the delays and to attempt to resolve any difficulties. It is - 53 - anticipated that in some instances further explanation of the requirements associated with obtaining funds is all that will be necessary. In addition to alerting EDA staff to disbursement delays, the Quarterly Reports from LPW grantees will provide information on any other problems being experienced. Although major problems will generally be brought to the attention of LPW staff by telephone prior to preparation of the Quarterly Report, it is anticipated that minor problems, as well as issues of lesser interest to the grantee but of con- cern to EDA, will be identified. The LPW II statute included a number of requirements with re- gard to persons employed on LPW projects and the types of activity, material, and equipment to be supported with LPW grants. For example, the LPW Act required that special con- sideration be given to qualified Vietnam-era veterans and dis- abled veterans and that all materials and equipment used or installed in an LPW project be manufactured, produced, or mined in the United States. Individual monitoring of the 8,555 LPW II projects to determine if each of the 10 special requirements is being met would require an inordinate amount of time and unreasonably high staffing levels. Consequently, EDA has developed a less intensive approach that involves written communication to insure that grantees are aware of the require- ments and ways to meet them; responses to complaints and alle- gations of non-compliance; and field inspections of a stratified random sample of LPW II projects. The random sample will also be used to check compliance with the 10 percent minority business enterprise requirement. E. PROJECT AUDITS Financial management audits will be conducted by Deparment of Commerce staff for a representative sample of LPW projects sub- sequent to their completion. All other projects will be audited by independent public accountants or State or local auditors. These audits will be reviewed by Department of Commerce staff. As is the case with regular EDA public works projects, the audits will entail the examination and verification of grantees ' accounts, records, practices, and procedures to determine if they comply with the standards established in the LPW grant agreement. F. EVALUATION OF LPW PROGRAM Comprehensive evaluations are being conducted on LPW I and LPW II by Department of Commerce staff and private sector researchers. In addition to complying with the Presidential and congressional mandates, these evaluations reflect EDA officials' concern that future program designs be improved through in-depth analyses of the impacts of the LPW Program and related issues. It is expected that the insights attained 54 - through the evaluations will benefit a wide range of organ- izations and individuals involved in the making and implemen- tation of public policy, including the executive branch of the Federal government, with its responsibilitis for proposing and administering programs; the Congress, with its legislative development duties; and State and local governments, with their responsibilities for carrying out Federal programs. The LPW evaluations consist of an administrative analysis, evaluation from a macroeconomic or aggregate perspective, and an analysis from a microeconomic or locality viewpoint. The administrative evaluation will focus on the procedures employed in implementing the LPW I Program, including the seven-factor project scoring formula. The portion of the evaluation relating to the formula will involve an examina- tion of the relative impact of each item in the formula or project selection, as well as exploration of the relationships between construction unemployment data and general unemploy- ment data and between seasonally adjusted and non-adjusted unemployment figures. Draft reports on two portions of the administrative analysis have been prepared, and the other com- ponents are expected to be completed by September 1978. The evaluation of the macroeconomic or national impacts of LPW I and II, which is scheduled for completion in August 1978, will address the following policy questions. • What was the net job impact over time? • Was the LPW Program targeted to relatively more distressed sectors of the economy? • How do local governments adjust their capital funding to general economic movements? • What were the income redistributive effects of the LPW Program by region? • What was the relationship between the flow of public works money and the business cycle? • What were the LPW Program's impacts on the contract construction and materials supply industries? The evaluation of the local impacts of the LPW I and II Pro- grams will assess the efficacy of the program as a countercy- clical tool operating through the construction industry on a local level. It will also seek to determine if the program's objectives are being accomplished and how the choice of dis- cretionary parameters, such as the size of the program and its - 55 - timing, affect the achievement of these goals. Issues that will be addressed include: • job creation in the construction industry and construction-related industries, as well as through LPW's income generation effects; • labor mobility (i.e., workers moving into the project area in response to LPW) ; • infrastructure created; and • net fiscal cost of the program (i.e., the true cost to the government, including savings in unemployment benefits and additional tax revenues) In addition, an effort will be made to learn more about State and local governments ' needs for programs of this nature and for the LPW Program specifically. The impact of the LPW Pro- gram on private sector construction will also be explored, as will its effect on local wage rates , construction supply and service costs. Various interim reports will be prepared over the course of the next two years, and the final report will be published sub- sequent to completion of most LPW construction, which is expec- ted to occur during calendar year 1980. G. PUBLIC WORKS INVESTMENT STUDY In addition to these analyses of LPW I and II, a study of pub- lic works investment in general is being conducted in accordance with the requirement contained in Section 110 of the LPW II legislation. Its objectives are: • to identify the share of Gross National Product devoted to public works investment over time, and to present an analysis and discussion of the observed trend; • to identify the historical characteristics of public works investment expenditure in the Nation. Factors such as the type of investment, the level of expenditures, the funding role of Federal, State, and local governments, and the regional distribution of Public Works Investment will be examined in an historical context; • to identify any shifts in the historical trends noted above and assess the meaning of the trends and shifts identified; 56 - • to examine the question of deferred maintenance on the existing public works stock and, at a minimum, provide Congress with the necessary background to evaluate the maintenance and reno- vation situation; • to examine the financing of public works facilities if the financing method affects the pattern and type of investment; and • to examine and discuss alternative methodologies for measuring and determining the need for public works investment. The study, which will involve private research assistance, is scheduled for completion prior to the November 1978 dead- line established by the legislation. - 57 - CHAPTER FIVE PROGRAM IMPACT A. LPW CONSTRUCTION EXPENDITURES 1. Construction Starts As of December 31, 19 77, construction was underway or com- pleted on all 2,062 LPW I projects and almost 85 percent of the LPW II projects. In addition to the more than 7,000 LPW II projects underway, approximately 1,100 had been granted extensions to the statutory 90-day construction start deadline. These extensions, which were generally for less than six weeks, resulted primarily from adverse weather conditions and bidding problems. For example, in some instances no bids were received, while in other cases the bids exceeded substantially the funds available for the project. As indicated in Chapter Three, difficulties in meeting the 10 percent minority business enterprise require- ment on a particular project were responsibile for a limited number of extensions. The remaining LPW II projects — approximately 400 -- had not reached the 90-day deadline by December 31, but were scheduled to arrive at that point within one to two weeks. Consequently, most of the 400 should be underway as of mid- January 19 78. 2 . Expenditure Rates Actual expenditures under the LPW I and II Programs are even more significant than construction starts, since they reflect the extent to which the objective of stimulating the national and local economies is being achieved. As of December 31, 1977, reported disbursements for LPW I projects had reached $922 million, or approximately 50 percent of the LPW I funds. Since disbursements usually transpire within a few days of actual expenditures, the disbursement data reflect relatively accurately the status of project expenditures. In the case of LPW I, the data indicate that within the eight or nine months since most of the 2,062 projects were initiated, nearly half of the labor and materials expenditures associated with those projects have occurred. Because of the timing of the LPW II Program, most projects have only been underway for 30 to 60 days. As a consequence, labor and materials expenditures are just beginning. Partially because of the winter start-up period for most projects and the LPW I experience, EDA had estimated that by December 31, 1977, - 58 - LPW II disbursements would only total $10 million. However, the final data on December disbursements provided by the Treasury Department revealed that LPW II project disburse- ments had reached $40.3 million, approximately four times the level anticipated. The total LPW disbursement estimate, including administrative funds, for Fiscal Year 1978 is $2.3 billion: $800 million for LPW I and $1.5 billion for LPW II. Combined with the $585 million in LPW I disbursements made in Fiscal Year 1977, this estimate suggests a total LPW disbursement level of almost $3.0 billion, or 50 percent of the $6 billion appropriation, by September 30, 1978. Since both LPW I and II project disbursements proceeded at a faster rate during the first quarter of the Fiscal Year than foreseen, it is anticipated that the $2.3 billion figure will be reached. However, to guard against any letdown, EDA staff will continue recently initiated efforts to accelerate LPW I and II expendi- tures and disbursements by contacting appropriate grant reci- pients to emphasize the importance of construction expenditures and drawdown of LPW funds and to explore means of resolving problems delaying construction or drawdowns. As discussed in the preceding chapter, this is being accomplished through use of a special computerized expenditure tracking system designed to monitor each project's rate of construction and disburse- ments . Given the fiscal stimulus objective of both LPW I and II, the importance of expediting construction and related expenditures cannot be overemphasized. Such expenditures and their spin- off effects represent one of the major impacts of the LPW Program and the extent to which they can be accelerated will increase the program's effectiveness as an economic stimulus measure. B. EMPLOYMENT IMPACTS OF THE LOCAL PU3LIC WORKS PROGRAM 1. Estimates of Job Creation It is premature to report on the employment generation effects of the program. Estimates have been made using a variety of techniques including computer models and the extrapolation of grantee reports which are now starting to flow in. As discussed on the following page, reliable data on the employ- ment impact of the program will not be available until comple- tion of the comprehensive evaluations which are now underway. Rough estimates of the employment impact of the LPW Program, however, can be made at this time based on experience from previous comparable programs. Analyses of those programs - 59 - suggest that overall LPW (Rounds I and II) will generate about 176,000 person years of employment on site or in construction support industries and an additional 249,000 person years of employment will be generated elsewhere in the general economy through the infusion of the $6 billion. It should be noted that out of the estimated 425,000 person- years of employment many more different individuals will have periods of employment or "jobs." As the employment generation aspect of LPW is so critical in judging the worth of countercyclical public works as a public policy instrument, this aspect will be carefully studied. Although the public facility impacts of LPW I and II can be partially assessed at this time by a straightforward account- ing of the buildings, roads, and other facilities constructed or rehabilitated, an accurate report on the jobs created must await completion of the comprehensive evaluations of the pro- grams currently underway. These indepth analyses will provide the data base needed to develop more reliable estimates of the employment impacts of public works programs and projects. At this time, however, employment information being collected as part of the evaluations is fragmentary and past experience has not produced an extensive data base from which to predict the results of LPW expenditures. Consequently, less reliable measures must be used to estimate the LPW Program's job generation impact. These measures consist of: • use of limited empirical data, Bureau of Labor Statistics (BLS) construction esti- mates, and estimating techniques; and • estimates from LPW II grant recipients of employment generation impacts. The first step in providing estimates of the employment impacts of any program is to determine what is meant by a "job." Does an electrician working on a building for two weeks constitute one job, or do one electrician, two carpenters, and three welders working on a building for a combined total of 12 months constitute one job? The figures presented below are based on the latter approach, which calculates person-years of employment and is generally accepted as the most meaningful way of charac- terizing a program's job creation impacts. Although there is no universally accepted definition of a person- year, the data presented below are based on the Bureau of Labor Statistics figure of 1,800 hours. In addition, an attempt is made to address the question of the number of individuals employed through the use of limited empirical data. - 60 - A second necessary step is to estimate the additional person- years of employment that will be generated off-site, such as jobs in firms that supply construction materials and in the consumer sector. Since the LPW Program's objectives extend beyond the creation of jobs in construction trades, the person- year estimates given below reflect the full range of employ- ment impacts stimulated by such expenditures. These consist of « direct employment -- on-site construction jobs. Such jobs include the employment generated for electricians, plumbers, welders, and other skilled and unskilled workers who actually construct the project. Also included among this employment category are the clerical and other administrative staff of contractors and subcontractors working on LPW projects; • indirect employment -- jobs in major supply industries. These jobs reflect increased em- ployment in lumber companies, plumbing fixture suppliers, and other firms from whom building materials or construction equipment is purchased or leased; and • induced employment -- jobs resulting from increased consumption by LPW construction workers, contractors, and suppliers. This category consists of additional jobs in businesses that provide goods and services, such as restaurants, department stores, and automobile dealerships. A third step associated with developing employment estimates is the determination of the period of time to be considered. The estimates presented in the following discussion assume that the employment will primarily be created during the construction of the more than 10,000 LPW I and II projects. Construction began on LPW I projects in March 1977 and is expected to continue on LPW II projects through the first quarter of Fiscal Year 19 81 or the 19 80 calendar year. Most of the construction, however, as indicated in Table 7, will be completed within 18 months after it commences, which means that the majority of LPW construction will be completed by mid- 1979. A final issue that must be treated is the fiscal substitution effect of the LPW Program, i.e., the extent to which LPW funds are financing projects that replaced or displaced public or private sector construction expenditures that would have been - 61 - made in the absence of the LPW Program. Although an effort was made to avoid direct substitution of Federal for local funds by requiring applicants to certify that funds were not otherwise available or budgeted, it is assumed that there are instances in which this phenomenon occurred. Similarly, in some areas, con- struction financed by the private sector may decline as a result of substantial LPW construction that depletes supplies and workers in certain high-skill trades. At the present time, however, these effects cannot be measured. Although the evaluations of LPW I and II will attempt to ascertain the degree to which such fiscal sub- stitution occurred, the complexity of this issue militates against a definitive resolution. 23/ The EDA staff derived the following range of direct employment estimates from analysis and procedures used by the Rand Corpora- tion.24/ and on the basis of public works project impact data col- lected and analyzed in a previous EDA study. 25/ i n developing these data, an effort was made to take into account increases in construction costs since completion of the projects included in the evaluation sample. It should also be noted that as part of the LPW II grant application process, grantees were asked to esti- mate the direct employment impact of their projects. These esti- mates have proven to be optimistic in the past and the accuracy of current employment numbers will be verified by the extensive em- ployment reports of LPW grantees . 26/ 2 3/ A March 1977 Congressional Budget Office (CBO) paper, "Short- run Measures to Stimulate the Economy," estimated that approx- imately 34,000 jobs would be created per $1 billion of LPW spending assuming no "substitution" effect. Assuming a 25 percent substitution rate, CBO estimated roughly 19,000 jobs would be created for the same expenditure. 24/ George Vernez, et al., "Regional Cycles and Employment Effects of Public Works Investment," (Santa Monica, California: Rand Corporation, January 1977).. pp. xiii, 127-128. 25 / Anthony J. Sulvetta and Norman L. Thompson, "An Evaluation of the Public Works Impact Program (PWIP) " (Washington, D.C.: U. S. Department of Commerce, Economic Development Adminis- tration, April 1975) . 26 / Based on data provided by recipients of 8,294 of the 8,555 LPW II projects, representing $3.9 billion, or 97 percent, of the $4 billion expenditures, it has been estimated that 234,450 person-years of direct employment will be created under the Round II program. Applying these figures to the $2 billion LPW I expenditures results in a total LPW estimate of approximately 350,000 person-years of direct employment. Of these 350,000 person-years, grant recipients' estimates in- dicate that 166,000 or 47.4 percent will be for skilled con- struction workers; 160,000 of 45.7 percent for unskilled wor- kers; and 24,000 or 6.9 percent for clerical and other admin- istrative employees. - 62 - Using data from evaluations of somewhat comparable public works projects, as well as estimating techniques and unpublished Bureau of Labor Statistics construction data, Rand Corporation and EDA staff have conducted research that suggests the following direct employment impacts for the LPW Program. Basis Estimate • Rand procedures -- 108,000 person-years • EDA procedures -- 113,000 person-years The Rand Corporation, using econometric procedures, estimates that 2.7 to 3.0 additional induced and indirect person-years of employ- ment are generated for each on-site person-year generated. ±1/ Thus, it can be estimated that an additional 291,600 to 339,000 indirect and induced person-years of employment will be generated by LPW I and II. In the case of indirect employment 1.1 person- years in supply industries are created for each $100,000 expended for construction, 2_8/ the $6 billion expenditure can be expected to produce 66,000 person-years. Thus, of the 291,600 to 339,000 indirect and induced person-years of employment estimated, 66,000 can be considered indirect and the remainder induced. Based on the above estimates, the overall job generation impact of the LPW Program can be characterized as follows: Type of Range of Employment Person- Years Best Estimate • direct — 108,000 to 113,000 — 110,000 person-years • indirect -- 66,000_/ -- 66,000 person-years • induced — 226, 000 to 273,000 -- 249,000 person-years • total — 400,000 to 452,000 — 425,000 person-years 27 / Vernez, et al., pp. xv, 34 3-354. Projects funded under the LPW Program and projects included in the Rand-conducted ana- lysis are not strictly comparable. However, the employment estimates derived above are believed to be reasonable approx- imations of the overall induced and indirect job impact of the $6 billion LPW Program. 28 / "1967 Input-Output Table," Survey of Current Business , Vol. 54, No. 2 (February 1974), pp. 28-56. 29 / As explained in the preceding page, indirect employment is calculated on the basis of LPW expenditures, which total $6 billion. Since there is no range of expenditures, the in- direct person-years estimate cannot be presented in the form of a range like the other estimates. - 63 - Assuming this short-term employment impact of at least 425,000 person-years, the EDA budget cost per person-year is approx- imately $14,000. However, in considering these estimates, it is important to recognize that they do not reflect the long-term employment impacts of LPW projects, which can only be determined over the course of time as such impacts materialize. These impacts, which will vary considerably among project types, will primarily be in the form of additional permanent private sector jobs facilitated or stimulated by infrastructure improvements financed through the LPW Program. The $6 billion LPW Program, particularly LPW II, stimulated the expenditure of an additional $1.2 billion by other sources in support of LPW projects. Since these funds were expended as a direct result of the LPW Program, the employment they generated should be included in any comprehensive accounting of the employment impacts of the program. However, there is a strong probability that a substantial proportion of these "other" funds would have been spent anyway -- although perhaps on less labor intensive activities and in economically healthier areas. Therefore, while this additional expenditure will generate some employment, it is very difficult to estimate the number of new net person-years that will be created. Con- sequently, this employment is not included in the person-year estimates presented above-iP/ As discussed in Chapter Four, full-scale evaluations of LPW I and II are underway and will ultimately yield more reliable data on their employment impacts. These evaluations will also address to the extent possible the degree to which the LPW jobs simply replaced jobs that would have been created by local expenditures, either public or private, in the absence of Federal funding. At this time, however, only a rough estimate of the employment generation impact of the more than 10,000 projects funded under the $6 billion LPW Program between December 19 76 and September 19 77 can be given. As the implementation of the LPW Program progresses, more refined employment estimates will be made using actual project data, which is being collected in conjunction with the Agency's evaluation efforts. 2 . Composition of Employment Analysis of past public works projects indicates that 52.5 percent of these person-years will be for skilled workers; 41.1 percent for unskilled workers; and 6.4 per- 30 / Including the $1.2 billion in funds from other sources in estimating the LPW Program's employment generation impact results in an estimate of approximately 510,000 person-years of direct, indirect, and induced employment, - 64 - cent for clerical and other administrative employees. Evalua- tions of somewhat comparable past projects also suggest that approximately 35 percent of the on-site jobs will be filled by previously unemployed persons. 3. Timing of Employment In addition to determining the overall period during which employment is generated, it is important to consider the timing of employment impacts within that three-and-a-half year period. How many person-years of employment will be generated in Fiscal Year 1979, for example? This is an area where no established approach or data base exists. For purposes of this discussion, estimates of the timing of employment impacts are calculated on the basis of the expected LPW fund disbursement pattern, which was derived from past experience with public works projects and LPW grant recipients' estimates of project construction duration. Thus, the number of person-years of employment predicted for FY 19 79 is based on the level of disbursements expected that year. Since disbursements transpire subsequent to actual expenditures, the timing estimates resulting from this approach should be viewed as conservative. As indicated above, the employment impact of the LPW Program began in March 1977 and is expected to continue at least through December 19 80. Based on what is considered to be a conservative projection of annual LPW disbursements, the timing of the 425,000 person-years of employment can be roughly estimated as follows: • FY 1977 (through 9/30/77) — 41,000 person-years • FY 1978 (10/1/77 - 9/30/78) — 184,000 person-years • FY 1979 (10/1/73 - 9/30/79) — 142,000 person-years • FY 1930 (10/1/79 - 9/30/80) — 45,000 person-years • FY 1981 (10/1/80 - 12/31/80) — 13,000 person-years C. LPW FACILITIES 1. Types of Projects There are two primary ways of classifying types of public works projects: by project function and by type of work involved in developing the project. Tables 9 and 10 summarize LPW I and - 65 - LPW II projects by the function they fulfill. Table 9 divides the projects into three basic categories: direct economic development infrastructure; general purpose government and related facilities; and general public amenities. The first is of particular interest to EDA because the projects it covers involve infrastructure of the type funded under EDA's regular long-term economic development programs. Through construction of industrial parks, port facilities, streets and roads, and the other projects included in this category, the fiscal stimulus short-term employment objectives of the LPW legislation are realized concurrent with the provision of facilities that will stimulate and facilitate the generation of permanent employment in the private sector. Under LPW I, these types of projects constituted 45 percent of the LPW I funding, while the local selection process utilized under LPW II resulted in increasing the proportion of funding for such projects to 48 percent. Table 10 provides a more detailed breakdown of the types of LPW I and II projects. As illustrated by that table, there was little difference in the types of projects funded under the two rounds of the LPW Program. Proportionately, schools received less funding under LPW II and cultural and recreational facili- ties more, while water/sewer projects with their potential long-term development impacts represented the largest single category of funding under both rounds. The kinds of projects funded under both LPW I and II varied somewhat by type of applicant. Since the variance under LPW II reflects more accurately the priorities of the different types of applicants, it provides greater insight into the perceived needs of various types of government. Table 11 provides summary data on the LPW II funding pattern which suggests, for example, that State and county governments place much greater emphasis on general government and related facilities than city/town governments, which appear to place greater priority on infrastructure directly related to economic development. A more in-depth examination reveals that under LPW II approximately 50 percent of the funds received by State governments were used to finance transportation, education, and public safety projects. County governments shared an emphasis on transportation projects, but differed from State governments in that municipal office buildings accounted for more than 25 percent of the LPW II funding they received. Cities and towns, on the other hand, used almost 30 percent of their LPW II funding to support water, sewer, and other utility projects. However, they too expended a substantial proportion -- approximately 25 percent -- of their LPW II funds for transportation projects. As would be expected, the vast majority of school district projects were educational facilities, although some water/sewer lines and roads to service schools - 66 - were included. Almost half of the special purpose authority fund- ing fell into the water/sewer/utilities category. The types of Indian projects funded are discussed separately in a later section of this chapter. In addition to reflecting differences between LPW I and LPW II and types of applicants, Tables 9, 10, and 11 reveal the LPW Program's contribution to public infrastructure. Through this legacy, the Program will continue to benefit residents of communities in every State and Territory for years to come. The other method of classifying public works -- by type of work involved -- was used to develop Table 12. This table compares LPW I and LPW II with respect to the nature of activity associated with the various projects. As it illus- trates, the major difference between the two rounds was that LPW I involved more new construction, while LPW II supported more rehabilitation and repair. In addition to being more labor intensive, rehabilitation/repair work is generally less expensive than new construction. The latter partially explains why this type of activity was more prevalent under LPW II when applicants were constrained within planning targets. Another benefit of rehabilitation/repair work in the context of the LPW Program is that it tends to be completed more rapidly than new construction, thus accelerating the fiscal stimulus provided by projects. As discussed in Chapter One, the LPW II legislation stipulated that projects resulting in the conservation of energy should be given priority and preference. Such projects could include redesign and retrofit of public facilities for energy conservation purposes and projects using alternative energy systems. In completing project application forms, applicants were asked to indicate if their projects included such measures, and these responses were considered by EDA in choosing between projects on which local officials could not reach agreement. However, these data have not yet been tabulated for the 8,555 projects funded and thus cannot be presented at this time. It is known that 560 LPW I applica- tions were revised prior to LPW II funding to include additional costs related to energy conservation. These additional costs totaled almost $38 million. In addition to providing needed public facilities, the LPW Program was used in some communities to preserve historic buildings. Under LPW I, $2.9 million in EDA funds were spent for this purpose, while almost $25 million went to finance such activities under LPW II. 7 - TABLE 9 SUMMARY OF LPW PROJECT TYPES NUMBER OF PROJECTS FUNDING LEVEL ($000) PROJECT FUNCTIONS LPW I LPW II LPW I LPW II Direct economic development infra- 1,047 4,352 $883,613 $1,923,790 structure (e.g., water/sewer (50.8%) (50.8%) (45.0%) (48.0%) facilities, trans- portation, miscel- laneous economic/ community develop- ment, and site development) General purpose government and 894 3,327 $974,638 $1,685,484 related facilities (e.g., government (43.4%) (38.8%) (49.7%) (42.0%) administration , public safety, education, commun- ity and social service, public health, and housing) General public amenities (e.g. , 121 876 $104,546 $ 403,170 park development, recreation, and ( 5.9%) (10.2%) ( 5.3%) (10.0%) cultural development) 2,062 8,555 $1,962,797 $4,012,444 TOTAL (100.0%)* (100.0%)* (100.0%) (100.0%) * Does not add due to rounding - 68 - TABLE 10 TYPES OF LPW PROJECTS PROJECT FUNCTIONS NUMBER OF PROJECTS LPW I LPW II FUNDING LEVEL ($000) LPW I LPW II Water/Sewer/ Utilities Transportation (e.g., streets and bridges) Education General Government Admin- istration (i.e., municipal office buildings) Cultural and Recreation (e.g., museums and gymnasiums ) Public safety (e.g., police and fire stations) Miscellaneous Economic/ Community Development (e.g., shell industrial buildings, warehouses) Community and Social Service (e.g. , community centers) Public Health (e.g., hospitals) Site Development (e.g., port facilities) Park Development Housing 549 (26.6%) 355 (17.2%) 327 (15.9%) 274 (13. 3%) 92 ( 4.5%) 137 ( 6.6%) 114 ( 5.5%) 97 ( 4.7%) 48 ( 2.3%) 29 ( 1.4%) 29 ( 1.4%) 11 ( 0.5%) 1,963 (22.9% 1,743 (20.4% 1,222 (14.3% 1,003 (11.7% 633 ( 7.4% 508 ( 5.9% 509 ( 6.0% 372 ( 4.3% 201 ( 2.4% 137 ( 1.6% 243 ( 2. 8% 21 ( 0.2% $457,810 (23. 3%) $285,068 (14.5%) $423,159 (21.6%) $277,650 (14.1%) $ 84,441 ( 4.3%) $101,526 ( 5.2%) $103,805 ( 5.3%) $100,406 ( 5.1%) $ 58,208 ( 3.0%) $ 36,929 ( 1.9%) $ 20,106 ( 1.0%) $ 13,689 ( 0.7%) $813,092 (20.3%) $783,363 (19.5%) $649,277 (16.2%) $448,796 (11.2%) $326,977 ( 8.1%) $255,835 ( 6.4%) $251,455 ( 6.3%) $170,455 ( 4.2%) $141,708 ( 3.5%) $ 75,882 ( 1.9%) $ 76,193 ( 1.9%) $ 19,413 ( 0.5%) TOTAL 2,062 (100.0%)* 8,555 (100.0%)* $1,962,797 (100.0%)* $4,012,446 (100.0%) Does not add due to rounding - 69 - TABLE 11 LPW II PROJECT CATEGORIES BY APPLICANT TYPE APPLICANT DIRECT ECONOMIC DEVELOPMENT INFRA- STRUCTURE ($000) GENERAL PURPOSE GOVERNMENT AND RELATED FACILITIES ($000) GENERAL PUBLIC AMENITIES ($000) TOTAL ($000) ALL APPLICANTS STATE COUNTY CITY/TOWN SCHOOL DISTRICT SPECIAL PURPOSE DISTRICT INDIAN $1,923,790* (48.0%) $ 148,793 (35.8%) $ 201,284 (36.9%) $1,464,449 (60.6%) $ 30,388 ( 6.0%) $ 38,750 (65.5%) $ 40,135 (39.3%) $1,685,484* (42.0%) $ 201,737 (49.2%) $ 307,653 (57.2%) $ 691,245 (29.0%) 424,316 '85.7%) $ 15,160 (26.0%) $ 45,574 (45.2%) $403,170* (10.0%) $ 61,531 (14.9%) $ 32,30! ( 6.0% $247,314 (10.3%) $ 41,322 ( 8.3%) $ 4,951 ( 8.5%; $ 15,720 (15.5%) $4,012,444* (100.0%) $ 412,061 (100.0%)* $ 541,245 (100.0%)* $2,403,00! (100.0%) $ 496,026 (100.0%) $ 58,861 (100.0%) $ 101,429 (100.0%) Does not add due to rounding - 70 - It is also believed that some LPW projects are addressing drought-related problems, such as inadequate water systems, in- cluding those with excessive leakage. However, no data are available at this time to substantiate or quantify this perception. 2. Indian Projects As reflected in Table 5 on page 36, Indian tribes and Native Alaskan villages received 3.7 percent of LPW I funds and 2.5 percent of LPW II funds for a total of approximately $175 million. Thus, Indian tribes and Native Alaska Villages -- which contain 2.6 percent of the Nation's residents -- received 2.9 percent of the total $6 billion LPW appropriation. A total of 382 projects were approved for 217 tribes and Indian communi- ties with an aggregate population of almost 470,000. x^lthough unemployment data for these tribes and communities are not available on a uniform basis, it is common knowledge that wide- spread unemployment and poverty afflict most if not all Indian communities. Consequently, there is no question that these particular LPW funds went to areas of greatest distress. It should be noted, however, that the LPW I scoring formula with its emphasis on unemployment rates resulted in excessive funds for Indian projects, even considering the extreme problems suffered by American Indians. To the extent possible, this overfunding was corrected under LPW II, since the calculation of Indian planning targets derived from the $100 million Indian set-aside took into account LPW I funding. The Indian projects funded with LPW I and II grants covered a wide range of activities. Under LPW II, community-administrative centers represented almost half of all Indian projects, as com- pared with less than 20 percent of all grantees' LPW II projects. This divergence is not surprising to EDA staff, who in recent years have acknowledged Indian tribes' needs for community centers and other community facilities as the initial founda- tion from which commercial and industrial development can evolve. Other LPW Indian projects included recreation/tourism faci- lities, vocational training centers, roads, streets, lighting, and health facilities. Under LPW II, a few tribes endorsed their planning targets to nearby non-Indian communities to help construct schools serving large number of Indian children. 3 . Territorial Projects 3oth the LPW I and the LPW II Acts directed that not less than one-half of one percent of the total LPW appropriation be granted for projects in a specified group of U.S. Territories. - 71 - TABLE 12 TYPE OF LPW WORK ACTIVITY WORK CATEGORY NUMBER OF PROJECTS LPW I LPW II PROJECT FUNDING LPW I LPW II New Construction New Structures Additions Rehabilitate and Repair Additions and Rehabilitate and Repair Demolition and Construction Demolition Miscellaneous Activities 1,135 (57.4%) 311 (15. 1%) 314 (15.2%) 142 ( 6.9%) 65 ( 3.2%) ( .0%) 44 ( 2.0%) 4,009 (46.9%) 1,229 (14.4%) 2,033 (24. 3%) 565 ( 6.6%) 253 ( 3.0%) 11 ( .1%) 400 ( 4.6%) $1,062,278 (61.9%) $ 250,951 (12. 8%) $ 264,417 (13.5%) $ 136,906 ( 7.0%) $1,990,884 (49.6%) $ 480,872 (12.0%) $ 9 5 2,821 (23. 7%) $ 297,457 ( 7.4%) $ 58,763 $ 137,670 ( 3.0%) ( 3.4%) 30 ( .0%) 36,329 ( 1.9%) 4,383 ( .1%) $ 148,352 ( 3.7%) TOTALS 2,062 (100. 0%} 8,555 (100.0%? $1,962,797 (100.0%)* $4,012,439 (100.0%) * Does not add due to rounding. - 72 - Under LPW I, the specified territories were American Samoa, Guam, and the Virgin Islands, a list that was expanded under LPW II to include the Trust Territory of the Pacific Islands. 31/ As a consequence, these Territories as a group received approxi- mately $10 million in projects under LPW I and $20 million under LPW II. Specifically, the Virgin Islands received $4,130 million under LPW I and $5,130 million under LPW II; Guam received $2,154 million under LPW I and $6,230 million under LPW II; the Trust Territory of the Pacific, which was not covered under the LPW I legislation, received $6,760 mil- lion under LPW II; and American Samoa received $3,9 23 million under LPW I and $1,779 million under LPW II. One of the major differences between the two rounds was that under the LPW I scoring approach the Territories received only seven projects, as compared to 36 under LPW II when each Territorial government was allowed to select priority projects within its planning target. 32/ This resulted in an average Territorial grant of $1,458,000 under LPW I and $555,000 under LPW II, with average total project costs of $1,500,000 and $564,000 respectively. As a result, the smaller LPW II projects will be completed more rapidly, thus stimulating the local economies more quickly in accordance with the LPW Program's fiscal stimulus objective. The other major variation between LPW I and LPW II projects was the substantial increase under LPW II in the number and funding of projects involving the construction or rehabilita- tion of infrastructure directly related to economic development. Under LPW I, general government and related facilities consti- tuted 67 percent of the Territorial projects and accounted for 30 percent of the Territorial funds. The remaining 20 percent of the LPW I funds went for economic development infrastructure (e.g., warehouses, port facilities, water/sewer and other utilities.) . The projects selected by Territorial governments under LPW II differed significantly. General government and related facilities dropped to 25 percent of the total projects and 40 percent of the LPW II funds. Conversely, economic development infrastructure increased to 61 percent 31 / The LPW I and II legislation mandated that for purposes of the Local Public Works Program Puerto Rico was to be treated in the same manner as the 50 States and the District of Columbia. 32 / Territorial planning targets were calculated on the basis of each Territory's percentage of the four Territories' total population, since inadequate unemployment data were available, - 73 of the total projects and approximately 40 percent of the total funds. ~A/ As indicated previously, these projects with direct links to economic development, will address not only areas' cyclical unemployment problems, but deep-seated structural unemployment problems as well. By providing the infrastructure necessary to retain and attract commercial and industrial firms, such projects stimulate or facilitate the creation of permanent employment opportunities in the private sector. 33 / It should be noted that the approximately $12 million in LPW II projects approved for the Trust Territory of the Pacific, which received no funds under LPW I, and Guam, which received only two LPW I projects totalling just over $2 million, were primarily responsible for the sharp increase in funding for economic development facilities in this category. - 74 - CHAPTER SIX PRELIMINARY CONCLUSIONS Final conclusions on the overall effectiveness and utility of both the LPW I and LPW II Programs must await the full implementation of the programs and completion of the com- prehensive evaluations of both efforts, which will provide data on the Programs' job generation, fiscal stimulus, and other effects. However, at this time, it is possible to draw a number of conclusions concerning specific aspects of the LPW I and II Programs. These conclusions relate not only to the capacity of Federal, State and local govern- ments to carry out the programs, but also to the achievement represented by the LPW II approach. • Expeditious Implementation . Among the unique features of both LPW I and II were the statutory deadlines for project review (60 days from receipt of application) and construction starts (90 days from project approval) Devised to enhance the fiscal stimulus impacts of LPW funding, these time constraints mandated unprecedented speed on the part of EDA and LPW grant recipients. Through its performance in conjunction with both programs, EDA demonstrated that a Federal agency can review and approve thousands of individual public works projects in a very short period of time. Under LPW II, the average processing time for applications was 44 days. Similarly, the record to date of LPW grant recipients makes it clear that State and local govern- ments are capable of accelerating pre-construction activities to have construction underway within 90 days of project approval. Although data are not yet available for LPW II, the average period between applicants' receipt of grant and start of construction under LPW I was 77 days. The difficulty and time consumed in enacting legislation and subsequently designing the effecting program suggests that the fiscal stimulus effort would be better served if there were standby authorizing legislation which would "trigger in" at the appropriate point of an economic downturn. • Multiple Objectives . Implementation of LPW I and II also demonstrated that the fiscal stimulus objectives can be successfully combined with other goals, such as the provision of needed public facilities and the generation of construction and related jobs. In addition, the program can be designed to accomplish other desirable public policy goals such as expanding minority participation in the economy. Although the - 75 - timeliness of the economic stimulus may be slightly reduced with a program that addresses multiple objec- tives, the performance of EDA and grant recipients under- LPW I and II proved that the time sacrifice is not significant. Targeted Funding . Perhaps the most significant conclusion that can be drawn to date as a result of the LPW II exper- ience is that it is possible to target fiscal stimulus funds to areas of greatest unemployment within each State and Territory. The system formulated for dis- tributing the $4 billion LPW II appropriation provided funding within each State only for areas above the State or national average unemployment rate, whichever was lower. Within that category, areas were apportioned funds on the basis of their unemployment rates and numbers of unemployed persons. Thus, in accordance with the program's objective of stimulating distressed economies, those areas within each State with the most severe unemployment problems received funding. This is reflected by the fact that even including States with overall unemployment rates below the national rate and excluding Indian reservations, the average unemployment rate for areas receiving LPW II projects was 9.4 percent. In the absence of the statutory requirement to expend at least $30 million in each State, the average unemploy- ment rate for areas receiving LPW II projects would have been considerably higher. Local Priorities . Another important conclusion emana- ting from the LPW II experience concerns project selec- tion. As demonstrated by the LPW II process, local project selection is feasible. Fears that local prioritizing would lead to frivolous projects or con- flicts that would impair jurisdictions' abilities to submit applications on a timely basis proved ground- less. To operate a fiscal stimulus public works program expeditiously, the Federal government does not have to resort to complicated project scoring procedures which really cannot be that selective or impose Washington's priorities on State and local communities. City and county officials and school boards can agree upon project priorities that reflect local needs. In turn, their agreement can form the basis for final project decisions at the Federal level. Involvem ent of Different Types of Government . LPW II also showed that a public works fiscal stimulus can involve each of the different types of government that admin- ister capital improvement programs. As reflected in Table 5, significant percentages of LPW II funds went - 76 - to State, county, and municipal governments, as well as school districts. Special purpose authorities and Indian tribes also received funding. It is believed that the LPW II system resulted in a relatively equitable distribution of funds among these types of government. However, any future programs would benefit from more detailed analyses of the varying public infrastructure responsibilities of these types of governments -- responsibilities that differ from State to State. Leverage Effect . Another conclusion that can be reached on the basis of current knowledge about the LPW II Program is that an allocation approach such as that employed under LPW II can generate other funding. Under LPW I, applicants generally requested funding for total project costs. Since applicants whose projects scored high enough received the full amount requested, other funds constituted less than 10 percent of total LPW I project costs. Conversely, under LPW II, applicants received allocations representing their fair share of the available funds. There was no relationship between the total costs of available projects and those alloca- tions. As a result, in many instances, the costs of priority projects exceeded allocations, leading applicants to use funds from other sources -- Federal, State, and local — to complete project financing. In total, more than $1 billion was contributed to LPW II projects from other sources, thus enhancing the program's fiscal stimulus effect. Supply of Useful Public Works Projects . Both LPW I and II provided convincing evidence that a residual stock of State and local public works needs exist which can be used in a fiscal stimulus effort. The 25,000 project applications received by EDA during the six-week period between October 26 and December 3, 19 76 were indicative of the demand for such projects, as were subsequent communications received by EDA from numerous other communities, counties, school districts, and special purpose authorities which for a variety of reasons failed to submit applications within the required time frame. In addition to demonstrating the residual stock of potential public works facilities, LPW I and II revealed the utilitarian nature of most of these projects. Such luxury facilities as swimming pools and tennis courts were rarely sought by eligible applicants. Instead, water, seWer, transportation, education, and other basic infrastructure facilities predominated. These facilities will serve area residents long after - 77 the construction and spending impacts they generate have terminated and, in many cases, will stimulate or facilitate local growth that will result in permanent jobs in the private sector. ® Potential Improvements . Although the majority of the legislative and administrative problems associated with the LPW I Program were eliminated under LPW II, implementa- tion of the $4 billion effort revealed areas in which there was room for further improvement in using public works as a fiscal stimulus tool. Prime among these problems were the deficiencies in unemployment data discussed in Chapter Three; the lack of uniform Federal coding of cities and townships discussed in Chapter Two; and the lesser handicap of having to rule out funding of certain priority public works projects because of inadequate time to assess their potentially adverse environmental effects, as briefly discussed in Chapter Three. Serious consideration should also be given to the impact of attaching time-consuming administrative requirements to a program with the objective of provid- ing a timely fiscal stimulus. A major improvement would be the availability of a permanent standby, program with regulations, procedures, and management systems ready to go upon passage of an appropriation. Project approval and construction and the accompanying fiscal stimulus impacts could begin much more rapidly than was possible under LPW I and II. Thus, even though the LPW Programs represented substantial improvements in timing over previous efforts, they clearly demonstrated the need for a standby countercyclical public works program. m Future Reports . As implementation of the LPW Program proceeds, additional information will be issued on the Program's progress. Updated data on the disbursement of funds and construction status, as well as implementation of the 10 percent minority business enterprise require- ment will be included. Through these reports and publication of the various studies related to the LPW Program, information on the Program's status and impact will continue to be available on a timely basis. The more in-depth assessment of the efficacy of the LPW Program and the use of public works as a fiscal stimulus tool must await the Program's completion and the compre- hensive evaluations which are underway. Many key questions must be answered before any final conclusions are drawn. - 78 - APPENDIX PROCEDURES FOR CALCULATING STATE ALLOCATIONS The following procedures explain the State allocation process under LPW II. The LPW I process was identical to that described under the second and third major headings, except that the minimum funding level was $10 million and the maximum level of $250 million was used in the case of California. The elements of the LPW II statutory State allocation formula are: $ 70 million - EDA error set-aside $100 million - Indian set-aside $ 15 million - Administrative $ 20 million - Territories 65 percent - numbers of unemployed 35 percent - unemployment rates over 6.5 percent 3/4 percent - minimum for all States SUBTRACTION OF SET-ASIDE The Error, Indian, Administrative and Territorial set-asides totaling $205 million were subtracted from the total $4 billion leaving $3,795 billion to be distributed among the States. COMPUTATION OF 6 5/3 5 SHARES Sixty-five percent of remaining funds ($2,466,750,000) were distributed among the 50 States, Puerto Rico and the District of Columbia according to the share of unemployed workers in a State relative to the total number of unemployed nationwide; 35 percent of the remaining funds ($1,328,250,000) were distributed to those States with an average unemployment rate above 6.5 percent based on their relative severity of unemployment. The share allocation (65 percent) and the severity allocation (35 percent) were based on the most recent 12-month data supplied by BLS which was March, 1976 through February, 1977, except for the three States using calendar year data (Montana, New Hampshire and North Dakota) . Computation of Share Allocation (65 percen t) • The 12-month average number of unemployed workers in each State was computed to obtain the average number of workers unemployed in the Nation for the same period. - 79 • The ratio of each State's average-number of unemployed to the Nation's unemployed was computed . • The ratios calculated were multiplied by the amount of the 65 percent set-aside. This established a preliminary share allocation for each State. Computation of Severity Allocation (35 percent) The base rate for the determination of eligibility for participation in the severity allocation was an unemploy- ment rate above 6.5 percent. The severity allocation to each State was then computed in the following manner: • The 12-month average unemployment rate for each State was computed (rounding to one decimal place) by totaling the number of unemployed in that State for each of the 12 most recent months and dividing by the sum of the labor force figures for those months . • All States with unemployment rates determined to be equal to or below 6.5 percent were deleted from consideration. • The difference between a State's unemployment rate and the base rate of 6.5 percent was com- puted . • The 12-month average State labor force was multiplied by the unemployment rate in excess of 6.5 percent to determine the number of unemployed within a State in excess of the number that would prevail at 6.5 percent. • The excess unemployed in all States as determined above was totaled. • A ratio of the above two figures was established. • The total amount of the 35 percent severity alloca- tion was then multiplied by each State's ratio. DETERMINATION OF STATE'S TOTAL ALLOCATION, SUBJECT TO STATUTORY MINIMUM AND MAXIMUM REQUIREMENTS If the total of funds for each State allocation under share (65 percent) and severity (35 percent) was less than $30 million, two situations were possible. - 80 - • If a State received no funds under the severity allocation (35 percent), the State's share alloca- tion (65 percent) was increased to $30 million, the amount set-aside for the share allocation nationally was reduced by this amount, and the State was temporarily dropped from further consideration. • If a State received funds under the severity alloca- tion, but the sum of the State's share and severity allocation was less than $30 million, the State's share allocation was increased so that the total allocation equalled $30 million and this increased amount was removed from the funds available for allocation under the share formula for the country. The State was removed from further consideration. The number of unemployed associated with those States identified above was then totaled and this amount was then subtracted from the total number unemployed in the Nation. This figure became the basis for computing the final share allocation for those States not identified above. The share allocation for States above the statutory minimum was then recomputed. (NOTE: At this point, the share alloca- tion formula excluded State unemployment data for those States receiving the statutory minimum) . The result of the adjustment for the minimum States was that no State received the maximum amount allowed ($500 million) . Share and severity allocations were totaled, by State, to provide basic State allocations. Final allocations were checked to insure that no State which was allocated the minimum amount under the preliminary allocation process, described above, would be entitled to funds in excess of statutory minimum under the final alloca- tion procedure. EXCEPTIONS - THE PELL AMENDMENT The Pell Amendment to the legislation incorporated a hold- harmless provision in the legislation. It guarantees States affected by changes to the BLS benchmarking pro- cedures the same percentage of funds they received under LPW I. The only State affected by this provision was Rhode Island. The provision was implemented by applying 11 - the percentage to $3,795 billion. The result was allocated to Rhode Island. A subsequent policy decision was made to apply that percentage to the $4 billion. This change was made after the State allocations were made and the approxi- mately $1 million added came from fallout funds reapportioned by the Assistant Secretary. CALCULATION OF $6 BILLION STATE ALLOCATIONS The sum of the State's total LPW I planning allocation and its LPW II allocation equals the total $6 billion State allocation. Calculation of $6 Billion State Allocations for Eligible Areas The dollar worth of all previously approved non-State government projects in areas which are ineligible for LPW II (areas with unemployment rates below 6.5 percent of the State average, whichever is lower) , approved Indian projects and the State's pocket of poverty set-aside was subtracted from the total $6 billion State allocation to arrive at the $6 billion State planning target for eligible areas. This was done to avoid calculating planning targets on amounts of money that were larger than what actually existed for the State. - 82 - PENN ADD0070 c 14H24a .* ,^-&ibf ■I