Federal Resources for State and Local Economic Development

Federal Resources for State and Local Economic Development

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March 22, 2021
Federal Resources for State and Local Economic Development
Congress has authorized over 130 economic development
Economic development may be an agency’s primary
programs, which are administered by over 20 departments
mission or it may be more indirectly related. The EDA is
and agencies. Federal resources for economic development
the only federal agency with economic development as its
are often delivered to state and local stakeholders through
exclusive mission. See Table 1 for selected agencies that
technical assistance and financial assistance programs. This
administer programs that are often considered integral to
In Focus provides an overview of major federal financial
economic development.
assistance programs; primarily administered through grants,
credit assistance, and tax policies.
Congress has authorized other agencies to administer
programs that create conditions to support economic
What Is Economic Development?
development as well. Such agencies include the
The term “economic development” lacks a common
Departments of Defense (DOD), Education (ED), Energy
definition and can refer both to a policy objective as well as
(DOE), Health and Human Services (HHS), Homeland
a set of tools to achieve that objective. The Department of
Security (DHS), the Interior (DOI), and Transportation
Commerce’s Economic Development Administration
(DOT), as well as the U.S. Environmental Protection
(EDA), describes economic development as creating
Agency (EPA) and other agencies. Programs administered
by these agencies are primarily authorized to address other
the conditions for economic growth and improved
purposes such as land use, transportation, education, health,
quality of life by expanding the capacity of
livability, and other amenities, conditions, or events. In
individuals, firms, and communities to maximize
terms of economic development, these programs may
the use of their talents and skills to support
incentivize private investment; contribute to a community’s
innovation, lower transaction costs, and responsibly
quality of place; improve individuals’ wellbeing, income, or
produce and trade valuable goods and services.
job prospects; or advance other related outcomes.
Economic development is also described as a long-term
Types of Assistance and Eligibility Criteria
process designed to create jobs and economic activity, and
Federal programs vary by purpose, eligibility criteria, and
as efforts to address equity and create wealth.
the types of activities supported. Some federal assistance is
targeted to specific scenarios or disruptions (e.g., assistance
State and Local Project Examples
in response to economic dislocations or shocks, or
State and local stakeholders may seek assistance for a wide
assistance for ongoing conditions of economic distress).
array of economic development activities, including initial
Federal programs often target a specific geographic area.
planning or implementation projects, as well as support for:
Some programs direct assistance to individuals, or specific
stakeholder groups or regions (e.g., low- and moderate-
 entrepreneurial assistance and business expansion,
income areas, rural areas, workers, students, small
acceleration, and incubation strategies;
businesses, regions with specific industries). Such programs
include HUD’s Community Development Block Grant,
 infrastructure, including water and sewer systems
grant programs administered by federal regional
improvements, industrial parks, skill-training facilities,
commissions, and others. With some exceptions, federal
and downtown and brownfields redevelopment;
economic development programs generally assist
businesses through credit assistance, technical assistance
 workforce development and training;
(e.g., business coaching, mentoring), or tax policies, rather
than through direct grants to businesses.
 disaster economic recovery and resiliency efforts; and
Considerations for Congress
 feasibility studies and capacity-building.
Continued interest in economic development may warrant
more analysis of the role of the federal government, the
How Are Federal Economic Development
level of assistance, and program coordination across
Resources Distributed?
agencies, as well as the accessibility and impact of
In recognition that economic development needs vary, from
programs. Congress may seek to evaluate the criteria,
place to place and from sector to sector, most federal
priorities, and allocation methodology for the overall
economic development programs assist with projects
portfolio of federal programs as well as for individual
developed from state and local plans, priorities, and input.
programs. Congress may consider options for addressing
Programs may offer flexibility to state and local
economic disparities, assisting lagging regions, and
stakeholders so that they may address a range of challenges
providing economic relief to individuals and businesses
and opportunities—including strategies designed to respond
to structural changes in the U.S. and regional economies.
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Federal Resources for State and Local Economic Development
adversely affected by disaster events and the COVID-19
pandemic through existing or new programs.
Table 1. Select Forms of Federal Financial Assistance that Support Economic Development
Financial
Assistance
Description and Role
Administering Federal Agency and Programs
Grant
Grants are forms of financial assistance that provide
 U.S. Department of Agriculture (USDA) Rural
Programs
money, property, services, or other items of value for
Development grant programs that support the construction or
goals authorized by Congress, including economic
development. Congress has approved categorical grants
renovation of community infrastructure and facilities; broadband
and block grants for federal economic development
planning and development; business development, credit, and
programs. Block grants general y ‘pass through’ funding
assistance; and other activities in rural communities.
to states, territories, and/or tribes, and awards are then
 The Economic Development Administration (EDA)
made to subrecipients to implement program
administers multiple economic development programs, including
objectives. Categorical grants have a more defined
purpose compared to block grants.
the Public Work, Economic Adjustment Assistance, Build to
Scale, Partnership Planning, and Local Technical Assistance grants.
Agencies al ocate funds using both competitive and
formula methods.
 Department of Housing and Urban Development (HUD)
administers the Community Development Block Grant (CDBG)
Depending on the statute, federal grants for economic
development may require recipients to contribute
program. A range of community and economic development
matching funds.
projects may be considered eligible activities under CDBG.
Cost-share requirements vary by program and may
 Department of Labor and other agencies administer
depend on criteria such as levels of economic distress,
workforce development and training grant programs.
type of applicant, and other conditions.
 Grant programs are administered by the four active federal
Unlike most credit programs, recipients of grant
regional commissions (the Appalachian Regional Commission
assistance are not required to repay funds.
(ARC), Denali Commission, Delta Regional Authority, and
See CRS Report R42769, Federal Grants-in-Aid
Northern Border Regional Commission) and are available to
Administration: A Primer, by Natalie Keegan.
eligible applicants in the congressional y determined regions.
Credit
Federal credit assistance programs expand access to
 USDA administers direct loans and loan guarantees for public
Assistance
capital through federal loan guarantee and direct loan
and private sector borrowers in rural areas.
Programs
programs.
(e.g., direct loans
 EDA, USDA, HUD, ARC, and other agencies make grants to

and loan
A loan guarantee may be defined as “a loan or
entities that administer revolving loan funds (RLFs) to
guarantees)
security on which the federal government has
provide credit assistance in underserved markets. See CRS In
removed or reduced a lender’s risk by pledging to
Focus IF11449, Economic Development Revolving Loan Funds (ED-
repay principal and interest in case of default by the
RLFs), by Julie M. Lawhorn.
borrower.”
 HUD's Section 108 loan guarantee program al ows local
 A direct loan is “a disbursement of funds by the
and state governments to leverage their CDBG al ocation as a
government to a nonfederal borrower under a
loan guarantee for large-scale development projects.
contract that requires the repayment of such funds
 Small Business Administration (SBA) programs provide
with or without interest.”
loans and loan guarantees through private lenders to assist smal
Many economic development credit assistance
businesses that are otherwise unable to access credit on
programs aim to address private market capital gaps.
reasonable terms. These programs are designed to promote
Credit programs may lend directly to borrowers or
competition in private markets.
they may pass capital through intermediary
 Department of the Treasury’s Community Development
organizations or financial institutions.
Financial Institutions (CDFI) Fund administers programs to
expand credit to development finance institutions, which then
provide credit and other services to underserved individuals and
communities.
Incentives
Tax policies (e.g., exemptions, preferential rates,
 The Treasury’s CDFI Fund certifies entities and designates areas
Through
credits) are a form of financial incentives that can be
for the New Markets Tax Credit program.
Tax Policies
designed to facilitate economic development objectives.
Federal tax policies may be designed to encourage
 The CDFI Fund also certifies areas (nominated by state
capital investment in low-income or economical y
governors) eligible for Opportunity Zone tax incentives.
distressed communities.
Sources: Compiled by CRS from agency information and other sources: 2 U.S.C. §661a(1) as noted in CRS Report R44193, Federal Credit
Programs: Comparing Fair Value and the Federal Credit Reform Act (FCRA), by Raj Gnanarajah; Congressional Budget Office, “Loan Guarantees:
Current Concerns and Alternatives for Control,” August 1978, as noted in CRS Report R42152, Loan Guarantees for Clean Energy Technologies:
Goals, Concerns, and Policy Options, by Phil ip Brown; Karl F. Seidman, Economic Development Finance (Thousand Oaks, CA: Sage Publications,
2005); and International Economic Development Council, Economic Development Reference Guide.
Notes: This table is not intended to be comprehensive. See also CRS Report R46683, Federal Resources for State and Local Economic
Development, by Julie M. Lawhorn; and https://www.eda.gov/files/edi/Federal-Economic-Development-assistance-Matrix.xlsx.

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Federal Resources for State and Local Economic Development

Julie M. Lawhorn, Analyst in Economic Development
Policy
IF11794

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