The Economic Development Administration (EDA) provides grants and loans to state and local governments, nonprofit groups, and businesses. The agency spent $287 million in 2017.¹ Of the total, 13 percent was spent on salaries, benefits, and office expenses of EDA staff, and 87 percent was spent on grants and loans for economic development activities. The EDA has six regional offices across the country.

Even though it has a relatively small budget, the EDA has an expansive vision of its role in the economy. EDA's programs include:²

• Public works aid for "distressed communities to revitalize, expand, and upgrade their physical infrastructure to attract new industry, encourage business expansion, diversify local economies, and generate or retain long-term, private sector jobs and investment."
• Economic adjustment aid that "focuses on areas that have experienced or are under threat of serious structural damage to the underlying economic base."
• Planning aid to "support local organizations ... with long-term planning efforts."
• Technical assistance aid that "helps fill the knowledge and information gaps that may prevent leaders in the public and nonprofit sectors in distressed areas from making optimal decisions."
• Regional innovation aid to spur "capacity-building activities by creating and expanding cluster-focused proof-of-concept and commercialization programs and early-stage seed capital funds."
• Trade adjustment aid to "strengthen the competitiveness of American companies that have lost domestic sales and employment because of increased imports."

The EDA had its origins in the 1960s, when many experts believed that top-down efforts from Washington could skillfully revitalize distressed communities and regional economies. But that optimism about federal micromanagement has dissipated after five decades of failed efforts by many federal agencies.

Business subsidies do not generate sustained economic growth. One reason is that subsidies are ultimately funded by higher taxes, which displace private-sector investment. Another reason is that areas which become dependent on subsidies can lose their competitive edge and stagnate, just as individuals on welfare tend to stagnate. A better way for distressed regions to spur growth is to reform state and local tax and regulatory policies to encourage entrepreneurship and private investment.

The EDA does not have any special abilities to revive growth that the states and private sector do not have. The federal funding of industrial parks, road projects, and other activities through the EDA just adds federal bureaucracy. The EDA also pits jurisdictions against one another in a zero-sum game when subsidies induce businesses to invest in some locations over others.

Congress should abolish the EDA.

Origins and Development

The forerunner of the Economic Development Administration was the Area Redevelopment Administration, which Congress created in 1961. The ARA was formed after years of legislative efforts by Sen. Paul Douglas (D-IL) and others who wanted to revive depressed areas of the country.

While President Franklin Roosevelt's New Deal had opened the door for federal intervention into local affairs, the creation of the ARA did not come without controversy. President Dwight Eisenhower twice vetoed ARA-oriented legislation, although he did support a more modest program.

Sen. Barry Goldwater (R-AZ) was a harsher critic. He viewed depressed areas as "perfectly normal to the economic cycle of American enterprise, and not in need of government intervention."³ Goldwater thought the notion of a federal redevelopment program was "an unwarranted invasion of private rights."⁴ He feared that federal intervention with such programs would "substitute for our free enterprise system the awful specter of the planned superstate."⁵

Sen. Wallace Bennett (R-UT) also opposed the ARA, arguing that depressed areas were capable of attracting investment with the right local economic policies.⁶ Lawmakers opposing the ARA viewed it as a step away from the Constitution's model of federalism, under which federal involvement in state and local affairs was minimal.

Senator Douglas wanted the ARA to direct aid to a small number of concentrated pockets of poverty. However, to obtain enough votes for passage, the ARA's mission was expanded. Instead of aiding just 50 distressed cities, the program would cover 1,000 counties—about one-third of all counties in the nation.⁷ A similar thing happened after the ARA's successor agency, the EDA, was founded—the number of jurisdictions qualifying for aid as "depressed" was expanded rapidly, with more than 80 percent of the nation eventually becoming eligible.⁸

Numerous jurisdictions in the 1960s resisted federal hand-outs. Less than half of ARA-designated areas sought assistance in the program's first year, and some counties protested receiving an ARA designation and were removed from the agency's list.⁹ But concerns about federal encroachment in local affairs evaporated over time, and today states and cities employ armies of lobbyists to secure federal grant money.

Once the ARA was created, members of Congress focused on steering money to their districts. In one instance, two incumbent congressmen were pitted against each other in an election for a consolidated district in West Virginia.¹⁰ The ARA allowed the candidate it favored to announce an ARA project that was located in the territory of the other candidate. Unfortunately for the ARA, the latter candidate won and became a critic of the agency.

Like many federal agencies that provide subsidies, the ARA (and later the EDA) became a vehicle to serve narrow political ends. A 1971 academic study of the ARA found that "the evidence suggests that the allocation of loans and grants was influenced more by non-economic factors (one of which could be political) than those of need or the criteria specified in the legislation."¹¹ A 1982 study found that the timing of EDA project announcements coincided with election periods.¹²

Long before the recent discussion of wasteful "earmarks," the ARA was criticized for similar waste in the 1960s. For example, the ARA financed the purchase of iceboxes for Eskimos and it gave $1.4 million to help build tourist facilities near a cancelled radio telescope in West Virginia.¹³

The ARA was criticized for exaggerating its effectiveness. The agency issued press releases and testified to Congress with inflated claims about the jobs it had created.¹⁴ The ARA said there would be large "multiplier effects" from government spending, even though government economists at the time shot down that theory.¹⁵

Despite the ARA's poor record, it was reborn as the EDA under the Public Works and Economic Development Act of 1965. The EDA combined the ARA's attempts at economic planning with public works subsidies, and eligibility was expanded.¹⁶ Typically, about two-thirds of EDA subsidies go to rural areas and one-third to urban areas.¹⁷

Federal politicians use the EDA as a tool to bestow benefits on constituents for projects that instead should be funded by state, local, or private sources. The EDA has always skillfully cultivated support on Capitol Hill. In 2008 a picture on the front page of the EDA's website showed Senate Majority Leader Harry Reid (D-NV) handing a $2 million check to the Harry Reid Research and Technology Park. In 2018 the EDA gave $1.8 million to the Thad Cochran Research, Technology, and Economic Development Park in Mississippi.¹⁸

Agency press releases in 2018 announced aid packages for a boat manufacturing company in Arkansas, an industrial park in Georgia, a railroad in Texas, and other projects. In each case, the local congressman has supplied comments to the EDA about how vital the project is for his or her district. The amounts of money for each award are relatively small, but that allows the EDA to spread cash widely to many congressional districts to buttress political support.

Reasons to Terminate

The EDA justifies its existence by pointing to the supposedly high returns earned on its investments. A 2017 brochure from EDA said that 615 of its recent projects "totaling $786.2 million, are expected to create and/or retain 226,393 jobs and attract nearly $29 billion in private investment."¹⁹ It is unknown what "attract" investment means, but the claim implies a massive return on dollars invested of 37 to 1.

The EDA wants us to believe that federal employees have found hundreds of investment deals with extraordinary high returns, which seems very unlikely. If such great opportunities had been available, then state and local governments, businesses, and venture capitalists would have surely jumped on them. Furthermore, if returns on these projects were so high, then we would not need federal involvement because the states and private sector would eagerly fund them.

The EDA has long been criticized for making excessive claims about job creation and investment returns. A 1980 academic study of the EDA, which was funded by the agency, found no sustained benefit of the agency's programs to assisted communities.²⁰ In 1986, an EDA technical assistance program claimed it had created 5,834 jobs, but Department of Commerce auditors concluded that the program had created only 83 jobs.²¹

In 1999, the Government Accountability Office (GAO) found that an EDA study claiming that its grants created jobs was meritless: "The results of EDA's study are highly dependent on the model specification used and that the study's definitive conclusions are unwarranted ... we obtained substantially different results that show that EDA expenditures did not have a significant effect.²² In a 2011 update, the GAO said, "We first reported on this issue in March 1999 and issued a subsequent report in October 2005 ... However, during our review we found that the agency still primarily relies on grantee self-reported data and conducts a limited number of site visits."²³

In 2000, a GAO report on the EDA's Trade Adjustment Assistance (TAA) program found that its impact was "inconclusive."²⁴ The report found that a remarkable 61 percent of the EDA money spent at regional TAA centers went for administrative costs, and only 39 percent went toward technical assistance for firms.

In 2001, the GAO concluded, "TAA-sponsored training is unlikely to complete the match between ... workers and the kinds of jobs available in the current economy ... while helping dislocated workers is the immediate challenge, it does not lead to—and may even detract  from—the efforts to achieve a more flexible and highly educated workforce and a more diversified economy."²⁵

In 2004, a GAO review of a decade of EDA grants made to Indian tribes for "enterprise projects" found that only 23 percent were profitable.²⁶ GAO said "most of these projects have created 10 or fewer jobs and did not attract direct private sector investment."²⁷

In 2014, a GAO study estimated that regional offices did not properly document 54 percent of their projects.²⁸ The report stated, "until EDA takes steps to ensure that all of its regional offices consistently and fully complete the standard template for all proposed projects considered for funding, EDA will not have adequate assurance that its funding decisions are consistent and transparent."²⁹

There are two types of EDA project. The first type includes apparently sensible projects such as roads, industrial parks, and buildings that likely add value to the economy. Cities, towns, and businesses could have funded these projects themselves. The second type includes low-value or wasteful projects that probably should not have been funded by anyone. These projects produce a loss to the economy.

Here is sampling of recent projects that are of the first type. EDA spent:

• $1 million to construct a building for a boat manufacturing company in Stone County, Arkansas.³⁰
• $510,790 to upgrade electrical gear at an industrial park in Forsyth, Georgia.³¹
• $2.1 million for water infrastructure for local businesses in Coopersville, Michigan.³²
• $1.5 million for railroad improvements in Mount Vernon, Texas.³³
• $615,673 for water and sewer improvements for an industrial area in Gothenburg, Nebraska.³⁴
• $537,288 for water and road improvements for an industrial park in Taylorville, Illinois.³⁵

Those projects are grants, but the EDA also hands out business loans. In recent months, it has provided loans to a women's salon in Durango, Colorado; to a maker of truck bumpers in Abilene, Kansas; to an ice cream–maker in Santa Monica, California; and to a hotel project in Carlsbad, New Mexico.

These sorts of grants and loans may generate positive returns for businesses and local communities, but they could have been funded locally and privately. Involving the federal government just adds the overhead expense of the EDA bureaucracy to the overall cost. Also, federal programs impose top-down regulations on subsidy recipients, so the local costs of these projects are likely higher than otherwise because of federal involvement. As an example of the bureaucratic costs, local governments must submit lengthy "development strategy" documents to the EDA in order to receive grants.³⁶

Another problem is that some EDA projects that seem useful end up being zero-sum efforts. In his study of the EDA, analyst David Bier discusses how the agency's grants can lure businesses to relocate from one place to another, which adds no net value to the U.S. economy.³⁷ For example, the EDA gave $2 million to Visalia, California, to expand an industrial park, but that induced a medical equipment manufacturer to move hundreds of jobs from elsewhere in the state to the Visalia location. So this EDA-induced effort created winners and losers, and probably no net value.

Here is a sampling of the second type of EDA spending. These projects and activities appear to be of low value or a pure waste of money:

• $35 million for a convention center in Cedar Rapids, Iowa.³⁸ The project had cost overruns and is now losing hundreds of thousands of dollars a year.³⁹
• $750,000 toward a $2.75 million "arts incubator" in the poor Pine Ridge Indian reservation in South Dakota.⁴⁰ The project was a strange priority, given the reservation's extreme poverty and lack of basic infrastructure, such as reliable electric power.
• $500,000 to assist minority and women-owned businesses get government contracts in New York.⁴¹ This is a zero-sum activity that favors some people over others.
• $1.7 million to the National Comedy Center in Jamestown, New York, for a project to resurrect dead comedians as holograms.⁴² Spending taxpayer money on this project is a joke.
• $8 million for a new business-loan program called Innovative Technologies in Manufacturing. Congress enacted the program in 2010, but EDA has found that there is little demand for it because businesses can borrow elsewhere.⁴³ 
• $3 million to resolve a cyberattack at EDA headquarters, including the costs of hiring a contractor and buying new equipment. Auditors found that the attack involved malware on six computers and could have been fixed with cheap antivirus software in a few weeks.⁴⁴
• $1.25 million for the Expertise Cosmetology Institute in Las Vegas, Nevada.⁴⁵ The area already has 17 cosmetology schools, making Senator Reid's claim that the project "will truly help the economy of the region" dubious.

The EDA has been known for wasteful spending from the beginning. It was a target of former senator William Proxmire, a legendary anti-pork Democrat from Wisconsin, known for his "Golden Fleece Awards." One classic boondoggle highlighted by Proxmire was a grant to Bedford, Indiana, to build replicas of the Great Wall of China and the Egyptian pyramid of Cheops. The EDA said that the grant "gave promise of bringing some economic development to a very poor part of Indiana."⁴⁶ The project was never completed, and there is an Internet page devoted to the "cursed pyramid."⁴⁷ Proxmire argued that the EDA "deserves to die," and he was right.

The Reagan administration tried to kill EDA in the 1980s. One of Reagan's EDA heads, Orson Swindle, labeled the agency a "congressional cookie jar." Swindle's experience made him realize that the private sector—not the federal bureaucracy—is better at fostering economic development. "The minute politics enters the equation, rational financial management and economic decision making goes out the window," he noted.⁴⁸

The Trump administration's 2019 federal budget proposes to eliminate the EDA because of its ineffectiveness and duplication of activities in other agencies. The budget says, "Multiple administrations have questioned the effectiveness of many of EDA's grant programs. In particular, both the Bush and Obama Administrations proposed to eliminate or drastically reduce EDA's public works grant program."⁴⁹

The administration is right about the duplication. The GAO identified 80 federal programs that provide economic development aid.⁵⁰ And the GAO identified 27 different federal agencies—one of which is the EDA—that provide funding for water infrastructure.⁵¹ The EDA publishes a "matrix of federal programs that can assist economic development strategies," which includes 135 programs.⁵²

Unfortunately, the agency has survived because members of Congress put a high value on subsidizing businesses in their districts. Concerns about budget deficits and constitutional federalism are pushed aside in favor of the immediate gratification of pleasing constituents. The EDA aids politicians by coordinating funding announcements with congressional offices and highlighting "success stories" on its website with photos of smiling aid recipients.

The $20 trillion American economy does not need a redundant $300 million "congressional cookie jar" to promote economic growth. Areas of the country that are economically depressed should reform their own state and local policies to spur entrepreneurship and attract private investment. Any jurisdiction that creates an inviting climate for businesses and skilled workers can prosper without federal government subsidies.

¹ Budget of the United States Government, Fiscal Year 2019, Appendix (Washington: Government Printing Office, 2018), pp. 182–83.

² Economic Development Administration, "Programs and Initiatives: EDA Programs," www.eda.gov/programs/eda-programs.

³ James L. Sundquist, Politics and Policy: The Eisenhower, Kennedy, and Johnson Years (Washington: The Brookings Institution, 1968), p. 65.

⁴ James L. Sundquist, Politics and Policy: The Eisenhower, Kennedy, and Johnson Years (Washington: The Brookings Institution, 1968).

⁵ Sar Levitan, Federal Aid to Depressed Areas (Baltimore: Johns Hopkins Press, 1964), pp. 22–23.

⁶ Sar Levitan, Federal Aid to Depressed Areas (Baltimore: Johns Hopkins Press, 1964), pp. 24–25.

⁷ William Spangar Peirce, Bureaucratic Failure and Public Expenditure (New York: Academic Press, 1981), p. 158.

⁸ Tracey Farrigan and Amy Glasmeier, "Economic Development Administration: Legislative History," Pennsylvania State University ("Poverty in America" project), undated, http://povertyinamerica.mit.edu.

⁹ Sar Levitan, Federal Aid to Depressed Areas (Baltimore: Johns Hopkins Press, 1964), pp. 67–69.

¹⁰ Sar Levitan, Federal Aid to Depressed Areas (Baltimore: Johns Hopkins Press, 1964), p. 46.

¹¹ A. Bruce Johnson, "Federal Aid and Area Redevelopment," Journal of Law and Economics 14, no. 1 (1971): 275–84.

¹² J. Theodore Anagnoson, "Federal Grant Agencies and Congressional Election Campaigns," American Journal of Political Science 26, no. 3 (1982): 547–61.

¹³ D. S. Greenberg, "Navy's Big Dish: Zooming Costs, Reduced Need, Bring End to Plans for Biggest Radio Telescope," Science, August 3, 1962, pp. 327–28.

¹⁴ Sar Levitan, Federal Aid to Depressed Areas (Baltimore: Johns Hopkins Press, 1964), p. 249.

¹⁵ Sar Levitan, Federal Aid to Depressed Areas (Baltimore: Johns Hopkins Press, 1964).

¹⁶ James L. Sundquist, Politics and Policy: The Eisenhower, Kennedy, and Johnson Years (Washington: The Brookings Institution, 1968), pp. 105–10.

¹⁷ Economic Development Administration, "EDA Performance Metrics," www.eda.gov/pdf/about/EDA-Performance.pdf.

¹⁸ Economic Development Administration, "U.S. Department of Commerce Invests $1.8 Million to Help Build Critical Industry Support Center at the Thad Cochran Research, Technology, and Economic Development Park in Mississippi," March 19, 2018.

¹⁹ Economic Development Administration, www.eda.gov/pdf/about/EDA-trifold-2017.pdf.

²⁰ Randolph C. Martin and Robert E. Graham, Jr., "The Impact of Economic Development Administration Programs: Some Empirical Evidence," Review of Economics and Statistics 62, no. 1 (1980): 52–62.

²¹ United Press International, "Proxmire's Golden Fleece Goes to Jobs Program," December 17, 1986.

²² Government Accountability Office, "Economic Development: Observations Regarding the Economic Development Administration's May 1998 Final Report on Its Public Works Program," RCED-99-11R, March 23, 1999, p. 3.

²³ Government Accountability Office, "Efficiency and Effectiveness of Fragmented Programs Are Unclear," GAO-11-872T, July 2011, pp. 9–11.

²⁴ Government Accountability Office, "Trade Adjustment Assistance: Impact of Federal Assistance to Firms Is Unclear," GAO-01-12, December 2000, pp. 5, 10.

²⁵ Government Accountability Office, "Trade Adjustment Assistance: Improvements Necessary, but Programs Cannot Solve Communities' Long-Term Problems," GAO-01-988T, July 20, 2001, p. 3.

²⁶ Government Accountability Office, "Indian Economic Development: Relationship to EDA Grants and Self-determination Contracting is Mixed," GAO-04-847, September 2004, pp. 4, 6.

²⁷ Government Accountability Office, "Indian Economic Development: Relationship to EDA Grants and Self-determination Contracting is Mixed," GAO-04-847, September 2004, p. 4.

²⁸ Government Accountability Office, "Documentation of Award Selection Decisions Could Be Improved," GAO-14-131, February 2014.

²⁹ Government Accountability Office, "Documentation of Award Selection Decisions Could Be Improved," GAO-14-131, February 2014.

³⁰ Economic Development Administration, "U.S. Department of Commerce Invests $1 Million to Support Manufacturing in Arkansas," March 19, 2018.

³¹ Economic Development Administration, "U.S. Department of Commerce Invests $510,790 for Infrastructure to Support Business Expansion in Georgia," March 6, 2018.

³² Economic Development Administration, "U.S. Department of Commerce Invests $2.1 Million to Make Water Infrastructure Improvements Needed to Support Dairy Processing and Manufacturing Businesses in Coopersville, Michigan," January 18, 2018.

³³ Economic Development Administration, "U.S. Department of Commerce Invests $1.5 Million to Make Critical Railroad Improvements Needed to Support Business Growth in Northeast Texas and Southwest Arkansas," January 18, 2018.

³⁴ Economic Development Administration, "U.S. Department of Commerce Invests $615,673 to Make Water Infrastructure Improvements Needed to Support Businesses Development in Gothenburg, Nebraska," January 4, 2018.

³⁵ Economic Development Administration, "U.S. Department of Commerce Invests $537,288 to Make Critical Infrastructure Improvements Needed to Support Business Growth in Taylorville, Illinois," January 4, 2018.

³⁶ For example, see the South Carolina Appalachian Council of Governments, "CEDS Update 2016: From Global Player to Global Leader," September 2016.

³⁷ David Bier, "The Case for Abolishing the Economic Development Administration: A Great Society Relic that Robs Peter to Pay Paul," Competitive Enterprise Institute, September 2012.

³⁸ Rick Smith, "Critic Says Cedar Rapids Convention Center May not Deliver What's Expected," Cedar Rapids Gazette, September 18, 2011.  

³⁹ B. A. Morelli, "Cedar Rapids May Cover Losses at U.S. Cellular Center, Convention Center," Cedar Rapids Gazette, June 27, 2016. See also David Bier, "The Case for Abolishing the Economic Development Administration: A Great Society Relic that Robs Peter to Pay Paul," Competitive Enterprise Institute, September 2012.

⁴⁰ "Oglala Lakota Arts Center & Mobile Arts Center," http://oglalalakotaarts.org/cms.

⁴¹ Economic Development Administration, "Fiscal Year 2016 Annual Report."

⁴² Senator Jeff Flake, "Wastebook: Porkémon Go," January 2017, p. 10.

⁴³ Government Accountability Office, "Innovative Manufacturing: Commerce Has Continued Efforts to Create a Loan Guarantee Program, but Future Steps Are Uncertain," GAO-18-276R, February 8, 2018.

⁴⁴ Lisa Rien, "At Commerce Dept., False Alarm on Cyberattack Cost Almost $3 Million," Washington Post, July 14, 2013.

⁴⁵ Senator Jeff Flake, "Wastebook: The Farce Awakens," December 2015, p. 171.

⁴⁶ Kenneth Bredemeier and Ron Shaffer, "Indiana Pyramiders Build a Monument to Tax Dollars," Washington Post, October 5, 1981.

⁴⁷ RoadsideAmerica.com, "Cursed Pyramid Ruins," www.roadsideamerica.com/story/11213.

⁴⁸ Ruth Larson, "Development Unit Likely to Survive War on Commerce," Washington Times, October 12, 1995.

⁴⁹ Budget of the United States Government, Fiscal Year 2019, Major Savings and Reforms (Washington: Government Printing Office, 2018), p. 19.

⁵⁰ See Government Accountability Office, "Opportunities to Reduce Potential Duplication in Government Programs, Save Tax Dollars, and Enhance Revenue," GAO-11-318SP , March 2011, p. 42.

⁵¹ Government Accountability Office, "Freshwater Programs: Federal Agencies' Funding in the United States and Abroad," GAO-05-253, March 2005.

⁵² Matrix available at Economic Development Administration, "Featured EDI Resources," (see box), www.eda.gov/edi.