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How Should We Target Job Creation?

With all the hubbub around job creation it is easy to overlook the fact that the federal government did provide guidance on how best to geographically target funds for highway projects in the American Recovery and Reinvestment Act (ARRA). That law directs transportation agencies to place priority on “Economically Distressed Areas” for project selection of ARRA funds.

Ok, makes sense. It is natural to want to boost jobs in those communities that are suffering. Unfortunately, that specific policy is flawed, leading to unintended consequences.

The guidance is based on an “economically distressed” definition (albeit modified) from 1965’s Public Works and Economic Development Act. Specifically, the federal highway administration considers an ‘economically distressed area’ any county that maintained either:

  • A per capita income of 80 percent or less of the national average
  • An unemployment rate that is, for the most recent 24-month period, at least 1 percent greater than the national average

The first problem with this qualification system is an unintended preference towards non-metro counties. The primary culprit is the use of 2007 national per capita income comparisons without cost-of-living controls, which make lower-income those areas appear worse off than they may be. About two-thirds of our nation’s counties are non-metro, yet they make up three-quarters of those considered economically distressed.

The second problem was ARRA did not include any accountability for prioritizing investments towards economically distressed areas. Thus, whether federal roadway funding flows to these counties or not, there is no method to judge performance. This lack of comparable baselines or minimum thresholds creates empty rhetoric.

Steering investments towards economically distressed counties could easily be improved through more thoughtful policy construction. Adding a cost-of-living control would greatly balance qualifying areas, both for dense and rural locations. Also, including accountability clauses could steer more desired investments towards these areas.