Will EDA’s Recompete Pilot Program reach rural America?

Overview

As part of the CHIPS and Science Act, Congress authorized the Distressed Area Recompete Pilot Program (Recompete), a new, innovative place-based policy to support the economic transformation of the nation’s most distressed places. Based on the subsequent $200 million appropriated by Congress in the Consolidated Appropriations Act, 2023, the Economic Development Administration (EDA) opened up an initial round of applications due October 5th, 2023.

As rural places comprise some of the nation’s most distressed places—85 percent of the counties experiencing persistent poverty, for example, are non-metro—this analysis examines the opportunity that the Recompete program represents for rural America. We estimate that approximately 60 percent of the non-metro population in the U.S. lives in a place that is eligible for the program. Nearly half of all the geographic entities eligible for Recompete are non-metro, representing just over a quarter of the total Recompete-eligible population. As rural areas often face disadvantages when competing for scarce public resources, we offer recommendations to maximize the opportunity for these places.

Objectives of the Recompete Pilot Program

The Recompete program seeks to enable economic renewal in the most economically distressed places in the U.S. This new program incorporates several dimensions that, taken together, are quietly breathtaking in ambition. It seeks to attain population-level improvements in severely distressed places where turnarounds are exceptionally rare. Achieving such an improvement will require creating or expanding jobs while connecting local prime-age workers—who may have dropped out of the labor force—to those jobs. This is a novel and more complicated objective than most previous place-based policies and suggests that areas will need a combination of both place- and people-focused strategies. Yet the places where these investments will occur are generally short on governance capacity, with local governments limited in staff and financial resources.

The pilot program, based on legislation originally proposed by Representative Derek Kilmer (D-WA) from an analysis by Tim Bartik, recognizes that such an economic transformation in these places will require substantial, consistent, and flexible grants that are responsive to locally developed and locally led economic initiatives. Congress appropriated one-fifth of the $1 billion authorized for the program in the CHIPs and Science Act. Taking on this level of ambition with limited resources means that EDA is likely to award just 4-8 implementation grants in this initial iteration. It will be important for rural places to experience an equitable playing field as this new program rolls out.

Eligibility of distressed areas

The Recompete program uses a new standard for eligibility and success: the prime-age employment gap (PAEG). The PAEG is defined as the difference between the national five-year average prime-age (25-54 years of age) employment rate and the corresponding rate in the applying area. Rather than use the official unemployment rate, which misses people who have given up looking for work, the formula used to calculate PAEG focuses on the actual participation of prime-age adults in the labor force.

There are two types of eligible areas: Local Labor Markets (LLMs) and Local Communities (LCs). LLMs are single- or multi-county areas, comprising Metropolitan Statistical Areas, Micropolitan Statistical Areas, or commuting zones. LCs are either individual counties or incorporated towns that are not part of eligible LLMs yet meet the PAEG criteria. When five or more contiguous census tracts meet the PAEG criteria but are contained within an otherwise economically robust county or incorporated town, EDA defines those as “partially” eligible LCs. For our LC analysis, we combine the fully eligible and partially eligible LCs.

To be eligible for the program, LLMs must have a PAEG of at least 2.5 percent, and LCs must have a PAEG of at least 5 percent and a median annual household income of $75,000 or less. Additionally, all tribal lands and Pacific Ocean Territories are considered eligible LLMs.

How are rural places included?

To assess the inclusion of rural places, we applied the Office of Management and Budget’s (OMB) delineation of core-based statistical areas to identify the non-metro LLMs and Local Communities that EDA considers eligible in all fifty states and Puerto Rico.¹ Our analysis excludes tribal lands and Pacific Ocean Territories, which are all considered eligible LLMs; tribal lands do not neatly fit into state-county designations that are the basis for OMB’s delineations.

Local labor markets

Rural areas comprise a significant majority—83 percent—of the geographic share of the LLMs. These account for only 40 percent of the total population share of the eligible LLMs given their lower density of population. This is underscored by the enormous difference between average population sizes of the two types: The average metro LLM is over seven times the size of the average non-metro LLM.

Local communities

Around 39 percent of eligible and partially eligible LCs are non-metro, though they account for only 5.1 percent of the total population in eligible LCs. These non-metro LCs have an average population of just over 1,700 people, compared to more than 20,000 people in metro LCs.

Rural places are disproportionately eligible for Recompete. Nearly half of all eligible geographic entities are non-metro, comprising approximately 28 percent of the eligible Recompete population. This means the non-metro share of the Recompete-eligible population is twice the size of the non-metro share of the general population, which is almost 14 percent.

More staggeringly, using the outcomes of the analysis, we estimate that approximately 60 percent of the non-metro population in the U.S. lives in a Recompete-eligible place.² Given the substantial overlap between non-metro places and tribal lands, these estimates may even represent an undercount of eligible people in non-metro places.

Recompete Phase I

The EDA has split implementation into two phases. Phase 1 offers several options: Eligible areas can apply for a Strategy Development Grant ($250,000-$750,000), approval of a Recompete plan, or both.  An approved Recompete plan is a requirement for applying for an implementation grant in Phase 2.

The EDA intends to grant up to $12 million for the Strategy Development Grants and approve at least 20 Recompete plans during Phase 1. Though specific rules have yet to be published, EDA expects to award 4-8 implementation grants from the approved plans during Phase 2. Recipient LLMs and LCs are anticipated to receive an average of $50 million and $20 million, respectively, for five-year plans.

The Phase I strategy grants are designed to provide flexible funding for a wide range of predevelopment activities, including coordination of local stakeholders, research and data collection on the local economy, and the development of a plan to resolve the employment gap. The grants are explicitly reserved for applicants with promise but who need to do additional coordination and planning to be ready for implementation funding. If an applicant is pursuing a strategy development grant but not pursuing approval of a Recompete plan during this cycle, presumably they will seek plan approval and implementation grants in subsequent program years, pending continued Congressional appropriations.

Approval of Recompete plans will be judged on the level of understanding regarding the specific local conditions driving high rates of PAEG; a clear explanation of how potential investments will reduce the area’s PAEG; a commitment to equitable inclusion of underserved populations; a detailed inventory of valuable regional assets; a clearly identified service area within the region; and descriptions of planned local partnerships. Projects to be funded during an implementation grant can fall under the categories of workforce development, business and entrepreneur support, infrastructure, and additional technical assistance. Eligible uses will include infrastructure construction, governance improvements, educational and workforce training programs, remote worker training and connection, the provision of wraparound services (e.g., healthcare, child-care, and mobility to jobs), job placement services, and more.

Eligible applicants may include units of local governments, nonprofits, and economic development organizations. Applicants whose Recompete plans are approved will receive technical assistance ahead of the Phase 2 application process, whether or not they applied for a strategy development grant.

Key issues

Phase I contains important features responsive to the needs of distressed rural places. The Recompete program emphasizes local ownership and asset-driven development, and accurate local knowledge accounts for 25 percent of an applicant’s score. The strategy development grants and implementation grants are highly flexible, allowing awardees to allocate assets based on the elements of economic development that fit their community.

The generous lead time—the three-month period between opening and closing applications is unusually long—and the two-phase process demonstrates EDA’s recognition that eligible entities will generally have a lower level of capacity and experience in accessing federal investment. Having the flexibility, the time, and the technical assistance for planning and building the requisite local relationships and community buy-in are particularly important for rural communities, which face unique challenges related to capacity and governance, access to other capital, and other existing community resources. EDA will also incorporate external experts in its review process, which offers the opportunity to add rural development expertise to the process.

Rural places offer an important opportunity to test the fundamental rationales underlying Recompete’s design. Two fundamental elements provide the basis for Recompete’s design: (1) that substantial, consistent, flexible investment per capita is necessary to close the prime-age employment gap and (2) that a successful place-based block grant can enable a statistically significant impact at the population level for an entire geographic area.

Given the limited amount of funding and the limited number of strategy development and implementation grants, it is imperative that a representative portion of the strategy development and implementation grantees be rural. This means resisting the temptation to prioritize cost-benefit on a per-capita basis, which disadvantages rural places. Rather than seek to achieve “economies of scale” or optimize “return on investment,” Recompete must stay true to its fundamental underlying concept and ensure an adequate level of investment per person. Rural places should be an attractive option, especially at the current level of appropriations.

Several features must be sensitively handled so that they do not undermine the candidacy of rural places. No rule requires an applicant to be based in the community it seeks to serve, raising the possibility that an external organization could receive funding for a plan that fails to incorporate the voices of community members. Also, while Phase I has no matching requirement, EDA has suggested that Phase 2 applications that include matching funds may receive greater consideration, a potential disadvantage for rural communities, which are less likely to be able to find such funds.

EDA has also signaled the possibility of more frequently using cooperative agreements rather than standard grants as the implementation funding instrument. Cooperative agreements would allow EDA to be substantially involved in the project after awarding funds, but this also has the risk of creating reporting and other requirements for awardees that stress their level of capacity. While EDA may see it as an opportunity to remain close to a project and provide hands-on technical assistance, communities may experience it as an increase in requirements. In practical terms, it will be important that such a relationship does not translate into a lower degree of flexibility.

Recommendations

1. Ensure that rural applicants receive full and fair consideration that account for their unique challenges. EDA has a tricky task, to choose among severely distressed communities that in general will have limited capacity to put together long and detailed applications. Placing a high degree of importance on qualitative assessment will be important to level the playing field for rural communities. We suggest that at least half of the external reviewers—since non-metro entities comprise almost half of the eligible entities—be acknowledged experts in rural development and participate in in-person site visits. It will also be important to remove any competitive advantage for a funding match. Rural places offer an attractive option to authentically test the effectiveness of the concepts that underlie Recompete given the current level of funding appropriated to the program. The aspiration should be for non-metro areas to be adequately and fully represented in the final pool.

2. Expand the financial resources for Phase I awardees. Congress has appropriated one-fifth of the $1 billion authorized for Recompete. By fully funding the pilot, Congress can expand the sample size of awardees (which would broaden the evidence base) and ensure that awardees receive the level of resources adequate to test the concept. Recompete also offers an opportunity for the philanthropic community to make major investments and supplement these public resources.

Yet EDA itself can play an important role. It can use its convening power and credibility—and its stamp of approval—to attract investors who might be willing to complement its federal investment. EDA should consider hosting a marketplace or pitch event to introduce its Phase I awardees with approved Recompete plans and/or strategy development grants to state agencies, philanthropies, impact and social investors, family offices, investment banks and venture capitalists, and other various asset managers and providers of capital.

3. Allow flexibility to lengthen the implementation grants for non-metro Local Communities. The authorization in the CHIPs and Science Act stipulated a floor of $20 million for Recompete grants. This was in recognition of the substantial investment that will be necessary if communities and LLMs are to demonstrate population-level reduction in the PAEG. Yet almost 40 percent of the eligible and partially eligible LCs are non-metro (Figure 2). Most of those communities will be hard-pressed to absorb $20 million within a 5-year grant period. In these cases, the $20 million creates an instant barrier that could remove many of those communities from consideration, inadvertently excluding a large swath that the program is intended to reach and serve. Adding flexibility for those grants to extend to 10 years—the time frame of the original legislation—could be an immediate step to facilitate their inclusion. This would have the added benefit of enabling greater diversity within the sample set of communities being served through the pilot, adding to the learning.

Rather than restrict the minimum grant size, Congress should set a floor based on per capita prime-age population. EDA and stakeholders would be wise to ask Congress to amend the $20 million floor for an eligible Local Community under an appropriate threshold such as 10,000 people, providing flexibility to the Secretary to allow lower amounts appropriate to the size of a community. This would protect the integrity of the concept, ensuring large enough investment to achieve Recompete’s multiple objectives, while creating a fairer playing field for less densely populated eligible and partially eligible non-metro LCs, which average under 2,000 in population. This would also be a cost-effective way to expand the sample size of grantees and expand the learning to be gleaned from the pilot program. Instead of one $20 million grant, EDA could make four $5 million grants that would effectively test the concept in more places.