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New Study Makes Case Against Economic Development Administration

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New Study Makes Case Against Economic Development Administration

Agency Creates Economic Waste and Harms Competition

WASHINGTON, D.C., Sept. 18, 2012 — It is the mission of the Economic Development Administration (EDA) “to lead the federal economic development agenda by promoting innovation and competitiveness” through community investments. But a new study by the Competitive Enterprise Institute reveals the EDA has incentivized economic waste, over-taxation, and the misallocation of valuable resources.

In “The Case for Abolishing the Economic Development Administration,” CEI Policy Analyst David Bier argues the EDA is valuable essentially only as a prop for politicians, who tout EDA grants as major accomplishments when running for re-election. EDA delivers little benefit to average Americans--and indeed, many grants have actually harmed innovation and market competition.

Bier provides the following examples:

• In 2011, EDA awarded $2 million to Visalia, Calif., to improve the Visalia Industrial District. The goal was to attract new businesses, and it worked: Manufacturer VWR soon relocated a warehouse in Brisbane, Calif., to the newly subsidized zone in Visalia. Jobs were created in Visalia, but even more jobs were lost in Brisbane.

• EDA awarded $35 million for construction of a convention center in Cedar Rapids, Iowa. After the city received the money, it used eminent domain authority to seize a private hotel for the construction. The city admitted that the convention center—unlike the private hotelwould not make money. In fact, the city's own projections showed that it would lose more than $1 million by its fifth year. 

• EDA encourages municipalities to create special “development taxes” on top of existing taxes to qualify for EDA matching grants. Pueblo, Colo., was granted an Economic Adjustment Strategies award for raising $88 million from taxpayers to meet an EDA matching grant.

“EDA claims its programs have proven successful, but a critical look reveals a different picture,” Bier writes. “In the four decades since its creation, EDA has funded professional football practice facilities, model pyramids, wine tasting rooms and other clearly wasteful projects.

“When EDA attempts to promote economic growth in one region of the United States or one sector of the economy, it does so at the expense of other regions or sectors. […] It is long past time the EDA was abolished." 

Read the full CEI study: “The Case for Abolishing the Economic Development Administration: A Great Society Relic That Robs Peter to Pay Paul"