REGIONAL DEVELOPMENT POLICY IN THE UNITED STATES

The Roots of Regional Development: The Depression and the Origins of Government Development Policies

The U.S. federal government's responses to the Depression are usually divided into three periods: the Hoover administration and Roosevelt's first and second New Deals. Hoover's response was rather timid compared with Roosevelt's, but it contained some decidedly interventionist elements, including the Davis-Bacon Act, which mandated wages on federal public works projects, the Reconstruction Finance Corporation (which provided capital directly to financial institutions) and the Agricultural Credit Banks and Agricultural Marketing Board.

Hoover's laissez-faire reputation arises in part from a comparison with Roosevelt, but ir also from Hoover's dogged insistence on the limits of the federal government's ability to act. While Hoover recognized the benefits of expanded public works as a counter to economic decline, he insisted that rather than the federal government, state and local governments undertake these expenditures. Most of all Hoover believed that relief for the unemployed had to come from the private sector through the arrangements of voluntary associations; he resolutely resisted federal relief efforts, fearing they would rob people of their initiative. But Hoover's approval of some of the earliest business finance programs set the stage for later expansions in this area.

Roosevelt, on the other hand, had few qualms about the potential roles of the federal government. His activity in his first hundred days, in response to an economy that had all but collapsed by the time he took office, set the standard for action by which future presidents would be judged. Roosevelt came to office with few fixed ideas about what was needed, but one idea that he was clear about related to regional development: the creation of the Tennessee Valley Authority (TVA).

The story of TVA begins on a stretch of the Tennessee River in northern Alabama, where a rapid called Muscle Shoals became the site of a hydroelectric dam built during World War I by the federal government. After the dam was constructed, it was turned over to the American Cyanamid Corporation which provided power for a nitrates plant that supplied munitions makers (and later fertilizer). After the war the ownership of the Muscle Shoals Dam became a source of controversy. When the war ended, the question of whether it should be owned by the government or turned over to the private sector was debated repeatedly. An initial proposal to privatize the dam by turning the plant over to Henry Ford was fought by Republican Senator George Norris of Nebraska, who declared that turning the plant over to Ford would be the 'greatest gift ever bestowed upon mortal man since salvation made free the human race'⁽¹⁾.

Norris, who styled himself the 'fighting liberal,' was a confirmed prairie populist who believed passionately that the private utilities needed to be replaced by public ownership. He saw the Muscle Shoals Dam and the Tennessee River as the opportunity to prove the viability of his ideas for public power. His first bill to create a public power authority on the Tennessee was pocket-vetoed by Coolidge in 1928, and vetoed outright by Hoover in 1930. Roosevelt became the champion of public power in the Tennessee Valley as Hoover's opponent and as a way to take direct action to help a specific region..⁽²⁾

This support was not, in fact, surprising: for Roosevelt, like Norris, was already a firm believer in public power. On accepting the democratic nomination for governor in New York in 1928, Roosevelt launched an attack on his Republican opponent, Albert Ottinger, for supporting private power development⁽³⁾. The next year, Roosevelt's director of the Bureau of State Publicity sent him a memo suggesting the establishment of a committee that would go to Ontario to 'gather up a few bills for light supplied to householders in that province' for comparison with New York bills.⁽⁴⁾ The result was a pamphlet which was circulated throughout New York, that attributed the lower Ontario bills to the fact that 'In Ontario..., the Government develops electricity from water power, [while] in New York state the householders are at the mercy of privately owned utilities.'⁽⁵⁾

Not only was TVA one of the first policies of the New Deal, but it also contained a number of the essential elements of later regional development policy, most obviously it was the first federal agency that defined the territory of its jurisdiction by reference to functional, rather than political, boundaries.

The TVA area actually had two boundaries: one was the boundary of the river's watershed itself, which ran through parts of seven states, and the other was the boundary of the service territory of the authority's retail electric sales. The latter was substantially larger because the TVA became an aggressive marketer of electric power under its chairman, David Lielenthal; at one point it acquired the right to sell electricity in most of the state of Mississippi, even though this area was well outside the Tennessee River watershed. TVA's aggressive marketing of its power and its absorption of private utility market areas led to one of its most significant challenges: eighteen southern utilities brought suit to halt TVA from becoming a direct power supplier. The 'Eighteen Companies' suit, brought by Wendell Wilkie (Roosevelt's 1940 Republican opponent), was eventually won by TVA, but Wilkie's claim that the 'Tennessee River runs through seven states and drains the nation' became a rallying cry for Republicans opposed to the kinds of interventionist policies represented by TVA, a theme which echoed through later water resource projects⁽⁶⁾.

Another major feature of TVA was that it built dams. Dam building became a major feature of federal regional development efforts in the period from 1933 (the year TVA was founded) until the 1980s. Many of the TVA dams, first along the main stem of the river then along its tributaries, were built to provide hydroelectricity. It was Norris's fervent belief, one shared to a degree by both Roosevelt and Lielenthal, that public ownership of the utility would result in lower electric rates. TVA electric would become a benchmark against which private utility rates would be compared, thus demonstrating the advantage of public over private power. Finally, lower electricity rates would attract industry to the region, and both the chemical and pulp and paper industries located plants in the TVA service area during and after the war. Perhaps the most successful industry that was attracted was the Oak Ridge, Tennessee nuclear power research facilities, a key element of the Manhattan project and later one of three major federal nuclear research laboratories.

Dams provided other services. The Tennessee River was prone to flooding because of the heavy rains on the western slopes of the Smokies where it rises, and damaging floods had afflicted the valley for years. The TVA dams would control the flooding in cities like Chattanooga, Tennessee making the area safe for investment. By damming the river and then building canals and locks, the entire area of the Tennessee River could effectively be opened to the sea⁽⁷⁾. This role for the dams was simply an extension of the government's historic commitment to transportation systems.

TVA also became the first federal economic development agency as that would later come to be understood. It built whole towns for those who worked on its dams, and when the projects were completed, the towns were marketed as industrial sites, first by TVA and later by the states and counties. Local governments inherited the libraries that TVA had accumulated for its workers, and the agency went into the phosphate and nitrate fertilizer business to aid farmers in the region, and wound up with a staff to provide technical assistance to farmers not only on how to use the fertilizer but also on how to run their farms.

Finally, the form of TVA as a government institution was unique. As Roosevelt put it in announcing the TVA legislation, it was to be 'clothed with the power of government and possessed of the flexibility and initiative of private enterprise.' TVA was organizationally set apart from the rest of the federal government; it was not contained within any cabinet department, and had both public funding and its own earnings.

TVA was perhaps the most significant of the specifically regional policies of the New Deal, for its effects began almost immediately- the first dams were up and running within three years. But there were other regional development efforts that were part of larger New Deal programs. Dams were one of the most important. During the 1930s, the Grand Coulee and Bonneville dams were built on the Columbia River in Washington State, and a sister agency to TVA, the Bonneville Power Administration, was created to market the power from these massive projects. The first of the major dams on the Colorado, Boulder Dam (later the Hoover Dam since it was begun in his Administration) was built. Dam building became one of the most important elements of the entire public works strategy of the New Deal, but it was more than just the issue of employment during construction that was important. The dams provided electric power, water for irrigation, and, in some cases, navigation channels which amounted to the continuation of the great transportation developments of the nineteenth century. The Bureau of Reclamation in the Department of the Interior was the agency charged with selecting the sites and designing the dams in the west. It, along with TVA, became one of the most visible symbols of the New Deal: its labour force increased ten fold from 2,000 employees under Hoover to nearly 20,000 under Roosevelt (this did not include the people who actually built the dams; they were hired by private contractors). Instead of the engineers who had traditionally run the bureau, Interior Secretary Harold Ickes picked Mike Straus, a fellow newspaperman, who was, according to his own press release 'born with a gold-plated irrigation shovel ready to be placed in his hands'.⁽⁸⁾ Straus's job was not to design dams but to sell them- to Congress, the states, and the public. He devised numerous strategies to get dams built whatever the cost. He even got Woody Guthrie to compose more than thirty songs in honour of the bureau's work. He began the Grand Coulee Dam as a low dam, but once this part was built, he turned it into the higher, and much more expensive dam that Congress had not wanted to fund⁽⁹⁾.

Another spur to the construction of dams during the 1930s was the dust bowl. A cyclical change in the rainfall patterns on the Great Plains, combined with decades of improper cultivation techniques and poor soil conservation, created extremely dry conditions, and the topsoil in an area larger than the state of Virginia was literally blown away. With the topsoil went the farmers, headed west for California. California had already undertaken major dam projects to bring water to the desert regions along the coast where the city of Los Angeles was growing. The state had also developed plans for a mammoth Central Valley project, which was to tap the great rivers of the northern mountains and divert the water to the Central Valley for irrigation. When the flood of 'Okies' came west in search of greener pastures, they found plenty of land but not enough water. The federal government stepped in and essentially took over funding of the Central Valley project's major dam, the Shasta project along the Sacramento River. Together with other projects and immigrants from the Great Plains, this dam created the great agricultural industry of central California literally out of nothing.

The dam building of the New Deal and the years that followed was one of the critical regional development efforts because it brought to the American west, an area with little natural precipitation across the majority of its land mass, the water that was essential to both the development of the cities and agriculture. Quite simply, it made the modern west possible.

The public works programs of the New Deal are important not only for the bricks and mortar they left behind but also for the policy processes they spawned. It became apparent early in the Roosevelt administration that a major effort at public works expenditures could not be effectively administered without some form of planning. Charles Eliot, a planner with the National Capital Parks and Planning Commission, suggested the need for planning to Harold Ickes, with the result that the National Planning Board was created on 1 July 1933⁽¹⁰⁾.

The National Planning Board was to be both an idea generator and a coordinator of the public works activities of the federal agencies. In this it had mixed success, particularly in the coordination of federal agencies. Some agencies, such as the Department of the Interior, were far more inclined to be coordinated than others. The board was frequently at odds with the Army Corps of Engineers, which had its own direct relationship with Congress.

The National Planning Board had specific regional responsibilities as well. Regional offices were set up to work with the states in preparing the state development plans that the federal government required for federally funded public works projects. These state plans, which almost all states undertook, were funded primarily from state resources and some funds from the Works Progress Administration. The National Planning Board provided a modest amount of funds, but mostly it provided technical assistance from its regional offices⁽¹¹⁾. In these roles, it became a prototype for later federal regional development programs.

Over time, the National Planning Board became less involved in the direct planning of public works projects and more involved in research and economic studies. One of the most important of the New Deal research studies was the Report on the Economic Conditions of the South released in 1938, which would deepen the federal government's involvement with the economy of the south. In commissioning the study, Roosevelt proclaimed his conviction 'that the South presents right now the Nation's number one economic problem- the Nation's, not merely the South's'⁽¹²⁾.

The Mellett report, as it was known, was a thorough examination of the economic conditions of the south. It found excellent transportation facilities, including rail, rivers, and ports and favourable climate and soils. But it also found great poverty amid the natural wealth. The population was leading the nation in outmigration, with a significant decline of working-age adults. Income was only half that of the nation in prosperous times, and had significantly declined in the previous years. Southern state governments were starved for funds; they had less than a third of the property tax base of the north and an over-reliance on regressive sales taxes, whose base had been effectively gutted by the collapse of demand. The Mellet report called the low-income areas of the south a 'belt of sickness, misery and unnecessary death'⁽¹³⁾.

The report laid the blame for these appalling conditions on an outdated tenant-farmer system, a lack of manufacturing, absentee ownership of what manufacturing plants there were, and a general lack of capital and credit in the region. It also pointed the finger at the tariff and freight rate issues that southerners had long complained of.

The Report on the Economic Conditions of the South was important for two reasons. First, it was one of the earliest clear recognitions by the federal government of the problem of lagging regional development. The report itself did not lead to major federal policy initiatives, but it, along with TVA, marked a turning point in the concept of national economic policy- from national to regional.

The report resembled elements of TVA in another respect: it grew out of more than just concern for the health of a regional economy. As TVA had grown out of the progressive movement's fight against the utilities, the Mellet report grew out of Roosevelt's concerns with the south and southern politics. Though a New Yorker by birth and life-long residence, Roosevelt knew the South well. He had spent many months at the sanatorium for polio victims in Warm Springs, Georgia after he contracted the disease in 1921. The poverty he encountered there was a shock. To pass his time he experimented with crop diversification, hoping to find a way to help southern share-cropping farmers break out of the cotton-crop trap. He also noted that, while Georgia Power and Light was a supporter of the polio clinic, most of the homes in the area were still lit with kerosene lamps.⁽¹⁴⁾

One of the most difficult political dilemmas that Roosevelt faced, one he would share with his Democratic successors, was dealing with southern politicians. Though all were Democrats, they represented a southern society that was generally conservative and hostile to dramatic changes, particularly to the labour law changes that Roosevelt pushed⁽¹⁵⁾. The emergence of more moderate southern politicians, such as Senator Claude Pepper of Florida and Senator Hugo Black of Alabama and Texas Congressmen Maury Maverick and Lyndon Johnson, gave Roosevelt hope that he could find allies in the south who were more inclined to support his programs, particularly in the late 1930s when the bloom was well off the Roosevelt rose and victories in Congress were harder to come by than they had been during the first hundred days. The Mellett report was, therefore, as much a political manifesto for change, introduced on behalf of the southern liberals and moderates as it was a piece of economic policy analysis⁽¹⁶⁾.

The Mellett Report signalled that the federal government faced a wholesale restructuring of the south's economy if it were to succeed in addressing 'economic problem number one'. This was precisely the point of the southern liberals, and would have required an even more far-reaching regional development policy than anything contemplated or enacted to date. But the report backfired on the president and his allies. Southern conservatives portrayed the report as another insult to the south by the north. The congressional elections of 1938 saw the southern conservatives strength undiminished, and Roosevelt increasingly alienated from more moderate southern politicians. The actions that the report called for were never taken⁽¹⁷⁾.

These elements of the New Deal, the TVA, the dams, the National Planning Board's support of state planning, and the Mellett report may be considered the most significant from a specifically regional development perspective. Other elements of the New Deal were not directed at the needs of particular regions but were provided nationwide nonetheless. Each benefited some regions more than others. Probably the most important were the agricultural programs of the New Deal.

The suffering of farmers in the Depression was not limited to the dust bowl of the Great Plains. Farmers throughout the country found that either their production was ruined or no one could afford to buy what they produced. Major parts of the New Deal were directed at agriculture, including the Agricultural Assistance Act, efforts to improve soil conservation, the Farm Credit Administration, and a massive program of rural electrification.

In regional terms, there is little doubt about the importance of the New Deal agricultural programs for the south. The share-cropping system which had dominated the region since the end of the Civil War was essentially broken up by the acreage reduction programs under the Agricultural Assistance Act. By 1940, 30 per cent of sharecroppers and 12 per cent of other tenant farmers had left agriculture for good⁽¹⁸⁾. The farm credit programs provided credit to acquire the capital equipment necessary to farm the larger, more efficiently sized farms that were built out of the remainders of the share-cropping system. The agricultural programs had ultimately less dramatic, but no less important effects in the Great Plains and other areas.

The final part of the New Deal were structural reforms of the American economic system. While these reforms had less direct regional effects, they represented the government's willingness to intervene much more broadly in the functioning of the economic system than before, and this change itself became a major legacy of the New Deal in the formulation of later policies. These reforms included the Reconstruction Finance Administration (which in World War II would build and operate industrial facilities) the National Industrial Recovery Act (which sought to reorganize entire industrial market structures to reduce competition and increase prices), the reforms of the financial system (the separation of commercial and merchant banking by the Glass-Stegall Act and Federal Deposit Insurance), strengthening of the anti-trust laws (the Robinson-Patman Act), labor law reforms granting collective bargaining and other rights (the Wagner Act).

One other fundamental reform, which was neither explicitly nor implicitly regional in its effect, but that would ultimately have profound regional consequences was the Social Security Act. By making pensions available to citizens wherever they lived, the social security system laid part of the foundation for the growth in the retiree population of the southern tier of states after the war.

The Depression years thus produced in the federal government a powerful mix of regional awareness, political will (necessity), and policy tools which would echo through the next decades. World War II would provide the macroeconomic stimulus to finally lift the country out of the Depression and to create the conditions for a period of relatively sustained prosperity and growth in the post-war years. But not long into that period, less than a decade after the end of the war the problems of lagging regions began to be noticed again.

That story still lies ahead, but we cannot leave the Depression years without taking note of some developments at the state level that were also critical for later efforts at regional development. The federal government was by no means alone in responding to the economic crisis. State governments also developed innovative approaches to the problems of the Depression. One important step has already been mentioned: the preparation of state development plans. For many states, these provided the first systematic assessments of their economies and their future. Most of the devellopment plans were destined to lie on the shelf, and many have been lost, but the concept would be an important precedent for federal-state efforts in the years ahead.

Several states adopted New Deal-like reforms in the areas of labour laws, income security, and unemployment insurance. One of the most active was New York, under Governor Herbert Lehman, whose program became known as the 'Little New Deal'. Lehman also established state programs to fund local governments' public works projects, such as housing and transportation projects and established farm programs, including price supports and credit assistance⁽¹⁹⁾.

As Roosevelt's legatee, Lehman was also deeply involved in trying to establish a local version of TVA. He fought and ultimately won the battle begun by Roosevelt to giver the Public Service Commission the auhtority to regulate utilities. He also attempted to permit municipalities to own and operate their own electric utilities, but this initiative was beaten back in the Legislature by the private utilities. Another energy-related proposal prepared the way for a later regional development initiative that would affect both the United States and Canada. Both Lehman and Roosevelt were strong proponents of developing the hydro power and navigational potential of the St Lawrence River. In 1932, the United States and Canada concluded a treaty establishing a program of dam and lock development for the river, but it was not submitted to the Senate until 1934, where a combination of east-coast and southern senators fearing diversion of freight traffic down the St Lawrence defeated the treaty in Roosevelt's first major legislative setback. It would not be until the 1954 that the St. Lawrence Seaway Treaty was finally ratified by the Senate⁽²⁰⁾.

Among the state innovations during the Depression that would have lasting significance for regional development, the most important was Mississippi's Balance Agriculture with Industry (BAWI) program. Like all the southern states, Mississippi lagged well behind the rest of the nation in the proportion of its economy in manufacturing. The attempt to redress this imbalance led to one of the most important regional development tools of the postwar era, the industrial revenue bond.

BAWI was the brainchild of Hugh Lawson White, a wealthy lumberman from Columbia, Mississippi, who was also mayor of the city. When his lumber company ran into difficulty in the early years of the Depression, he created the Marion County Chamber of Commerce to bring new industry to the region. He went to Chicago and hired Felix Fantus, the head of a consulting engineering company that specialized in siting industrial plants, to find a large plant that would revive the Columbia economy. Fantus found the Reliance Manufacturing Company, an apparel maker, which agreed to locate in Columbia if $85,000 could be found to construct a building. White personally got citizens to provide the funds in the form of promissory notes, and he contributed a substantial amount from his own pocket.

This experience proved crucial to White when he ran for governor in 1931. He was unsuccessful in that election, but won in 1935 and made industrialization of Mississippi his top priority. White believed that Mississippi needed an advantage over the other southern states, all of which could promise cheap labor and land to manufacturers. White's answer lay in the Columbia experience: buildingsn for manufacturing businesses provided by the public. He introduced legislation to authorize counties and municipalities in Mississippi to 'erect, build, purchase, rent, or otherwise acquire industries, factories, and manufacturing enterprises.' A second measure allowed the municipalities to issue bonds backed by general revenues. There was also a $100,000 promotion appropriation for the BAWI bonding program⁽²¹⁾.

There was just one minor problem: the Mississippi constitution appeared to limit the ability to use public debt for private purposes. Indeed, many states had constitutional provisions that restricted the use of public debt for private purposes- provisions that were put in place after the nineteenth-century railroad financing disasters. White set his lawyers to work to find a legal basis for his brainchild, and they found it in the concept of 'general welfare' which North Dakota had used in the agricultural depression of the early 1920s to establish publicly-owned banks, grain elevators, warehouses, and even flour mills. When the BAWI legislation was passed in 1936, it cited the acute economic emergency that made it impossible for the government to supply needed public services for industrialization. The program survived a court challenge when the Mississippi Supreme Court upheld the use of the bond money in 1937 as a public purpose in a 'remarkable departure from the tradition of Mississippi jurisprudence'.⁽²²⁾

There were other obstacles besides the legal ones. Before the issue was finally settled by the court, the enthusiasm of the Mississippi government for the BAWI program was not sufficient to convince investors to purchase the newly minted bonds in the face of the constitutional issues. The first revenue bond issue actually had to be bought by a friend of the governor at par because nobody else would buy it.

White lost the 1939 election, and the BAWI program was allowed to die in 1940, when it had been scheduled to expire. But this program represented what would become, in one way or another, virtually all the states' response to economic hard times: attempts to diversify their economies and to promote economic growth through direct and indirect subsidies to businesses.

The idea of development bonds spread through the southern states in the latter part of the 1930s, but bonds were not the only device that the southern states were using. Mississippi also used Works ProgressAdministration funds to build industrial training schools and made them available to industrialists who moved in from the north. Under the terms offered to firms, mostly textile and clothing companies, employees (usually women) worked without pay while they were being trained in these centres.⁽²³⁾

The Depression was such a nationwide economic calamity that the governmental response has usually been seen entirely from a national perspective. The New Deal did fundamentally change the American government's capacity and willingness to actively intervene in the economy, and the results transformed the American economy permanently. But the federal government also began to address the economic development needs of specific regions as part of its program of national recovery, and its initiatives were accompanied by the efforts of many state governments to deal with their own problems. In these responses, government policy in the Depression began to become regional as well as national.

Federal Regional Development Policies from Truman to Eisenhower

At the close of World War II, the major economic issues facing the United States were clearly national in scope. The war had put an end to the Depression, but there was now great fear that reconversion to a peace-time economy might bring back the Depression. In 1946 Congress passed the Employment Act as an expression of commitment to avoiding another Depression in the conversion from a wartime economy and to maintaining the American economy as the ultimate backstop of the new international economic system.⁽²⁴⁾ Manufactured output in the United States had nearly doubled from 1940 to 1944, requiring a huge new investment in plant and equipment. The Reconstruction Finance Administration, originally created to bail out failing banks in the Depression, became the overseer of the Defense Plant Corporation which built and equipped industrial buildings throughout the country to be operated by private contractors. At the end of the war, these plants were essentially turned over to most of their occupants with little fuss.

One result of the enormous increase in manufacturing capacity during the war was the industrialization of large parts of the country that had not seen major industrial development, such as the steel mills in Utah.⁽²⁵⁾ The Los Angeles area, home to some of the key pioneers in American aviation, had become the centre for much of the aircraft production during the war, thus the foundations were laid for the location of what would become the aerospace industry within twenty years. The huge volume of shipbuilding needed to supply and fight a two-ocean war brought unprecedented expansion of ports from Mississippi⁽²⁶⁾ to Maine and California to Washington. By the time the war was over, there were more than 1,400 government-created and owned industrial plants with over 10,000 acres of land spread across the country.⁽²⁷⁾ In 1946, Congress established the Office of Area Development, Business, and Defense Services Administration within the Department of Commerce to aid reconversion. It had a staff of fifteen to provide research and technical assistance to states and communities throughout the country wishing to take over defence plants.

There were also legacies of the New Deal apparent in the postwar economy. The Tennessee Valley Authority's electric power became the locational determinant of the Oak Ridge National Laboratory.⁽²⁸⁾ Electricity from the Grand Coulee and Bonneville dams provided the key ingredient for the aluminum industry's location in the northwest, which was, in turn, a key ingredient supporting the Boeing Company of Seattle, another important centre of aircraft production. These Columbia River dams provided the electricity for the Hanford, Washington nuclear reservation. Together Oak Ridge and Hanford were the major manufacturing centres for the atomic bomb, and would become two of the centres of federal atomic research and the nuclear industry (both peaceful and military) in the years ahead.⁽²⁹⁾

Just as important as the spreading of industrialization was the spreading of the military itself. The number of men and women under arms rose from 1.8 million in 1940 to 12.1 million in 1945.⁽³⁰⁾ Huge new defence installations were constructed throughout the country; the majority were in the south and west because the combination of climate and available land made the regions ideally suited to the operation of year-round facilities.

For the most part, the years immediately after the end of World War II passed relatively quietly on the regional front. National attention was drawn much more to the great national and international crises of the period, and the expanding economy, combined with the new production capacity provided by the war, created few problems that were not masked by the return to peace and the conversion of an economy to meet pent-up consumer demands. As in the 1930s, problems in agriculture remained an issue, particularly the continuing problems of the small farmers in the south who were still undergoing their transition from the share-cropping system. These problems were large enough so that in 1947 Congress held hearings on the agricultural problems in the south, and developed legislation to provide small business loan guarantees and to assist with research and development for small businesses, particularly by making available some of the surplus industrial plant that had not yet found another use.⁽³¹⁾ The legislation did not pass at the time, but it contained the seeds of a number of ideas that would later bear fruit, including the Small Business Administration, which was created in 1954 (incorporating the remnants of the Reconstruction Finance Administration and the Small Defence Plants Administration), research assistance to small businesses, and the idea of 'incubator' facilities (empty buildings where new firms would share facilities). These proposals and programs were not specifically regional, but were a sign that the federal government intended to stay in the development business.

The first explicitly regional policy of the federal government in the postwar era came in March 1952 during the Korean War, though it was not motivated by economic development concerns. Defense Department planners had become concerned that, in the event of a nuclear war with the Soviet Union, American industry was too concentrated in the northeast.⁽³²⁾ Thus the decision was made to disperse the industrial base geographically. The department instituted a policy, known as Defense Manpower Policy 4, which allowed firms that were located in 'labour surplus areas' and that submitted bids to supply goods and services to the Pentagon to match the low bids for any specified procurement contract and to win the bid. Labour surplus areas were defined as labour market areas with unemployment greater than the national rate. Congress found the 'low bid' matching system too cumbersome, and the next year it instituted a 'set aside' policy under which a portion of procurement was set aside for bids from labour surplus areas, although it also forbade payment of more than the lowest competitive price merely for the purposes of 'economic dislocation'.⁽³³⁾

But the real impact of the Korean War on regional policy was less what happened during and more what happened after. As the war was winding down in 1954, slower economic growth became an issue between the Democratic Congress and the first Republican president in twenty years, Dwight Eisenhower. One of the most active critics of the administration on economic matters was Senator Paul Douglas of Illinois, a former economics professor and president of the American Economics Association, who had grown up deep in the Maine woods in one of the poorest counties in the state. In the spring of 1954 Douglas, in his capacity as a member of the Committee on the Economic Report,⁽³⁴⁾ was already calling the national economic condition a 'return of depression', and urging a program of tax cuts and public works to stimulate the economy. ⁽³⁵⁾ Later that year, while campaigning for re-election in Illinois, Douglas visited the coal-mining areas in the southern end of the state. National coal use had been declining steadily for some time, giving way to oil and electricity, and unemployment in the region was already high and still rising. During Douglas's campaign swing, it was announced that a major employer, a railroad repair yard, was closing. This combination of a declining natural resource industry and closure of a major employer would prove to be one of the key catalysts for the formation of much of major regional development policies in both the United States and Canada.

Douglas promised that he would sponsor the creation of a special federal program to aid distressed communities like those in southern Illinois. He made this proposal a centrepiece of his campaign, which he won quite handily. Upon returning to the Senate in 1955, Douglas introduced the first bill calling for the creation of an Area Redevelopment Administration (ARA). He later recalled the economic rationale that he believed underlay the need for such a program:

I had seen for years the attachment of the newly unemployed to their homes and communities. They would stay for months looking for work and hoping, like Micawber, that something would 'turn up'. It was not a satisfactory way of life. To classical economists deprecating our efforts, I quoted the words of Adam Smith himself, who in 1776 had sagely remarked that man 'is of all commodities the most difficult to be transported'

I also pointed out that the workers in these decaying towns and villages already had a large amount of social capital available for their use, which would have to be duplicated at great expense if they went to St. Louis or Detroit or Chicago. I believed that the amount of social capital in all its forms required for the average worker and his family was in fact far greater than the amount of capital required in the workplace.⁽³⁶⁾

The first Area Redevelopment bill proposed the establishment of a $100 million revolving fund for loans to industrial facilities locating in labour surplus areas, along with another $100 million in grants for water and sewer facilities, roads, and other public facilities. It also proposed the extension and expansion of unemployment insurance for workers in labour surplus areas who accepted retraining assistance. Douglas's proposal quickly caught on with his Democratic colleagues; Senate Majority Leader Lyndon Johnson announced a commitment to relieving the economic conditions of distressed areas soon after Douglas introduced his bill.⁽³⁷⁾

The Republicans were quick to respond, not to oppose, but to put forth their own proposals for regional development. Even before Douglas had introduced his bill, Senator J. Arthur Younger of California had submitted a bill to create a Department of Urbiculture to deal with the problems of cities. The somewhat fanciful neologism in the department title was explained by the senator: 'I couldn't find any other word, so I just made it up.'⁽³⁸⁾ Douglas's success in the 1954 election with the theme of assisting distressed areas helped persuade Eisenhower to include the following in his 1955 Economic Report: 'The federal government should be willing to assist depressed communities to develop workable solutions of their problems. Accordingly the Area Development Program of the Department of Commerce should be strengthened. It is also desirable to continue the policy of granting special tax amortization benefits for new defence facilities located in surplus labour areas'.⁽³⁹⁾

In October 1955 Arthur Burns, chairman of Eisenhower's Council of Economic Advisors, responded to Douglas's proposal with a proposal for a 'Domestic Point Four Program' which would provide 'technical assistance to aid the nation's chronically depressed areas'. The administration proposed to create a Federal Development Administration within the Department of Commerce to provide technical assistance and direct loans to businesses. However, there was no public works program in the administration proposal. After the Burns announcement, Republican Senator Ralph Flanders of Vermont said, 'Republicans have at least as much at stake as the Democrats in some program to aid these distressed situations. I'm sorry its political possibilities as well as its human possibilities were not recognized sooner by the Republicans'.⁽⁴⁰⁾ Despite this bipartisan support for the idea of federal action, no progress was made on either bill in 1955.

Eisenhower reiterated his commitment to addressing the needs of depressed areas in his 1956 State of the Union speech, in which he signalled a willingness to include some level of public works program:

We must help deal with the pockets of chronic unemployment that here and there mar the nation's general industrial prosperity. Economic changes in recent years have often been so rapid and far reaching that areas committed to a single local resource or industrial activity have found themselves temporarily deprived of their markets and their livelihood. Such conditions mean severe hardship for thousands of people as the slow process of adaptation to new circumstances goes on.

This process can be speeded up. Last year I authorized a major study of the problem to find additional steps to supplement existing steps for the redevelopment of areas of chronic unemployment. Recommendations will be submitted, designed to supplement with Federal technical and loan assistance local efforts to get on with this vital job. Improving such communities must, of course, remain the primary responsibility of the people living there and of their states. But a soundly conceived Federal partnership program can be of real assistance to them in their efforts.⁽⁴¹⁾

In the spring of 1956 the Senate held hearings on the Douglas bill. Douglas took the hearings to Johnson City, Illinois, in the heart of coal mining country, where support for his bill was voiced by both the coal industry and miners.⁽⁴²⁾ But back in Washington, the National Association of Manufacturers voiced its opposition to the bill, calling it 'a step toward the welfare state'. The United States Chamber of Commerce joined the manufacturers' association in opposing, arguing that aiding distressed areas should not be a federal responsibility but left to state and local governments.⁽⁴³⁾

The Senate passed the Douglas bill on a vote of 60-30 in July 1956, thus creating the Area Redevelopment Administration (ARA) with the two $100 million funds that Douglas had originally proposed. An additional $50 million fund for assistance to rural areas was added at the encouragement of a number of southern senators who persuaded Douglas that this would be a way of broadening the base of support for the bill. One other change from Douglas's 1954 bill removed the stipulation that limited assistance to the 500 poorest areas in the country; this change came at the insistence of Senator J. William Fulbright of Arkansas, who threatened to hold up passage if this provision and another which expanded the federal procurement preference of Defense Manpower Policy 4 were not removed.⁽⁴⁴⁾

The only major controversy in the congressional debate was where the new agency should be located in the federal bureaucracy. Douglas was adamant that the new agency should not be located in the Department of Commerce, which he believed was dominated by Republicans hostile to the very idea of government assistance to business. However, Republican senators wanted the agency within Commerce to avoid 'proliferating the bureaucracy.' A Republican floor amendment to the bill to place ARA within Commerce was defeated on a tie vote (Vice-President Richard Nixon was absent).

A few weeks before the Senate vote, the House Labour Committee reported the companion to the Douglas bill, but the path was blocked by the House Rules Committee, then dominated by an alliance of conservative Republicans and southern Democrats. For the Republicans, ARA looked too much like a return to the New Deal, which they were earnestly trying to put behind them. For the southern Democrats, federal aid to other areas was seen as threatening attempts by the Southern states to industrialize through a combination of low wages and tax incentives (described in more detail below). This alliance would be one of the heaviest burdens that the ARA idea- and eventually the agency itself- would have to bear

At the same time that ARA was losing the first round other regional development efforts were underway. The administration was not a fan of the Douglas bill, despite Republican support in the Senate. But the administration was pledged to some form of regional effort, and it came from Secretary of Agriculture Ezra Taft Benson, a conservative Mormon from Utah, who was increasingly concerned about the plight of small farmers in the midwest and west. In 1956 he established the Rural Development Program to help diversify the economic base of agricultural areas. Benson created the Rural Development Program as a follow up to a promise Eisenhower had made in the president's Special Message on Agriculture in January 1954. Most of that message had focused on reforms of the pricing and acreage programs, but it had also called for options the examination of options beyond traditional agricultural programs aimed at helping farm areas.

The Rural Development Program was a very modest effort, especially compared to what Senator Douglas had in mind. It had no director, but was overseen by a committee of officials within the Department of Agriculture chaired by the undersecretary. In fact, it was really no more than a directive to the Department of Agriculture-funded County Extension Services in each state to set up 'rural development program advisory committees'. These committees, comprised of state, university, farm, and other community leaders, would prepare Rural Development Plans for their counties.⁽⁴⁵⁾

A good example of how the program worked was the Rural Development Program for Washington County, Maine. A group from the University of Maine prepared an economic development strategy for Washington County working with the Washington County Rural Development Committee. The plan included a resource inventory report which involved the participation of more than 100 people over a period of two years. The Recreation Subcommittee produced a film to promote the region for tourism.⁽⁴⁶⁾

The Rural Development Program was the Eisenhower administration's first foray into regional development, but it was obviously not enough to satisfy the congressional desire for action. Thus, following defeat of the Douglas bill in the House Rules Committee and his own re-election in 1956, Eisenhower turned in 1957 to his own proposal for an Area Assistance Administration (AAA). This was a much smaller program than Douglas had envisioned, and contained many of the essential elements of the Douglas proposal, including technical assistance to small businesses, loans, and a public facilities program The crucial difference, however, was that the Eisenhower bill was to be funded at only $50 million, one-fifth of the amount that Douglas was proposing. These differences over funding and organizational form (Eisenhower's AAA would be in the Department of Commerce, Douglas's ARA would be an independent agency) between the administration bill and the Douglas bill would become the focal points of contention in the following years as Democrats and Republicans struggled not over the whether of regional development policy, but the how.

The year 1957 passed with the usual rounds of hearings on both the Douglas and the administration bills, with the interests who had lined up for and against the 1956 bill making return appearances. However, there was an important change in the composition of the Senate committee hearing the bill because of a realignment after the 1956 elections: Douglas was no longer Chair of the committee to which the bill was referred. Instead of going to the Labor Committee it was now referred to the Senate Banking Committee, whose Chair, Senator J. William Fulbright, was an avowed opponent of the idea of writing 'special legislation for a few special interests'⁽⁴⁷⁾. Douglas was still chair of the subcommittee to which the bill was referred, but he did not have a majority on the full committee, which was dominated by southern Democrats and Republicans.

By the spring of 1958, both the administration and the Douglas bills were still in the Senate Banking Committee, and Douglas was casting about for an ally to give him the votes he needed to spring the bill out of the full committee. He found his ally in a Republican from a state where economic development was a major issue, Senator Frederick G. Payne of Maine. Payne, a former governor who was ending his first term in the Senate, was looking ahead to an election campaign against Edmund S. Muskie. The first Democratic governor of Maine in more than fifty years, Muskie had made economic development of his state a major priority in his term as governor, and was now campaigning for a Senate seat. Payne had been a sponsor of the original administration bill, and he now introduced his own bill as a 'sincere effort at compromise' between the Douglas and the administration bills.⁽⁴⁸⁾

Payne's bill was actually much closer to Douglas's than to the administration's bill. Payne and Douglas negotiated the number of counties to be included in the study, so with this change and other minor modifications, Douglas was able to get the three Republican votes he needed on the Banking Committee to counter the three southern Democrats (Fulbright plus Robertson of Virginia and Frear of Delaware) and pass the bill out of committee in mid-April 1958 by a vote of 8-7.

One month later, the full Senate passed the bill, with relatively little controversy. Senator Prescott Bush of Connecticut (father of President George Bush) was joined by other northeastern senators upset at the increasing flight of the New England textile industry to the south, in pushing an amendment to forbid ARA assistance being used to 'pirate' plants (that, is to assist the relocation of plants from one area of the country to another). Since this is precisely what many of the sponsors of the bill were hoping would happen, the amendment failed passage. In July the House Banking Committee approved a companion bill whose only major difference was the lack of a limit of 300 on the number of counties that could qualify for aid. The full House approved the bill in August, and a week later the Senate receded and accepted the House version.

The obstacle to enactment was no longer the House Rules Committee; instead, it was the president. Eisenhower vetoed the bill on September 6, citing the fact that the public facilities program had no local matching requirement, that the criteria for eligibility were too loose, and that the program would have been placed in the Housing and Home Finance Agency rather than in the Commerce Department.⁽⁴⁹⁾ Also in the background were concerns over the cost of the bill in comparison with his own proposal and the hope that the 1957 recession would end and drain some of the enthusiasm for the Democratic bill.⁽⁵⁰⁾

After the 1958 elections, in which the idea of regional development became something of a partisan issue, a number of new players introduced regional development proposals.⁽⁵¹⁾ Three bills came from Pennsylvania, from two Democrats in the House and one from a Republican in the Senate. One of these bills was essentially the Douglas bill that Eisenhower had vetoed; it was introduced by Daniel Flood, who also represented a declining coal-mining region in the Wilkes-Barre area; the Douglas bill now became the Douglas-Flood bill. Undaunted by Eisenhower's opposition, Flood increased the authorized funding to $300 million in loans and $75 million in facilities grants. In a concession to the president, the maximum loan term was reduced from forty to thirty years.⁽⁵²⁾

The Douglas-Flood bill cleared the Senate Banking Committee in mid-March by a more comfortable 9-6 margin and the full Senate two weeks later. By May the House Banking Committee had also approved the bill, but Eisenhower's prediction that an improving economy would take some wind out of the ARA sails proved prescient as no floor action was scheduled for the bill in the remainder of 1959.

The next year was a presidential election year and the end of Eisenhower's term of office. Thus, the political dynamics changed, and the fate of the ARA bill was consigned to two tracks. The first was congressional. In April, after repeated attempts to secure the votes, the House Rules Committee failed to authorize a rule for floor action on a tie vote; the old alliance of southern Democrats and Republicans held this time. However, the growing attraction of the idea of area development in the presidential campaign, and the desire to stake out this issue as a Democratic one, provided Representative Flood and other supporters with an opportunity to secure from Speaker of the House Sam Rayburn an agreement to use an unusual procedure to get around the Rules Committee. House operating rules provided that on one Wednesday a month, designated Calendar Wednesday, the chair of a committee may bring a bill to the floor under a general debate rule. A vote on the bill had to be taken that day. When the bill was reported by the chair of the House Banking Committee, there ensued a lengthy string of parliamentary manoeuvres on both sides to keep a quorum from forming. But sufficient members were eventually rounded up and the bill passed by 202-184, with Republicans supplying 179 of the yea votes and Democrats 115 of the nays.⁽⁵³⁾

The bill that passed the House, and the Senate a week later, was a scaled back version of the original Douglas-Flood bill; the hope was that the new bill might be acceptable to Eisenhower. It authorized $251 million in loans and grants as provided in the House bill, rather than the $390 million that was in the Senate bill. The bill also acceded to the president's wishes that the funding should come from annual appropriations. All of the previous versions of the Douglas bill had authorized ARA to 'borrow' its funding directly from the Treasury, and the administration had objected that this would circumvent the normal appropriations process. Of course, that was exactly the point, for Douglas did not want ARA to be subject to continued shifts in funding.

The changes were not sufficient. Eisenhower vetoed the bill less than a week after it received final approval, and a week later the Senate fell eleven votes short of the number needed to override. The congressional track ended here for the moment, as attention shifted to the presidential election campaign of 1960. Regional development had clearly been established on the national agenda by both Democrats and Republicans, but it had not yet attracted adequate support to bridge the difference between those with ambitious plans and those with more limited plans for regional development.

NOTES TO CHAPTER 3

The Kennedy era: ARA

The leading Democratic contender for president in 1960, Senator John Kennedy of Massachusetts, had been the floor manager for the original Douglas bill in 1956, and was a stalwart supporter of the bill throughout its debates in the Senate. As the Douglas bill was winding its way through the closing days of legislative action, the campaign for the Democratic presidential nomination was heating up, and the prime battleground was another area that had been devastated by the declining fortunes of the coal industry: West Virginia.

In 1960 the presidential primaries were not yet the major determinant of the nomination. Only a few states even had primaries, and West Virginia's did not even determine who would get the delegates to the national convention. It was strictly a 'beauty contest'; delegates to the national convention would be selected later at the state convention. It was also a beauty contest that Kennedy actually hoped to avoid because of the time and expense. But he knew that his principal rival for the nomination from the Democratic liberals, Senator Hubert Humphrey of Minnesota, was likely to enter and force Kennedy to do likewise. For Kennedy, there were some advantages to entering West Virginia primary. The state was 97 per cent Protestant, and victory there would put to rest fears that the Catholic Kennedy could not win among Protestants.⁽⁵⁴⁾

The issue of area development came up during the primary campaign, but it did not divide Kennedy and Humphrey, who were both supporters of the Douglas bill. Humphrey referred repeatedly to the poor circumstances of his own youth, and noted that he was the only Democratic candidate who was not a millionaire.⁽⁵⁵⁾ In his West Virginia speeches, Kennedy meanwhile took on Richard Nixon and the Republicans' view that the economy 'could not be better': 'Let them tell that to the 4 million people who are out of work, to the 3 million Americans who must work part time. Let them tell that to the those who farm our farms, in our depressed areas, in our deserted textile and coal towns. Let them try to tell it to the 5 million Americans who live on a surplus food diet of $30 a month.'⁽⁵⁶⁾

Kennedy went on to promise that within sixty days of his election he would submit a 'complete program to restore and revive the economy of West Virginia'.⁽⁵⁷⁾ Kennedy had originally wanted something tailored to West Virginia's specific needs, but Douglas persuaded him that now was the time for a broad attack on depressed areas using the Area Redevelopment Administration (ARA) proposal. So after the election, Kennedy put Douglas in charge of a special task force (which was composed mostly of West Virginians) to prepare recommendations on a federal regional policy during the transition period.⁽⁵⁸⁾ Out of this task force would come the first significant regional development legislation to be passed since TVA.

On 1 January 1961 the Report of the Depressed Areas Task Force was submitted to Kennedy by its chair, Senator Paul Douglas. The report found that there were substantial or persistent labour surplus problems in 300 to 400 of the lowest income rural and small urban areas. These problems were brought about by changes in consumer demand, depletion of resources, lack of industrial diversification, and technological change. Its recommendations embodied the essential elements of the Douglas program plus a number of other steps⁽⁵⁹⁾:

(1). speeded up surplus food deliveries to eligible areas⁽⁶⁰⁾

(2). extended unemployment benefits

(3). grants to states to finance public assistance programs

(4). efforts to develop long term job opportunities, including:

• technical assistance to communities

• loans for businesses

• public facilities loans and grants

• training and retraining grants to individuals

• creation of a secondary market for the mortgages issued by community development groups

• Defense Department procurement preferences for firms in eligible areas

• additional federal aid to education

• removal of restrictions on how states spend their federal highway aid

• acceleration of federal programs in forest preservation, agricultural lands conservation, and national park development

• establishment of a national fuels policy to determine the role of coal in the future.

• recreation of the New Deal Youth Conservation Corps

• consideration of tax preferences for firms in depressed areas

• special regional development programs in areas such as Appalachia

• creation of an 'early warning system' to detect signs of localized depressions.

Calling his bill an 'old and cherished friend,' Douglas submitted it again when the new Congress opened in January 1961, with the honoured designation of S.1 (the first bill of the new session).⁽⁶¹⁾ Scaled down versions of the bill were introduced by Republican Senator Everett Dirksen of Illinois and Senator Hugh Scott of Pennsylvania, and over fifty regional development bills were filed in the House of Representatives. But the real action was going to be on the Douglas-Flood bill and an administration bill, which was introduced in February.

Kennedy agreed in principle with the major recommendations of the Douglas report and his bill, but there were differences in important details. The two major differences were once again over the questions of appropriations and location of the agency. Douglas's 1961 bill had returned to the ideas of a 'borrowing' the funds from the Treasury rather than seeking appropriations and making ARA. With Eisenhower gone, Douglas thought he might stand a chance of getting these provisions enacted. But President Kennedy was no more enthusiastic about these ideas than Eisenhower had been. Kennedy was personally not adamant on the point about locating the agency in the Department of Commerce, as he indicated in letters to Sam Rayburn and Lyndon Johnson.⁽⁶²⁾ But he was persuaded to include it within the Commerce Department by his nominee for secretary, North Carolina Governor Luther Hodges. Hodges had made economic development the cornerstone of his administration in North Carolina and very much wanted responsibility for the federal programs in this area.⁽⁶³⁾

In the end Douglas compromised on these points in his bill. He continued to believe that the Department of Commerce was dominated by 'unfriendly, conservative business influences, especially the U.S. Chamber of Commerce and the National Association of Manufacturers'.⁽⁶⁴⁾ But he concluded that independence of funding was more important, and so the bill that emerged from the Senate had ARA located in the Commerce Department and reporting to the secretary, but with the funding coming from borrowing rather than appropriations.

In the House, support remained for regional development, but a final bill had to be crafted from a number of different bills. House members were much more concerned about the 'pirating' issue than the Senate was and the bill that emerged contained a flat prohibition against using any ARA funds to relocate industries. The Senate bill contained a much weaker provision that prohibited relocation unless the firm's departure would not 'substantially decrease employment'⁽⁶⁵⁾. Without Douglas to push it, the House also insisted on appropriations rather than borrowing.

These differences were resolved in conference, with Douglas ultimately losing the battle over appropriations as well. The reason had less to do with the details of the ARA legislation than with the issue of 'back door financing' coming up in a number of other contexts, including the Commodity Credit Corporation and the United States contribution to the World Bank. The House was unwilling to go along with this approach to financing the ARA lest it be a precedent in these other areas. But it did not matter greatly in the long run. At last Douglas's persistence paid off and the bill was signed in May 1961, with a total authorized funding level higher than any previous version of the bill: $394 million, divided among the three funds that had been the heart of the idea since 1956 (business assistance, public facilities, and rural development). William Batt, one of the authors of Defence Manpower Policy 4 and later a founder of the Pennsylvania Industrial Development Authority, was named the first administrator of ARA.

A number of decisions were made in the start-up period that shaped the agency's future. When the decision was made to put ARA in the Department of Commerce, it was also decided at Hodges's urging that ARA would be a small bureaucracy, with most of its programs actually delivered by other federal agencies. Seven different agencies were to administer parts of the area redevelopment programs: the departments of Labor, Commerce, Agriculture, Interior, and Health Education and Welfare, along with the Small Business Administration and the Housing and Home Finance Agency. This decision came mostly from a desire to both avoid criticism for creating another federal bureaucracy, and to coordinate with other agencies delivering similar programs. But this approach also created problems getting other agencies to devote personnel and resources to ARA purposes, particularly with the Department of Agriculture. Agriculture had wanted the ARA program housed there, and was not happy to discover they were doing ARA's work with no effective control over budget or priorities. There was more than one dispute that had to be refereed by the Bureau of the Budget.⁽⁶⁶⁾

Staffing the new agency was a problem, and a decision was made to hire the loan- processing staff first in order to show results as quickly as possible. (This desire for rapid and visible action would characterize new programs in both the United States and Canada, and had important implications for the shape and organization of regional development programs.) The ARA staff would review loans for eligibility with the ARA criteria, while the Small Business Administration would process the financial data and would be the point of actual contact for the firm receiving the loan. This arrangement worked somewhat better than the one with the Department of Agriculture, but it still took some time to establish.

The first ARA-funded project came out of the rural development technical assistance grants program in the form of a grant to the State of Kentucky's Department of Economic Development for planning in forty-seven eastern Kentucky counties; it was not a major departure from past experience, but essentially a revival of the plans prepared under the old Rural Development Program.⁽⁶⁷⁾ Soon after, the first loan was authorized, ironically, for a company in Arkansas. Given Senator Fulbright's repeated opposition to the bill, Douglas could not help but take delight in this turn of events.⁽⁶⁸⁾

The most important decision in the early days concerned the actual designation of areas eligible for assistance, a decision that turned out to be more complicated than might have been anticipated. In the original 1956 bill, Douglas had settled on a formula whereby any labour market area was eligible if it had unemployment exceeding 6 per cent for three consecutive years.⁽⁶⁹⁾ The bill that finally passed the Senate that year adopted a sliding scale provision, with an area eligible if unemployment exceeded 12 per cent for three months, or 8 per cent for fifteen of the preceding eighteen months, or 6 per cent for eight months of the preceding two years.

This sliding provision was modified further in the 1958 bill to take account of the higher unemployment rates during the 1957 recession. The bill now provided a scale in which eligibility was based not on absolute unemployment rates, but on the extent and duration of unemployment rates exceeding the national average. That bill also provided additional categories and a rural development provision was also proposed to cover the 500 rural counties that had been identified in a previous study for the Senate. It was also proposed that the administrator be authorized to designate areas at his discretion in cases of a sudden and severe disruption due to a plant closing, but this recommendation was rejected.⁽⁷⁰⁾

As finally enacted, the criteria based on labour market areas exceeding the national average unemployment rate were adopted, but Congress granted the administrator discretion to include additional areas for cities with populations under 8,000 (for which labour market areas had not yet been identified). The administrator was also given sole authority to designate the areas eligible for the rural component of the program Congress was completely unable to agree on specific designating criteria, and simply said that the designation was to be based on the number of low-income farm families, relative per capita income, labour availability, migration rates, and whether the area had once been designated under Benson's Rural Development Program. In implementing these criteria for the rural program, ARA adopted a 'contiguity' principle, under which counties adjacent to eligible counties would be included to form coherent economic units. But in doing so, ARA stepped onto the same slippery slope onto which Congress had already stepped of continually expanding the definition of 'distressed area'.

Nearly 20 per cent of the total U.S. population was included in eligible areas, which was more than 37 million people in 1,061 areas. There was at least one area in each state plus all of American Samoa, Puerto Rico, the Virgin Islands, and Guam. In terms of total population, the largest area was the mid-Atlantic states, but the region that had the greatest percentage of regional population in eligible areas was the east south central (Kentucky, Tennessee, Mississippi, Arkansas, Louisiana, Missouri). The Pacific region had the smallest proportion of its population in eligible areas.⁽⁷¹⁾

The desire to be designated was by no means universal. Texans, never people who wished to be described as being 'distressed', were particularly offended. Senator John Tower had protested the inclusion of forty-seven counties in his state because the communities were not contacted by ARA. The Tyler, Texas, Courier-Times-Telegraph editorialized: 'The only thing that distresses us is the fact that our Federal Government would be so willing to tap the taxpayers of the nation to give us help we don't need.'⁽⁷²⁾ Some of their u in Oklahoma were also reluctant. The Greer County, Commissioners voted to reject designation saying the county was enjoying a great period of prosperity.⁽⁷³⁾ But the citizens of Greer county liked the idea just fine, and voted to accept designation.

Despite such rejections, ARA found that it had more than enough to handle. Indeed, it became apparent that there were too many areas for the small ARA staff and the relatively cumbersome process that it had set up with other agencies. By early 1962, ARA was already planning to cut back on designations. But ARA became the victim of its own expectations. Too many areas had come to expect (if not yet receive) too many benefits, and Congress prohibited ARA from dropping areas once they had been designated.⁽⁷⁴⁾

ARA had a wide variety of programs with which to assist designated areas, but the major efforts focused on planning, loans, and public works. Its technical assistance grants funded planning studies on everything from tourism development in the New River Gorge of West Virginia, to peach canning in Georgia, and fish packing in Massachusetts. One of its more interesting grants was earmarked to assist bringing refrigerators to the Inuit in Alaska (the problem was one of developing commercial-sized refrigerators to store reindeer meat and fish for export). ARA also funded a number of planning grants for state governments, including a joint grant to the Appalachian governors to look at problems affecting their states (about which more below).

Planning was also a key element in ARA's relationship with each of the designated areas. Each community was required to prepare an Overall Economic Development Plan (OEDP). Funds were provided to assist in the preparation of these plans, and each plan was to address venture capital availability, entrepreneurship, availability of lands, labour training needs, appraisal of public utility availability, and the financial capacity of local governments. The plans were then to establish goals and objectives for the area's economic development.

The quality of OEDP's was extremely uneven. Many plans were superficial, poorly conceived, and of little value. Many, if not most, were prepared by consultants and were not much more than canned presentations. The quality and extent of coordination with state governments, neighbouring local governments, or even the citizens in the designated area were highly variable as well. And even when the plans were well prepared, they were a real problem for ARA itself. ARA would have had to reject a large number of the areas' projects if it had been rigorous in enforcing quality criteria. So ARA elected simply to take each submission as a token of good faith and proceed on the basis that the OEDPs would never be completed, but would always remain in a state of 'dynamic suspension'.⁽⁷⁵⁾

Loans to businesses became ARA's most visible programs, partly because of the novelty of the federal government doing this kind of direct lending, and partly because of the decisions that were made. One of the controversies that had been anticipated was the 'pirating' problem, but, in fact, no relocation loans were made. However, this still left plenty of controversy over loan criteria and some of the loans that were made.

ARA made a large number of loans. Two-thirds of the loans went either to new ventures or to new branches of existing companies. The other one-third went to business expansions or reopenings. The overwhelming majority of loans (more than 70 per cent) went to manufacturing companies; firms in food processing and lumber and wood products received the most funds. No loan was ever provided to relocate a firm from one area to another.⁽⁷⁶⁾

Although tourism firms received a minority of the loans, they garnered most of the attention. Loans were provided to fund hotels at state parks in Kentucky and Oklahoma, but. perhaps the most controversial was a $3 million loan to build a hotel and convention centre in downtown Detroit. The occupancy rate in the city at the time was just over 50 per cent, and this project was going to be the first major new hotel in the city since 1928. The criticism that accompanied these investments caused ARA to sharply reduce its lending to tourism facilities.⁽⁷⁷⁾

ARA never really developed tightly defined loan criteria, but relied more on consistency with OEDPs, development potential for the region, and general soundness of the applicant. The legislation required only 'reasonable assurance of repayment', a much more lax standard than was used by the Small Business Administration. Both members of Congress and academics were critical of the failure to develop loan policies.

ARA's other major program involved public works. Douglas had always believed that local governments in economically depressed areas were unable to supply the infrastructure necessary for development. His own experience in southern Illinois was his touchstone. It was not until the Works Progress Administration brought water to many of the towns in the region that industrial development could begin.⁽⁷⁸⁾ Public works projects funded by ARA included water and sewer systems, industrial parks, and port facilities. However, funding for projects was slow. By 1963, ARA had funded only ninety-two projects, largely because communities often had a difficult time coming up with the matching share for either grants or loans. ARA was sympathetic to the problem and allowed in-kind match, mostly land. States were also permitted to fund the local share of facilities grants and loans, but not all states agreed to do so.

Public works were about more than regional development, and so they would remain for congressional Democrats remembering the lessons of the New Deal would remain,. In 1962 Kennedy proposed a significant expansion of public works spending to counter a slow down in national economic growth. Congress began consideration of a presidential request for an Accelerated Public Works Program which had major implications for ARA. ARA-designated areas would automatically be eligible for funding under the program. The original proposal considered in the Senate was for a $600 million program for ARA areas and $2 billion in standby authority for the President to release for other areas if the economy worsened. The eventual bill that passed was a compromise with a $900 million spending authorization. Even at this smaller size, the Accelerated Public Works Program was nearly three times the size of all the rest of the ARA programs combined.

Two smaller parts (in terms of funding) the ARA were the retraining programs and the university research centres. The University Development Centres were funded to provide a variety of technical assistance and counselling to businesses, both new firms and existing firms needing assistance to stabilize their operations.

In the beginning, the retraining programs were somewhat controversial, but less so over time. One aspect of the programs that remained controversial was Douglas's insistence that unemployed workers entering training programs continue to be eligible for unemployment payments, which at the time, was only permitted by Michigan and the District of Columbia. Douglas insisted that to do otherwise this was utterly counterproductive. But the sentiment against unemployment insurance recipients doing anything other than looking for work was so strong that to get this provision, Douglas had to compromise on a sixteen-week period of eligibility for unemployment insurance recipients in training programs rather than (the normal period was twenty six weeks). ARA's training programs were reinforced by a major overhaul and expansion of federal programs in the Manpower Development and Training Act, which passed shortly after ARA did. Together these two programs gave a substantial boost to the whole field of vocational education, which had become something of a stepchild of the educational system.⁽⁷⁹⁾

Although ARA had received full funding in each of its first two years, by early 1963 the Kennedy administration believed that ARA should be expanded. The administration put together a proposal to increase loan authorizations from $300 million to $650 million in response to what it saw as continued slowness in the economy and ARA's early successes; again regional development and countercyclical policies were to be merged. There were also proposals to clarify a number of minor technical matters to improve operations of the various programs. The ARA reauthorization and expansion bill cleared the House Banking Committee, but when it got to the floor in June it was rejected by a vote of 204-209.⁽⁸⁰⁾

This was a stunning reversal for the Kennedy administration. One explanation was that southern Congressmen were upset with the administration's civil rights record, and chose the ARA bill as their vehicle for expressing their displeasure. There was good reason to suspect this; more than half of the Congressmen from Alabama, Mississippi, Virginia and North Carolina who had supported the bill in 1961 opposed the amendments.⁽⁸¹⁾ But ARA lost supporters in the Northeast as well, particularly among Republicans. New York Congressman (and later New York City Mayor) John Lindsay spoke for many who were frustrated because, in their view, ARA had spent a lot of money with little to show for it: 'This program has utterly failed to get off the ground and is leaving in its wake a shameful record of mismanagement, stodginess, and waste.'⁽⁸²⁾

With some minor changes, the Senate passed the legislation by a wide margin (65-30) just two weeks after the House rejected it. Kennedy urged the House to take the bill up again, and the Banking Committee reported the bill out in late July. But the ARA's old enemy, the House Rules Committee, now reappeared. The committee chair, Howard Smith (a Democrat from Virginia.) announced that he was going to do everything in his power to stop the expansion of ARA. The bill was still bottled up in the Rules Committee when Kennedy was killed.

Johnson, the EDA and ARC

The task of dealing with regional development now fell to Lyndon Johnson, another long-time supporter of the Douglas bill while he was in Congress. As majority leader of the Senate, Johnson had acquired a reputation for political skills of the highest order, and as president his ability to push the bills he desired through Congress became legendary. That ability was certainly evident with his plans for regional development, but Johnson did not approach the issue head on. Facing a Congress less and less willing to accept the Area Redevelopment Administration (ARA), Johnson found that he had to change course to achieve his objectives. And once again, it was West Virginia and the surrounding states of Appalachia that took centre stage in an effort to find new directions for federal regional policy.

As 1964 dawned, Lyndon Johnson faced a wide variety of problems: building his own administration in the shadow of the murdered president, planning for an election, deciding what to do about the emerging problem of Vietnam. Among the problems that Johnson inherited was the ARA reauthorization bill still bottled up in the House Rules Committee. Johnson did not make the expansion of ARA one of his immediate legislative priorities, in part because another opportunity presented itself first.

In one of the early projects of ARA's planning program the Appalachian governors received funding to examine common issues and solutions for the 342-county region running along the spine of Appalachian mountain range from western New York to northern Alabama.. Appalachia was 'an American enigma'. '[It is] a region rich in natural beauty and resources lying close to the vast industrial-urban complexes of the midwest and northeast. Yet it is a depressed region, and it has been one for more than two centuries.'⁽⁸³⁾ Appalachia had three distinct subregions, each with its own distinct problems: a southern area of poor farmers, a central section where a dominant coal industry produced great wealth for some and bare subsistence for others (including the Cumberland Plateau region described in the opening passages of this book), and a northern industrial region long past maturity. In Appalachia, a semi-feudal political and economic structure combined with a lack of access prevented the kind of growth that occurred in the coastal plains to the east and the river valleys to the west.⁽⁸⁴⁾

It was this region that John Kennedy saw in his campaign tours of West Virginia. Shortly after his inauguration he had met with the governors of the Appalachian states, who had recently begun meeting as a group (the Council of Appalachian Governors) to consider their common problems. The ARA project had resulted from these meetings, and the council had recommended that the president appoint a special commission to look at the development of the region. Kennedy appointed such a commission on 9 April 1963, following a series of devastating spring floods that destroyed numerous bridges and roads. Undersecretary of Commerce Franklin D. Roosevelt Jr. served as chair of the President's Special Appalachian Regional Commission, which submitted its report one year later. The commission's report described a region of poverty, decline, and desperation where per capita personal income was less than three quarters of the national average and unemployment rates were 40 per cent higher.⁽⁸⁵⁾ The commission also found that, before private enterprise could expand in the region, a major program of public investment would be needed. The report proposed a strategy that emphasized attracting new industries, recreational expansion, agricultural diversification, and natural resource industry development. As a necessary precondition, significant new federal expenditures would be needed for:

highways

water and sewer

assistance to convert marginal farmland to pasture

timber development

coal industry assistance

education and training programs

expanded health care facilities throughout the region

additional low-income assistance (food stamps, school lunches)

federal program to fund community development corporations.⁽⁸⁶⁾

The last four items represented novel elements to the Appalachian commission, and, in fact, constituted a broader conception of regional development than would appear in any other federal regional program.

Johnson responded almost immediately to the commission's report. He left on 24 April for a whirlwind tour of the Appalachian regions of Pennsylvania, West Virginia, and Ohio. Four days later he submitted legislation to create the Appalachian Regional Commission (ARC). This permanent commission would administer Appalachian regional development program that emphasized highways and other infrastructure development, and an Appalachian Development Corporation which would invest in new businesses (with funding coming from the sale of bonds backed by the Treasury specifically for the corporation), and also expand programs in rural health services and research and in technical assistance to agriculture, forestry, and the coal industries. Charles Schulze, director of the Bureau of the Budget, said that the program was designed to 'strike at the heart of the of decay- the lack of basic structure necessary for economic progress'. Schulze defended the Appalachian Development Corporation as essential to enabling an underdeveloped region to tap the national credit markets.⁽⁸⁷⁾

Another key innovation in the Appalachian program was the commission itself. ARC was to be an independent agency, with its budget coming from the federal government. It would make all the decisions about where the money was to go for all of the programs within its jurisdiction, although initially funds had to be requested through the regular Department of Commerce and Federal Highway Commission budgets.⁽⁸⁸⁾ It would administer some programs itself and provide money to state, county, and municipal governments for others. The commission would have its own staff and would be governed by a board comprised of a federal co-chair, appointed by the president and reporting directly to him, and the governors of all the states in the region. Decisions would have to be jointly approved by the both the federal and the state members.

This approach was a radical departure from other institutions in the American government. It created a layer of government that was neither federal nor state, but was somewhere between. Like TVA, it was given a mission for a region that was defined by a geographic feature without regard to state lines. But unlike TVA, its mission was much broader than power development, and with its unique federal-state structure, it was not just a federal agency.

Johnson's enthusiasm for Appalachian development was not shared by all members of Congress. The House Public Works Committee (the major highway and water/sewer component of ARC kept it out of the Banking Committee) reported the bill out in August with only a few changes, including more money and the addition of several counties in the Piedmont of South Carolina. Some Republicans complained that the bill was 'special treatment' for one area, which did not matter in the end since there were enough Republicans from the affected area who supported the bill. The Senate Public Works Committee followed suit a week later, and the full Senate passed the bill in late September.

Again, however, the full House would not go along with the Senate. A month before the 1964 election, House Speaker John McCormack of Massachusetts announced that he would not bring the Appalachian bill to the floor because of uncertainty that it would pass. The bill thus joined the ARA bill in stasis in the House of Representatives. It was in good company, since the ARA expansion bill was still having been having a rough time of its own. The investigative arm of Congress, the General Accounting Office, had handed ammunition to ARA's critics with a report released in September that charged ARA with spending money in non-depressed areas. The criticism arose from ARA's interpretation of statutory language that it was to spread funds as widely as possible to mean that it was to designate at least one area in each state whether or not it met other criteria.⁽⁸⁹⁾

With an election looming, the failure of the House to pass either of the regional development bills left Johnson no regional policy at all. Two weeks before the election, he created a Federal Development Planning Committee for Appalachia, whose announced purpose was to coordinate all existing federal programs in the region. This was a far cry from the millions of dollars that Johnson had hoped to provide through ARC, but it gave him something he believed he needed in the closing days of the campaign.

In January 1965 a newly elected Johnson immediately reintroduced the Appalachian bill (designated S.3), with modifications designed to quiet some of the complaints and attract additional support. These changes included an expansion of the highways eligible for ARC support and a new program for erosion control. Almost immediately the 'ARC idea' caught on and Democratic senators from the midwest and New England proposed a number of replicates for other regions. Michigan Senator Philip Hart introduced an amendment to create a similar Commission in the Lake Superior region. His colleague from Wisconsin, Gaylord Nelson proposed not only a commission in the upper Great Lakes⁽⁹⁰⁾, but additional commissions in the Ozarks, Northwest, northern New England, the South, and the Four Corners region of the southwest. South Dakota Senator George McGovern chimed in with another commission for the Upper Great Plains, and Maine Senator Ed Muskie with one for New England.

This proliferation of bills proposing new multistate commissions was halted when Senate Majority Leader Mike Mansfield announced that the administration would be submitting a new bill to reauthorise ARA and would be willing to include the additional regional commissions as part of that bill. The only expansion to ARC that was allowed was an amendment by New York Senator Robert Kennedy which included several counties in western New York within the ARC jurisdiction.⁽⁹¹⁾ With this, the Senate passed the ARC bill and again it was back to the House.

This time, with the newly expanded Democratic majority which had swept in with on Johnson's 1964 landslide victory permitted legislation to be easily moved past the old alliances of southern Democrats and Republicans. Thus the bill passed easily in early March, virtually unchanged from the Senate version. It became the first major piece of legislation of Johnson's term, and would later be described as the first element of his Great Society proposals. Its early passage meant that regional development bills were the first key legislative successes of both Kennedy and Johnson.

Shortly after his victory on the Appalachian development bill, Johnson returned to the task of expanding and reforming ARA. Rather than revisit the old battles, however, he chose to redefine the agency. He announced that he was going to replace the Area Redevelopment Administration with a new agency, the Economic Development Administration (EDA). Johnson laid out in his message the key themes of his social legislation:

The conditions of our distressed areas today are among our most important economic problems. They hold back the progress of the nation, and breed despair and poverty which is inexcusable in the richest land on earth. We will not permit any part of this country to be a prison where hopes are crushed, human beings chained to misery, and the promise of America denied. These conditions of our depressed areas can and must be righted. In this generation they will be righted.⁽⁹²⁾

Presented as a bold new idea EDA would offer the conditions under which private enterprise could provide jobs. The president promised that no federal plan would be imposed on any state or local body, and that full value would be received for every dollar spent. There were three major differences from ARA: First, EDA would not designate areas as ARA had done, but counties or groups of counties meeting criteria of unemployment and income would be eligible to apply for designation. Second, the development districts (as they were now to be called) would not be exclusively regions with depressed conditions, but each would contain 'development centres', urban areas that would serve as the nucleus for growth within the district. And third, the regional commissions that had been proposed to emulate ARC would be included to address the special development needs of selected multistate regions. These commissions would have the same governing structure as ARC, but would not have nearly as extensive resources. They would be primarily planning and coordination agencies, with relatively small budgets available for specific projects determined to be high priority by the joint federal-state commissions.

The Public Works and Economic Development Act of 1965 (PWEDA), as the new bill was known, passed both the House and Senate by July, with little of the protracted debate and difficulty that previous attempts to enact federal regional policy had encountered. The Senate added another 'anti-pirating' provision, while the House increased somewhat the authorization levels for public works funding, deleted a provision that would have paid interest rate subsidies to businesses, and prohibited EDA from overlapping with the ARC.

Several things account for Johnson's success in securing the passage of PWEDA where the reauthorization of ARA had floundered. Johnson shrewdly repackaged ARA while keeping the basic core of ARA assistance programs. He responded to some of the real concerns that legislators had expressed about ARA; for example, areas would volunteer for designation instead of being chosen by the federal government. He took advantage of the newly-found enthusiasm for regional development in the Senate (evidenced by all the proposals for ARC imitations) and the enthusiasm for public works in the House (evidenced by the 1962 Accelerated Public Works Act). And, of course, it did not hurt at all that he was dealing with a Congress that was much more heavily Democratic, and northern Democratic, than it had been in earlier rounds of trying to pass regional development legislation. EDA was thus not a fundamental change in direction in federal regional policy from the original ideas of ARA. But EDA had a number of important alterations in operation and structure that helped it survive to the present as the federal government's principal regional development agency.

One important change was in administrative structure. ARA had largely been a Washington-only operation, with ARA the centre of a group of Washington agencies that administered the programs. EDA abandoned the idea of letting other agencies run the day-to-day affairs and acquired the staff resources to do the work internally, although EDA continued to rely on the Small Business Administration for loan processing assistance for several years. EDA recognized that it could not do everything from Washington and so it established six regional offices around the country where most of the processing of paperwork was done plus an office in each state capital manned by an 'Economic Development Representative' who was in charge of working with all the agencies within the state that received or wished to receive EDA funding.

For EDA programs, the core definition of 'region' as the 'redevelopment area' was held over from ARA, but the definition was modified to expand the number of potential districts. The new criteria for area designation probably had the effect of expanding support in Congress at a time when passage would have been difficult. Under EDA, redevelopment areas could be a county, a labour market area, an Indian reservation, a municipality with a population in excess of 250,000, or a 'special impact area' which the assistant secretary of commerce for economic development (the new title for the director of EDA) could designate. Redevelopment areas could qualify for designation by meeting any of the following criteria:

(1) Substantial and/or Persistent Unemployment. This criterion was basically the same staged criterion for unemployment in excess of the national average that ARA had used. In addition, regardless of the amount of unemployment above the national average, any area that averaged 6 per cent or more unemployment for the preceding calendar year could qualify.

(2) Median Family Income. An area qualified if its median family income was below 50 per cent of the national median.

(3) Indian Lands. All Indian lands were automatically eligible.

(4) Special Impact Areas. These areas included communities or neighbourhoods defined without regard to political boundaries that incorporated a large concentration of low-income persons, a rural area with substantial outmigration, substantial unemployment, or an actual or threatened increase in unemployment due to the closing or curtailment of a major source of employment.

(5) Other. If a state has no redevelopment areas eligible by the preceding criteria, the area in the state that most nearly meets the criteria could be designated.

In addition to any areas that qualified under these criteria, all areas that had already been designated by ARA were included automatically for a period of four years. These actually constituted the majority of redevelopment areas at the beginning of EDA's existence in both number and population.

The redevelopment area was only one of three regions to which aid could be directed. Any group of redevelopment areas could merge to form an economic development district on the principle that 'individual redevelopment areas often lack sufficient resources necessary to provide a solid base for their development.'⁽⁹³⁾ Development districts had to be formed voluntarily, and had to contain at least one redevelopment area and one economic development centre. The economic development centre was the third type of region; it consisted of an area or city of 'sufficient size to foster the economic growth activities necessary to alleviate the distress of redevelopment areas within the district. It should have sufficient population, resources, public facilities, industry, and commercial services to ensure that its development can become relatively self-sustaining.' Essentially, the development centre was to be an urban core around which economic activity would be organized.⁽⁹⁴⁾

These new criteria resulted in about 25 per cent of the counties in the United States being EDA-eligible, and somewhat less than that in terms of population, up from around 20 per cent eligibility for ARA.⁽⁹⁵⁾ But even with its own administrative machinery and its regional and state offices, by 1967 EDA found that it was running into the same kinds of problems processing funding applications ARA had. With more and more development districts being designated and EDA's development representatives busily drumming up more business in each one, EDA was faced with backlogs and delays in getting projects reviewed. There was also the problem of Overall Economic Development Plans (OEDPs), which EDA also required, and towards which it took somewhat the same relaxed view as ARA had in its early years.

At the same time that EDA was getting its programs up and running and coping with the problems of districts new and old, it was also beginning to expand to deal with the problems of urban areas that faced the threat of riots, such as those that erupted in the summer of 1965, particularly in a section of Los Angeles called Watts. EDA's first head, Eugene Foley, was not only interested in getting his new agency going: he wanted it to be where the action was. EDA may have had distinctly rural roots, but the action in 1965 was in the cities, where the Johnson administration was already waging the 'war on poverty' that the president had declared in his first State of the Union address in January 1964. Within weeks of its establishment as an agency, EDA announced that it was undertaking a major initiative in Oakland, California.⁽⁹⁶⁾

Wanting to address urban problems and finding a way to do it were two different issues. Foley had designated $25 million for urban development in fiscal year 1965 (which expired on June 30), and he needed to commit the money as quickly as possible to avoid adversely affecting next year's appropriation. He wanted to zero in on one city to show results as quickly as possible. Oakland was selected for a number of reasons. It had already received funds from ARA for several projects, its unemployment rate at 8.4 per cent stood well above the national figure of 4.1 per cent, and it was a city that was widely considered among the most likely to erupt in riots.

The EDA's efforts to deal with Oakland were emblematic of several issues that faced federal development policies. One was the nature of the relationship between the federal government and local governments in trying to develop the economy. EDA policies, including its development districts were based on a fundamental belief in the Johnson administration that the federal government should encourage 'maximum feasible participation' by the people whose lives they were seeking to change. This was the foundation for the efforts of the Office of Economic Opportunity's to hire people from poor communities to work at the 'ground level' to 'coordinate a wide variety of services in a single location for poor people'.⁽⁹⁷⁾ Once again there was concern about creating a new federal bureaucracy to administer programs. The federal government would provide funds and guidance, but local citizens would make the critical decisions. EDA and the Office of Economic Opportunity were not the models of federal bureaucratic inefficiency that they were often portrayed as later. But where in this scheme were the state and local governments?

Once Oakland was chosen, Foley flew into town to meet with groups of community and black activists, then flew back to Washington. Oakland had a Republican mayor, which had been considered another advantage in selecting the city for EDA assistance; there would not be charges of favouritism, and if anything went wrong, there would not be a powerful Democrat beating on the administration's door, as Chicago Mayor Richard Daley was regularly doing about the anti-poverty programs of the Office of Economic Opportunity in his city.⁽⁹⁸⁾ A special team of EDA officials was put together from headquarters staff in Washington to deal directly with Oakland, and they took up residence in the city with orders to identify projects as quickly as possible. This left the city government officials feeling aggrieved because they had not been consulted.

Despite the efforts to formulate policy in consultation with local citizens, the imperative for EDA was speed and visibility, so within a few weeks EDA had identified four public works projects totalling $23.3 million that appeared likely to get underway quickly, including a new hangar for a charter airline at the Alameda County airport, improvements to the port facilities, an expanded industrial park, and an access road to the Oakland Coliseum.⁽⁹⁹⁾ This ambitious agenda of projects was announced with great fanfare, then immediately bogged down in a thousand details that policy makers never anticipated. For example, each project was justified on the grounds that it created jobs for unemployed minority workers. EDA required World Airways, a charter operation that would use the new hangar, to file a detailed employment plan showing how they would increase minority hiring, with the assistance of a federally-funded training program. But EDA could not get approval of the training program from the Department of Labour; with no training program, World Airways would not commit to a hiring plan, and with no commitment, EDA would not release funds for the hangar. The Navy opposed the marine terminal expansion because it would interfere with flight operations at the Oakland-Alameda Naval Air Station. Four years after the announcement, none of the public works projects was being constructed.⁽¹⁰⁰⁾

In addition to these large projects, EDA began providing loans to several businesses, but these were not much more successful. Funds were provided to a black-owned candy-maker for a new machine, which never worked correctly and ultimately drove the business into bankruptcy. Another loan was provided to a bakery, which permitted an expansion but provided no new jobs. The only loan that was successful in creating jobs was made to the West Oakland Health Centre. It provided 150 new minority jobs; the only problem was that EDA had never funded a health centre, and spent several months trying to figure out whether it counted as 'economic development.'⁽¹⁰¹⁾

While EDA was trying to establish a presence in urban areas, it was also being pressured to lower the population threshold to include more rural areas in the program.⁽¹⁰²⁾ The combination of expanding jurisdiction and increasing project review loads was overwhelming the administrative capacity of the agency by late 1968. EDA's response to these pressures was a decision to try to reverse at the administrative level the political pressures to keep expanding programs by adopting a 'worst-first' policy, under which EDA would give priority processing attention to those projects that had the greatest potential for a clear and direct impact on unemployment. Those redevelopment areas with the highest unemployment or the lowest household incomes received priority attention.

EDA's new policy was, at best, a holding action. It satisfied Congress that more attention would be given to cities, but it was not easily administered on the ground. EDA staff found that the 'worst' cases were also the least capable of providing the necessary local resources. They also found a conflict between the usual bureaucratic pressure to make sure that annual appropriations are spent prior to the end of the fiscal year and to disburse money over as wide a geographic area as possible. The result was that the 'worst first' policy did not result in any dramatic shifts in funding or program administration.

The same problems arose when EDA refocused its attempts on the growth centres after 1969, with largely the same result: a great deal of activity with little real change. 'Growth centres' had actually been a concept utilized by ARC in its program development; a substantial portion of its funds went to urban infrastructure in the ARC region. EDA began to emphasize growth centres through a requirement that each development district contain at least one urban centre which could assure self-sustaining growth. The idea was that the growth centre would provide a market and service centre for the surrounding region as well as job opportunities for rural area residents. This would relieve migration pressure on cities while encouraging rural areas to grow on their own. But EDA did not have the funds to make a real difference in the many urban centres, nor were the urban centres themselves large enough in many cases to make a real difference.⁽¹⁰³⁾

EDA itself saw one of its more important innovations to be a focus on process rather than on projects: 'the solution to most economic development problems is a long and open-ended process of cooperative public and private decision-making'.⁽¹⁰⁴⁾ The process that EDA envisioned included the public facilities and business financing programs which had been the heart of ARA, along with a new emphasis on planning. In its efforts to underline the for local planning, EDA adopted the Overall Economic Development Plan from ARA. These plans were still required before projects could be funded, and requirements for their contents were not significantly altered from those of ARA. EDA's network of state and regional representatives, combined with increased funding made it possible to improve marginally the quality of the plans, but the expanded number of eligible areas forced EDA to adopt some of the ARA's flexibility towards the plans.

The most original element of planning in EDA was the multistate regional commission. In adapting the Appalachian Regional Commission model to other areas of the country, Congress had transferred the structure but neither the funding nor the range of programs that it had bestowed on ARC. The Title V regional commissions⁽¹⁰⁵⁾ were required to prepare comprehensive long-term development plans for their multistate regions, and they were provided with the staff to do so. In this, they were somewhat different from ARC, where states did the basic planning and ARC as coordinator of planning. The fundamental idea was that the long term economic development process that EDA envisioned required that the economies of regions, some multistate and some multi-municipality, could not be achieved if states or localities were planning in isolation from one another.⁽¹⁰⁶⁾

FIG 5.1

These plans had to be approved by the secretary of commerce (ARC plans were approved only by the commission), and funding for projects then flowed from the ideas enumerated in the plan. The Title V commissions were important for another reason: the establishment of a direct connection among the federal, state, and local governments. The federal co-chair was to be a direct channel to the president through which the needs of regions were to be communicated thus bypassing the rest of the bureaucracy.

But Johnson took time making the nominations for federal co-chairs, several years in some cases. When the co-chairs were selected, they tended to be politicians from the region, and thus came to be seen in a curious light. Federal government staff looked at a co-chair's background and saw a state identification, while state officials saw the co-chair as a federally funded part of EDA. The political status of the co-chairs was particular confirmed when Richard Nixon took office and replaced all the Democrats with Republican ex-state legislators and campaign officials.⁽¹⁰⁷⁾ None of the federal co-chairs ever really had the direct access to the president that the legislation confidently envisaged; of Johnson's secretaries of commerce, only the short-lived Alexander Trowbridge ever included the federal co-chairs in department business in any serious manner. The staff of the regional commissions were also a curious phenomenon; they had no civil service status in either federal or state services. The result was a 'neither fish nor fowl' status which did not prove helpful.

There was great variety in the way the commissions operated and in the substantive approaches that each took. Some, such as the Upper Great Lakes Regional Commission, had very small staffs and passed through most of the money the received from congress to the states. Others, such as the New England Regional Commission, had very large staffs (often assigned directly in the governors' offices) and passed through almost no money to the states for projects. The plans that were produced tended to be on a grand scale, emphasizing common themes of natural resource development, transportation, human resource development, and tourism.

As a result of this combination of factors, the regional commissions produced a variety of plans and projects, but never really redirected federal funding priorities in any serious manner. Their lack of impact may be seen in the fact that in fiscal year 1968 Congress left out funding for them entirely, and Commerce had to transfer money from its public works funds to keep them alive.⁽¹⁰⁸⁾ Nevertheless, the commissions did contribute research and ideas here and there. For example, the New England Regional Commission (NERCOM) played an important role in assisting the development of Massachusetts develop its innovative capital assistance programs in the late 1970s.⁽¹⁰⁹⁾

The heart of EDA's programs, as with ARA's, was its efforts in the areas of financial assistance, public works, and technical assistance. The financial assistance to businesses included both direct loans and loan and lease guarantees. These loans could be for fixed assets or working capital, and EDA participation ranged up to a maximum of 90 per cent in some cases (50 per cent in the case of tourism projects, a holdover statutory limitation from the ARA controversies). EDA granted the financial assistance itself, or in the case of many development districts, it capitalized a revolving loan fund which could be administered by the development district's operating committee of local citizens in accordance with its approved OEDP.

EDA's technical assistance efforts encompassed a wide variety of programs, some of which were left over from ARA. These included the university centres, productivity and technology transfer pilot projects, funding of inter-tribal cooperation projects among Indians, start-up costs for training programs, and special economic adjustment projects in areas subject to severe economic stress. EDA also sponsored extensive research programs into economic development, which resulted in the publication of a number of monographs and articles.

As with ARA, it was public works that consumed the majority of EDA funding. Funds went to industrial parks, ports and airports, renovated buildings, recreational facilities, and made improvements in public buildings. EDA continued to be prohibited from aiding relocation in any way, and was also specifically prohibited from funding anything that would compete with private utilities, or companies in the markets for which 'excess demand' existed (including the apparel and garment industry). EDA provided a basic grant of 50 per cent of costs (Indian projects were eligible for 100 per cent grants). Additional public works funding could be provided in a variety of circumstances. Section 304 of the Public Works and Economic Development Act set up a fund which could be used to supplement a project's grant or loan. Section 304 funds had to be matched with state funds.

EDA was the centrepiece of the Johnson administration's regional development policy insofar as it defined regional development as a specific policy. But it was by no means the only policy directed towards specific regions for the perception of and response to, development issues was much wider than EDA, as EDA itself learned when it went to Oakland. In his 1965 State of the Union message Johnson laid out proposals for a number of new programs for the cities. These included large new programs in urban renewal- previously known as 'slum clearance'- such as the Model Cities Program. It was a comprehensive federal program designed to aid virtually all aspects of urban life (not just economic development), and one of its mandates was to fix up the slums instead of tearing them down.. Johnson also created a federal Department of Housing and Urban Development (HUD) in 1965 out of scattered pieces of the federal bureaucracy to focus attention more closely on urban problems.

The focus on urban problems was matched by a renewed interest in the specific problems of rural areas. In January 1966 Johnson asked for legislation to improve planning in rural areas. The legislation called for central planning districts; multi-county community development districts would be formed to serve as clearinghouses to coordinate economic development planning by rural communities. The purpose of the districts was to make sure that rural areas could take advantage of federal aid programs without duplication of projects or federal aid.⁽¹¹⁰⁾

As well, the expanded definition of regional development was not limited to the problems of urban areas. In the fall of 1967 Secretary of Agriculture Orville Freeman argued that a major source of the urban unrest of the previous summers was the rapid migration from rural areas to the cities, which he estimated at 500,000 to 600,000 people per year. EDA released a report indicating that it was the push of declining rural areas as much as, or more than, the pull of the urban areas that was creating the crowded inner-city conditions which contributed to the riots. A Republican group issued a report with similar conclusions. This was an ironic counterpoint to past regional development efforts, for it was the migration from rural to urban areas fostered by the agricultural reforms of the New Deal that had created the problems in the cities and in the rural areas left behind. All of the rural development efforts, however, came to nothing more than the addition of northern Mississippi counties within ARC, a change pushed by Senator John Stennis whose home county was included.⁽¹¹¹⁾

But the time for concern with such issues was drawing to a close. Vietnam- at home and abroad- was increasingly becoming the only issue of real moment in Washington. It killed Lyndon Johnson's chance for a second term, and in the campaign of 1968 between Richard Nixon and Vice-President Hubert Humphrey, the concerns with urban problems that had yielded housing and development programs were transformed into concerns over law and order. Johnson's final economic report, released shortly before his departure from office in January 1969, called for the establishment of an Urban Development Bank to provide low-interest loans to assist state and local governments. But this idea was quickly lost as the White House was returned to the Republicans.⁽¹¹²⁾

Federal Development Policy in the 1970s

The switch from a Democratic to a Republican administration did not produce major changes in regional development right away. The first two years of the Nixon administration passed relatively quietly in terms of regional development policy, since Nixon was generally far more interested in foreign affairs than in domestic matters. While not philosophically inclined towards programs like those of the Economic Development Administration (EDA) or the Appalachian Regional Commission (ARC), as he would make clear after his re-election in 1972, he decided he needed to support these and other programs to 'keep the lid on' domestic opposition. The result was that Nixon would actually spend more on domestic programs in his first term than Johnson had.⁽¹¹³⁾ In 1969 a bill to provide accelerated depreciation and tax credits for investment and training programs for businesses locating in rural areas was introduced in the Senate by Louisiana Democrat Russell Long. The bill was a follow-up on similar bills introduced in 1968 by both Republican and Democratic senators. But no action took place other than hearings. In 1970 EDA was routinely reauthorised with no major changes in program or funding.

Nixon did not object to the reauthorization of EDA, but he had plans of his own. In early 1971 he proposed a major reorganization of the federal government, in which departments would be consolidated in accordance with what he called the 'great principles of government'. His proposal included establishing a Department of Economic Development, with responsibility for food and commodity programs, domestic and international commerce, science and technology, labour relations and standards, and regional programs like EDA and business assistance from the Farmers Home Administration.⁽¹¹⁴⁾

Nixon also proposed a revenue-sharing program which would give a portion of federal revenues to state and local governments to use however they chose. As part of this proposal, he did suggest abolishing ARC and the Title V regional commissions. Opposition to this part of his proposal was centred primarily in the ARC states; opponents figured, correctly, that they would get less money under a national revenue-sharing program than they had been getting under the special appropriations for ARC. Congress made it clear that it was not going to go along with abolishing ARC, which was reauthorised two months after Nixon's proposal was announced. Congress did pass revenue sharing that year, but it had little interest in any major reorganization of the executive department and so simply reauthorised the existing agencies.

By 1971 the American economy was already suffering from the twin ills that would plague it for the next fifteen years: increasing inflation and slower growth. These problems would raise again the old issues of the relationship between regional development and macroeconomic policies. In August, Nixon took the drastic steps of imposing wage and price controls and suspending convertibility of the dollar to gold at a fixed price. The Democrats response was to put together a $5.7 billion public works program which was to be dispersed primarily through EDA. Like ARA before it, EDA thus became the channel for the Democrats' desire to revive New Deal public works policies. However, Nixon vetoed these expansions as inflationary, and the Senate fell five votes short of overriding the veto.

Shortly after the failure of the public works bill, the Senate did pass a Rural Development Bill. The bill did not include the tax credits that Senator Long had proposed, but relied instead on more infrastructure projects. It permitted the Farmers Home administration, which had been established to lend funds to farms and rural homeowners, to offer loans directly to businesses in rural areas, thus effectively creating a source of competition in business finance with EDA programs. There were also new loan guarantee programs and money for industrial parks. Rural planning grants were authorized, as were programs for land and water conservation. The bill also required federal agencies to give first priority to locating new offices in rural areas. Georgia Democratic Senator Herman Talmadge called it a 'Magna Carta for rural America.'⁽¹¹⁵⁾ President Nixon called it the 'best he could get from Congress'- he had wanted all the categorical grant programs replaced with a special revenue sharing program.⁽¹¹⁶⁾

At the end of the 1972 congressional session, Nixon pocket vetoed an extension of the Public Works and Economic Development Act (PWEDA) and the regional commissions, so Congress had to take up their reauthorization again the next year. An expanded public works component in the extension legislation was dropped from the bill in 1973, but the administration was not any more enthusiastic. Nixon claimed that PWEDA and the regional commissions duplicated of the Rural Development Act he had just signed and the Community Development Block Grant proposal he was in the process of preparing. But in the end, faced with a veto-proof majority in both houses of the new Congress, Nixon agreed to sign the final bill on the condition that the authorization extension was for one year only and that appropriations did not increase.⁽¹¹⁷⁾

Following his overwhelming victory in 1972, Nixon decided it was time to attack Johnson's domestic legacy head on. His instructions for his first budget included directions to 'flush model cities'⁽¹¹⁸⁾ He tried to put a staunch conservative, Howard Phillips, in charge of the Office of Economic Opportunity, a move rejected by Congress. And Nixon returned to the idea of a major reorganization in the delivery of domestic programs, including a shift from categorical grants to block grants. This change would not affect the regional development programs until 1974, when Nixon announced that he was preparing a new comprehensive community development initiative. In 1974, he proposed a Community Development Block Grant (CDBG) program. This proposal would create the largest of the federal regional development assistance programs in funding (primarily because of the housing programs included) by consolidating ten existing federal programs, some of which went back to 1949: public facilities loans to municipalities under 50,000 population (1955 Housing Amendments); Advanced Planning Grants for public works (1954 Housing Amendments); open space acquisition (1961 Housing Act); Basic Water and Sewer Facilities Act (1965 Housing Act); neighbourhood facilities grants (1965 Housing Act); land acquisition grants (1965 Housing Act); urban renewal grants (1949 Housing Act); code enforcement grants (1949 Housing Act); neighbourhood development planning grants(1949 and 1965 Housing Acts); and the Model Cities program (1966 Demonstration Cities and Metro Development Act).

This proposal was well received in Congress, despite Nixon's growing problems with the Watergate scandal. It passed in relatively short order with only minor modifications. But there was still the problem of the PWEDA reauthorization, which was about to expire again. A bill providing for two years of authorization passed by overwhelming majorities (402-11 in the House, by voice vote in the Senate) shortly after Nixon's resignation in August. President Ford, no great friend of EDA or these programs during his long career in the House of Representatives signed the bill.

The next year went by relatively quietly on the regional development policy front. ARC and the Title V commissions were reauthorised under a separate Regional Development Commission Act with relatively little fuss. This bill contained important changes to ARC; it was expanded with new responsibilities for energy planning and programs, which was consistent with the new national focus on energy in the post oil-embargo world. There were also requirements that Governors participate in budget and policy decision making; in the past, they had tended to send their staff which had upset Congressmen. A network of Local Development Districts, similar to the economic development districts under EDA, had been established within the commission's area, and these were now formally recognized and began to receive funding from both EDA and ARC.⁽¹¹⁹⁾

Also in 1975, with the economy sinking into a deep recession, Senator Humphrey, along with Republican Senator Jacob Javits from New York introduced the Balanced Growth and Economic Planning Act which proposed creation of a Cabinet-level council of economic planning, an economic planning board in the Executive Office of the President; these two agencies would be required to submit an annual plan for 'balanced growth' in rural and urban areas.

A significant feature of this legislation was that it was introduced as a companion piece to the Equal Opportunity and Full Employment Act of 1975, which was known as the Humphrey-Hawkins bill.⁽¹²⁰⁾ Humphrey-Hawkins was to be an update and expansion of the 1946 Employment Act, and would have committed the federal government to ensuring full employment, rather than just intervening to promote it. By accompanying this commitment with one for 'balanced growth', which was an acknowledgment of the regionally differentiated trends in growth, it appeared that for, some Congressmen, regional development policy was now considered to be as important a role for government as the macroeconomic responsibilities that it had acknowledged at the close of World War II.

The Humphrey-Hawkins bill was destined to fail in the 1976 session of the Congress over concerns about its impact on prices at a time of high inflation, and with it went the Balanced Growth Act. But the 1976 session of Congress did see a reform of PWEDA and EDA. The agency was to be reauthorised for three years, with increased funding authorization for its business finance programs and a new program in grants for interest rate write-downs in times of high interest rates. A new program of special funds for businesses in urban areas was also created on the premise that not enough money was going to urban areas. The one remnant of the Humphrey-Javits bill's concerns for regions was a provision in the Senate bill authorizing the president to call a conference on balanced national growth and economic development, a provision eventually be implemented by Carter.

In the difficult economic times of the mid-1970s, the Democrats had not lost their faith in public works as a tonic, and again attempted to pass a major public works bill. But Republican president Gerald Ford had not gained any faith in public works in his transition from the House of Representatives to the White House and threatened to veto any bill containing an expanded public works program. Partly to avoid having the EDA bill killed once again, and partly to highlight their efforts, the Democrats separated the public works portion into its own bill, the Jobs Act of 1975, and sure enough Ford vetoed it, calling it just an 'empty promise and another giveaway program.⁽¹²¹⁾ The Senate failed by three votes on its override attempt. The EDA bill had to have the new urban aid portion removed in order to get past Ford; it was removed at the end of the session and the extension and overhaul of EDA was finally signed into law.

The election of a Democratic president in 1976, after eight years of Republican presidents, recreated the conditions of 1960 when Democratic legislative initiatives, previously frustrated by Republican presidential vetoes, could be passed. Within sixty days of Jimmy Carter's assuming office, a $4 billion Accelerated Public Works Program II was passed by the House. Carter had actively campaigned for this program as a part of his economic stimulus package, and he signed it into law in mid-May. EDA would be the administrator for the entire program; the public works bill had little to do with regional development, but EDA had the administrative machinery in place.

Public works was just the beginning of development effort that the Carter administration had in mind. Even as the public works program was winding its way through Congress, Carter's housing and urban development secretary, Patricia Harris, was urging an increase of $750 million in Community Development Block Grant (CDBG) funding, three times the level that the Ford administration had been considering. Harris also urged the creation of an Urban Development Action Grant (UDAG) program with funding of $400 million. Both these programs were to be used for housing and public facilities, to prepare real estate for private developers, and to assume part of the financing through loans or guarantees. While eligibility for the funds in these programs was somewhat limited compared with EDA, the Carter proposals made CDBG and UDAG a part of the federal government's regional development policy. More than three-quarters of UDAG's first round of grants were in aid of new or expanding commercial and industrial projects. A wide variety of uses were found for UDAG's, particularly for downtown redevelopment projects such as hotels, convention centres, and office centres. Relatively little money went to support manufacturing facilities.⁽¹²²⁾

For the early Carter administration, cities were the region of choice. The CDBG and UDAG programs were only the opening salvos in the Carter administration's urban policy initiative, which was announced in March 1978 after nearly a year of intense internal debate between the Department of Commerce and the Department of Housing and Urban Development over its scope and details. Indeed, details of the plan had still not been worked out two days before the scheduled announcement of the new programs, which left a frantic forty-eight hours for Carter to review and approve the complex policy recommendations. Carter argued that what was needed was not substantial new money, but a marshalling of the existing resources of the federal bureaucracy to make programs more sensitive to urban needs.⁽¹²³⁾ In this, Carter envisioned moving out of a building stage of regional development and into a reorganization phase. But his reorganization was aptly described as a 'smorgasbord' of different ideas and programs. His package included: (1) a three year, $3 billion program of labour intensive 'soft public works' to rehabilitate public facilities, which required contractors would be required to hire half of the workforce for these projects from workers eligible under the Comprehensive Employment and Training Act (CETA), a Nixon-era program of federally subsidized employment; (2) employment tax credits to encourage firms located in urban areas to hire CETA-eligible workers; (3) creation of a National Development Bank⁽¹²⁴⁾ to provide loan guarantees and grants for up to 15 per cent of the costs of private investment projects in both urban and rural areas; (4) funding for community development corporations; (5) a tax credit for companies investing in distressed areas; (6) replacement of countercyclical revenue sharing with grants to state and local governments when the national unemployment rate passed 6 per cent; (7) funding for housing, health clinics, social service grants for the elderly and child care, an Urban Action Corps, neighbourhood crime prevention programs, neighbourhood organization funding, mass transit, solid waste project planning, and a liveable cities arts program; (8) $200 million in incentive grants to states to encourage urban planning and redirection of state programs to urban areas (9) establishment of an interagency council for the federal government to ensure the coordination of all federal policy affecting urban areas.

The package omitted some key elements, including recommendations by Carter's Urban and Regional Policy Group for over 160 changes in federal regulations and programs to make them more 'urban sensitive'; for example, the group recommended that the Environmental Protection Agency stop water and sewer grants to developing rural areas and concentrate on revitalizing existing centres. Most noticeably absent were the formulas for distributing program funds. This oversight was to prove a profound political mistake, one that Johnson with his keen appreciation of the fact that members of Congress were much more interested in what their districts would get than in grand designs, would not have made.

Carter's urban proposal did not receive quite the same welcome that Johnson's had more than a decade earlier. The omission of any formula proposals, due in large part to the lateness and confusion of the Carter policy development process, combined with the belief among interest groups that Carter was wrong in thinking that significantly more money was not needed, led to a very cool reception for the proposal among Democrats in Congress. The coolness turned downright chilly when the package hit the frostbelt/sunbelt controversy.

The middle years of the 1970s were a period in which the long-term trend towards declining regional income disparities was abruptly reversed. The southern tier of states (the 'sunbelt') was growing faster in population, employment, and income than the northern tier (the frost belt or, for some, the snowbelt). Economic analyses of the trends pointed to the major cause of the reversal as the shift in energy prices following the 1973 Arab oil embargo which favoured the southern energy-producing states, combined with the severe recession that hit the durable-goods manufacturing sector in the northeastern states.⁽¹²⁵⁾ But this was not the view at the time.

A number of stories appearing in the press called the divide between the south and the north the 'second war between the states': 'At present, the nation's disparate economic growth is pushing regions towards a sharp conflict with each other even though the country is more firmly knit together constitutionally, culturally, and ideologically than at any time since the pioneers first pushed beyond the Appalachians' The stories pointed specifically to federal programs as the cause of the divide.⁽¹²⁶⁾ The postwar federal assistance to the south was cited as a major reason for the increasing disparities. The Washington Post pointed out that New England paid out $30 billion more in taxes in 1975 than it received from the federal government provided for its cities, a ratio of $0.96 received per $1.00 paid out. The ratios for the south and west were $1.14 and $1.20 per $1.00 of taxes.⁽¹²⁷⁾

The sunbelt/frostbelt controversy had been brewing for some time when it erupted in the debate on Carter's urban policy, which was quite clearly targeted to those cities in the north that were having the greatest economic difficulty. The Southern Growth Policies Board, a regional organization of the southeastern governors, which was created to promote economic growth in the region, reacted angrily to the concentration of funding in the northern cities, particularly for the UDAGs. The Northeast-Midwest Institute, a policy research arm of the members of Congress from that region established for the specific purpose of countering the views of the Southern Growth Polices Board, defended the allocation of funds, and thought Carter, the southerner, was not providing the funding that was needed.⁽¹²⁸⁾

This argument was part of the increasingly divisive debate over which region would get how much funding in the emerging legislation. The split was both urban versus rural and snowbelt versus sunbelt. Typical of the exchanges taking place was an appearance before a Senate committee by Housing and Urban Development (HUD) secretary Harris, who was confronted by an angry Oklahoma Democrat Henry Bellmon. When Bellmon complained that Oklahoma City was not eligible for UDAG funds, Harris responded that these funds were for cities with weak property tax bases, which Oklahoma City, then in the middle of the oil boom, did not have. Bellmon complained, 'But what you are doing is punishing us for being good guys'. Harris responded that UDAG's were not a reward, but a crutch and a bandage. Bellmon said, 'Then we want a crutch'.⁽¹²⁹⁾

The focus on funding was becoming more intense, as evidenced by what happened when HUD tried its own version of a 'worst-first' policy. Trying to direct funds to what it saw as the areas of greatest needs within the cities, HUD adopted regulations requiring municipalities receiving CDBG funds to give priority to projects that were located in the most distressed parts of their cities. But this federal policy did not sit at all well with the cities, which were accustomed to using the funds as they saw fit. Cities contacted their congressmen and senators in large numbers, and the House responded by inserting language into a bill reauthorising HUD that prohibited the department from requiring any specific targeting of CDBG resources and required that any future HUD regulations be subject to a legislative veto.⁽¹³⁰⁾

The combination of controversies effectively kept all of Carter's urban aid proposals bottled up in Congress throughout 1978. Carter issued an executive order in August that established his proposed interagency coordinating council, increased procurement preferences for General Services administration purchasing, established preferences for central city sites for federal offices, and required that the Office of Management and Budget prepare an 'urban impact analysis' (OMB A-116)for all major federal actions modelled on environmental impact analyses in order to make existing federal programs more sensitive to urban needs.'⁽¹³¹⁾. But this was all that could be managed after two years of effort.

In his last two years, Carter's economic policy first moved away from regional development, and by the time he returned to it, it was too late to effect any significant change. As inflation rose to higher levels, concern about the federal budget deficit became a higher priority. Speaking to a conference of urban officials in October 1978, presidential adviser Anne Wexler gave the first hint of a change in direction: 'Let me be frank. The president is committed to dealing with inflation. It will be a time of austerity in the federal budget.' A few weeks later, Carter himself redefined the link between macro and regional economic policies in a speech to the National League of Cities in St Louis: 'The future of our cities is at stake in our fight against inflation'.⁽¹³²⁾ This reversed the Democrats' historic view that the two were synonymous; priority now went to macro policy, and regional policy was seen as inconsistent.

But Carter was widely criticized for giving up on the urban crisis, and so in 1979 he revived several regional policy ideas. The National Development Bank proposal was pushed again, despite a lack of enthusiasm within the administration created by the turf wars among Commerce, Treasury, and HUD over which department would run the new Bank. Carter eventually decided that the bank would be run by a troika of all three agencies, a decision which none found acceptable.⁽¹³³⁾ As governor of Georgia, one of Carter's major accomplishments had been a reorganization of the nineteenth century arrangement of state agencies, and so, not surprisingly, Carter, like Nixon, was a great believer in federal government reorganization. Among his several (unsuccessful) reorganization efforts was a proposal to create a Department of Development Assistance to incorporate HUD, EDA, the Small Business Administration (SBA), and the Farmers Home Administration's business assistance programs.⁽¹³⁴⁾

There was, in fact, increasing support for the idea that the federal economic development agencies were becoming an unruly beast. New York Representative Stanley Lundine, a Democrat and former mayor of Jamestown, NY, said: 'Anyone who has actively worked in the economic development area is really frustrated with the pitiful lack of common purpose among different federal agencies involved in economic assistance.' But when Carter finally announced his reorganization plans in March, both the Department of Development Assistance and the National Development Bank were gone. Carter had realized that his reorganization plans would go nowhere in a Congress that did not share his enthusiasm for reorganization in principle, and was even less enthusiastic for an Executive Branch reorganization that would have upset existing committee and power relationships within the Congress.

Frustrated by the stalemate on his urban program, unable to win acceptance for the reorganization he wanted, Carter then switched signals again on regional development, moving it from low to high priority. He still wanted to do something dramatic in the field of regional policy. In 1979 he proposed a major expansion of EDA and the Public Works Act which was called the National Public Works and Economic Development Act of 1979 (NPWEDA). Included was a proposal to consolidate EDA with the business development programs of SBA and the Farmers Home administration. The funding that was earmarked for the National Development Bank would go to EDA to expand its programs. Carter also proposed authorizing $595 million for public works grants, $91 million for planning and technical assistance, $569 million in loans, and $1.8 billion in loan guarantee authority, for a total of $5.435 billion (compared with EDA's authorized funding at the time of $628 million). Testifying in support of NPWEDA, Secretary of Commerce Juanita Kreps provided one of the clearest statements of the need for a federal regional policy: '[Unlike the tide, increasing national prosperity does not lift all regions, or industries, or groups of people at the same rate. Persistent economic disparities, as well as sudden regional or sectoral economic trauma are often resistant to macroeconomic remedies.'⁽¹³⁵⁾

Carter included the Title V regional commissions in his proposal, although he was not enthusiastic about them. But there was strong support from governors and from members of congress, particularly Senator Jennings Randolph of West Virginia, who chaired the Senate Public Works Committee. The number and scope of the Title V commissions had been steadily expanding since the original PWEDA bill in 1965, and Carter proposed to fill in most of the last few gaps in the map of regional commissions so that all or a large part of the forty-eight continental states were covered by Title V's.

The Senate approved Carter's bill in late July 1979 with relatively few changes. Funding authorizations were well below what Carter had suggested, but all of the tools were there. The criteria for inclusion of communities in development districts were changed so that the moratorium on de-designation, initially imposed in 1969, was lifted. By 1979 the changing regional circumstances brought about by the energy crisis had made more and more areas eligible for designation as an economic development district. Since Congress had prohibited de-designation of districts, the number had continued to grow until nearly 85 per cent of the nation was in an EDA-eligible district. Carter wanted to streamline eligibility to some extent, and NPWEDA contained provisions to reduce the population eligible from 85 per cent to 67 per cent. As Rhode Island Senator John Chaffee put it, 'I don't think anyone believes 85 per cent of Americans are living in distressed areas'.⁽¹³⁶⁾

In contrast, consideration in the House resulted in significant changes to the administration's proposal. Rather than reducing the area within which EDA operated, the House expanded the criteria to include 90 per cent of the population. The House revived its old favourite, an anti-recession standby public works program authorized at $2 billion; it also added other program expansions, including a lower requirement for the amount of equity needed to secure a loan guarantee, a program for the government to own equity in businesses as well as provide loans and guarantees, and a requirement that EDA recipients prepare environmental impact statements. The House also included a $100 million grant program for ethanol and methanol plants at the behest of cornbelt representatives. Of these new features the district eligibility criteria and the standby public works provisions were the most important areas of disagreement between the House and Senate.

In a repetition of a familiar story, NPWEDA made it out of the Senate by the end of 1979, but the House had still not completed work on it. Believing it would eventually pass, Carter continued to expand his proposals for regional policy with the announcement of a Small Community and Rural Development Policy, which he cited as a 'landmark policy'. A new under secretary of agriculture for small communities and rural development would be created, along with another interagency coordinating council, a Citizens Advisory Panel. There was also a promise of an annual review of the impacts of all federal programs on rural and small communities.⁽¹³⁷⁾ It was not made clear how these new rural mechanisms would work with the similar mechanisms already established for urban areas. For these, Carter proposed additional funding for both the CDBG and UDAG programs, which Congress passed with only minor modifications.

Profound misgivings arose about the effectiveness of the public works program. Assistant Secretary of Commerce Robert Hall testified that the previous public works programs had taken so long to process that the economic expansion they were meant to hasten had already begun⁽¹³⁸⁾. But the White House agreed to support the House version of NPWEDA with its standby public works program, provided that the trigger unemployment rate was raised from 6 per cent to 8.5 per cent. This manoeuvre got Carter out of trouble with the House, but typically- considering the increasingly fractious relationships within the Congress and between the White House and Congress- satisfying the House made enemies in the Senate.

Senator Ernest Hollings spoke for many of his colleagues who were worried about the rising budget deficit when he called the $2 billion public works program a 'budget buster'.⁽¹³⁹⁾ The final act was played out in the last weeks before the 1980 election. The House agreed to drop the public works program and the other major differences between it and the Senate and accept a simple reauthorization of the basic EDA program. This was by now a tried-and-true gambit when changes in regional development policy were proposed. But there were two differences this time. First, the dispute was between the houses of Congress rather than between Congress and the president. And second, any hopes that this would be another temporary retreat in anticipation of renewed efforts to expand of regional development policy were soon to be dashed by the national elections.

There were other elements to the federal government's efforts at development policies at the end of the Carter years. In 1980 Congress established an export assistance program within the Small Business administration, in anticipation of the boom in international trade development programs that would occur in the next decade in the states.⁽¹⁴⁰⁾ For the Carter administration itself, a symbolic coda to its regional development efforts was provided by the president's own Commission on an Urban Agenda in the Eighties. Part of an effort to create a 'national agenda for the next decade', the Commission examined urban programs and was very sceptical about the federal government's ability to use its size and position in the economy to alter geographic outcomes. Instead, in a direct repudiation of Paul Douglas's belief twenty-five years earlier that national growth alone would not solve regional problems, the commission urged that 'national economic vitality take precedence over any competition for advantage among communities and localities.'⁽¹⁴¹⁾ Thus ended the Carter administration's efforts to greatly expand the federal government's role in regional development end- repudiated by the administration's own commission. The stage was thus set the stage for a president with very different ideas about the role of the federal government.

The 1980s: The End of Federal Regional Development?

Ronald Reagan was elected president with an extremely narrow view of what government could do. He proclaimed that government was not the solution, but the problem. Moving quickly to reorient regional development policy in his first budget submission, Reagan proposed a two- year reduction in funding that would eliminate the Economic Development Administration (EDA), the Title V regional commissions, and the Appalachian Regional Commission (ARC). David Stockman, his budget director, was blunt in his testimony on EDA: 'We believe that government should get out of the regional development and job creation business.'⁽¹⁴²⁾ Secretary of Commerce Malcolm Baldridge, the official with ultimate responsibility for EDA, said: 'It is not clear that federal involvement has resulted in regional development. Most of the funds have been spent on individual projects with little relation to regional development plans.'⁽¹⁴³⁾

In place of active government intervention to assist economic growth in the cities and rural areas, during the campaign Reagan had supported the idea of enterprise zones, specially designated areas where taxes and regulations would be reduced to encourage businesses to locate there. This approach fitted perfectly with his view that growth could only occur when government barriers were removed, not when government assistance is provided: 'The program will identify and remove government barriers to entrepreneurs who can create jobs and economic growth. It will spark the latent talents and abilities already in existence in our Nation's most depressed areas.'⁽¹⁴⁴⁾ Not only was this was a reversal of the form of regional policy, but it also overturned the long standing concern among Republicans that the federal government not subsidize the relocation of firms from one region to another.

In its first months, the Reagan administration's legislative activities were limited to eliminating existing programs, but the enterprise zone idea was actively promoted by a number of congressmen and senators. Some bills were sponsored by Democrats and some by members of both parties, such as the bill presented first in 1980 by two congressmen from New York, Republican Jack Kemp (from Buffalo) and Democrat Robert Garcia (representing the South Bronx section of New York City). This bipartisan support for the idea of enterprise zones stemmed from two different impulses, however. The Democrats saw them as supplements to existing programs, while Republicans saw them as replacements.

By the end of 1981, the 'Reagan Revolution' was in full swing, but rural development policy was only a partial victim. EDA was not eliminated, but was retained with level funding for most of its programs. ARC was also retained, after an agreement between Senate defenders and the administration to permit a 'finish up program' of five years. Funding was drastically reduced, but ARC was still alive. This was better than the fate that befell all the other Title V commissions; they were eliminated as of the beginning of the new fiscal year (October 1). Rural development funding was cut back to $10 million per year. The Urban Development Action Grant (UDAG) and Community Development Block Grant (CDBG) programs were level-funded, but new, more stringent application procedures were put in place for CDBG.

Most of federal regional development policy in the 1980s consisted of a running battle between Republican presidents trying to eliminate EDA and ARC in favour of enterprise zones and Democratic Congresses attempting to keep alive the programs and agencies created during the 1960s and 1970s. The first salvos in this battle were fired in 1982 when the administration submitted enterprise zone legislation for the first time, following release of Reagan's own policy statement on urban America, which echoed strongly the Carter administration report from two years before.⁽¹⁴⁵⁾ The president mentioned enterprise zones in his State of the Union address and in March he sent a special message to Congress proposing a program that would reduce income taxes on businesses locating in designated zones, permit state and local governments acting together to request suspension of any federal regulations, provide federal funds to encourage privatization of local services and to assist neighbourhood organizations. The method of designating zones was left open, which lead to criticisms that designation would be primarily political.⁽¹⁴⁶⁾

For defenders of EDA and ARC, 1982 was another year when reauthorization was necessary. This time reauthorization had two problems: the president and a Republican Senate. The Democratic House passed a three-year reauthorization and, in a gesture towards the new demands for cuts in domestic programs, it slightly reduced the authorization levels and cut the number of areas eligible for EDA programs to just slightly over 40 per cent of the population. Both agencies also had strong Senate supporters who tried to enlist the Republican Senate Majority Leader Howard Baker of Tennessee, an Appalachian Regional Commission state. But there were not enough votes to pass a reauthorization, so a simple continuing resolution was adopted to keep the agencies alive at unchanged levels of funding.

The Senate did approve the president's enterprise zone legislation in 1982, but the Democrats on the House Ways and Means Committee were adamantly opposed to the program, and it made no progress there at all. UDAG and CDBG were again kept level-funded. At the end of the year, the deepening recession once again revived the Democrats' desire for their favourite tonic: a public works program. This time, however, the vehicle of choice for the Democrats was not EDA, which was shrinking in its geographic coverage, but, ironically, the CDBG program originated by Richard Nixon, which was now reaching many more communities.

In 1983, the Senate also attempted to pass a public works program that was less than half the size of the House bill, but got hung up by a filibuster on an unrelated provision requiring banks to withhold taxes from interest payments to individuals. This was eventually resolved with a compromise and freed up a public works bill that provided $1 billion in additional CDBG funds. Reagan signed this bill in March. Meanwhile the House was beating back another attempt to kill ARC and EDA, and instead it passed the reauthorization bill that it had passed the year before. Again, however, the votes in the Senate were not there and another continuing resolution was needed.

By 1984 the skyrocketing federal budget deficit following the tax cuts and the recession was beginning to alter the shape of the debate on regional policies, and on all other domestic policies. Each party used the deficit as an excuse to argue against continuation of the other party's favourite ideas. The Democrats eliminated enterprise zones in a conference with the Senate, while the Republicans continued their attempts to kill off EDA and ARC. These battles, full of sound and fury, ultimately produced no major changes in federal regional policy beyond those that occurred in 1981. Congressional committees stepped up oversight activities on the EDA, complaining about the 'low morale and self-doubt' that plagued EDA, and about the confusion caused by administrative decisions to move many of the loan decisions from the regional and state offices to Washington.⁽¹⁴⁷⁾

Regional policy was not a major point of contention between Ronald Reagan and Walter Mondale in the 1984 election. Reagan had signed the jobs bill in 1983, removing that as an issue, and both candidates supported UDAGs, although Reagan wanted them folded in with CDBGs in an expanded block grant program. Mondale supported enterprise zones as a supplement for, not a replacement of, other urban programs.

But the budget deficit loomed even larger after the re-election of Ronald Reagan. His budget proposal submitted in February 1985 proposed a 'freeze' on domestic spending, but part of this freeze was the elimination of EDA, ARC, UDAG, the Small Business Administration (SBA), and the CDBG business loan program. The idea of eliminating UDAG was new. It was a politically popular program in the cities, but it was not universally loved in Congress. Echoes of the frostbelt/sunbelt controversy were heard when Iowa Republican Senator Charles Grassley complained that the UDAG funds distribution formula, which used housing built before 1940 as a key variable, gave too much weight to the states in the northeast. Arkansas Democratic Representative Ed Bethune complained that this is where the money would do the least good, given the shift to the sunbelt. New York congressmen responded by saying that they would be glad to have a share of Iowa's agricultural subsidies.⁽¹⁴⁸⁾

The fiscal year 1986 budget resolution passed the Senate first.⁽¹⁴⁹⁾ The White House and Senate reached an agreement that would cut CDBG by 10 per cent (primarily the business loan provisions) and that would terminate UDAG, ARC, and EDA. But the deal did not last. UDAG supporters in the Senate were able to secure enough votes to keep UDAG alive by agreeing to a 20 per cent cut, and a change in the funding formula provided money to Iowa and other states that had not been receiving substantial amounts. The result was that fewer dollars would be spread more thinly. The 20 per cent cut was also applied to EDA and ARC as well in compromises that kept all three programs alive another year. However, the House refused to go along with the Senate change in the UDAG funding formula, and once again a congressional stalemate produced more continuing resolutions but no change.

In 1986, frustrated at the refusal of Congress to terminate regional and urban programs, Reagan tried a new approach. He proposed deferring spending on some programs to the next fiscal year, and instituted a recision of appropriations already made for EDA, UDAG, and ARC. Congress did not approve of these measures any more than it had the outright elimination of the agencies. But there was still a conflict between the House and Senate which prevented any forward momentum from Congress. The two houses were locked in a dispute over UDAG funding and housing; the Senate wanted to broaden UDAG funding, while the House wanted more money for housing programs. Under the new budgetary constraints, what had once been the makings of a deal was now a cause for battle. The House eventually scaled back its housing bill and agreed to the Senate's UDAG formula, but the compromise could not be enacted before the end of the session.

The next year saw another change in the political balance of power as the Democrats recaptured control of the Senate in the 1986 elections for the first time since 1980. Supporters of EDA, UDAG, and CDBG now had a better chance of getting the programs reauthorised at least, and perhaps even expanded a little. The Democrats did not have enough votes to overcome a presidential veto if one were forthcoming So they adopted a strategy of lumping as many programs as possible into a single bill in the hopes that it would gain enough support to prevent a veto, or, if necessary, to override a veto. Thus was born a two-year 'omnibus' housing bill, containing not only these three programs but a variety of other housing programs. This, along with the Senate Democrats' agreement on a 39 per cent cut in community development funds and a 25 per cent cuts in UDAG, was a tacit concession that regional development as such was no longer a saleable political concept, and that the only way to keep EDA and UDAG alive was to do so under the cloak of housing, rather than economic development.

The House took up the bill reauthorising these programs in each of the last three years as a vehicle to go to conference with the Senate. The Reagan administration remained strongly opposed to the programs, and Republicans in the Senate labelled the bill a 'budget buster' and the programs 'corporate welfare.'⁽¹⁵⁰⁾ By August both houses had passed their versions of the bill, but the conference dragged on into November. An agreement was finally reached, and was approved by the House on a vote of 391-1. But in the Senate, the Republicans counterattacked with a point-of-order that the bill would violate the budget agreement between the Congress and the president (although the conference report was smaller than what the Senate had already approved by $600 million and less than current appropriations). This required a sixty-vote margin to overturn, and the Democrats did not have it.⁽¹⁵¹⁾

In the end, however, the original strategy of lumping all these programs together paid off. In mid-December a compromise was struck on various housing elements, such as the timing and eligibility of low-income mortgage assistance and elimination of a lead-paint removal program. The revised conference report was approved in both houses and signed by the president. At the time, continuation was, as their supporters had hoped, made possible by the desire to fund the housing programs in the bill. No mention at all was made of EDA, UDAG, or CDBG provisions.

It was a short-lived reprieve for UDAG, however. In 1988 both time and support ran out for the program, and it became the first regional development program to be completely eliminated. The deficit continued to grow, putting more pressure on Congress to find places to cut spending, and UDAG was no longer a high priority. Its opponents included conservatives such as New Hampshire Republican Senator Gordon Humphrey who called it 'corporate welfare', and Democrats, echoing concerns in the early 1960s about ARA's Detroit project, termed it the 'Hotel Corporation of America' for all of the hotels it funded. A combination of congressional opponents, some of whom viewed it as a giveaway program, and others who believed they were not getting enough anyway, killed the program in the budget resolutions passed that year.

But if some programs were eliminated, regional development remained alive, and not just among Democrats. ARC was revived as a potential model for federal action, ironically, by Republicans. The five-year 'finish up program' agreed to in 1982 had stretched to seven years because Congress continued funding for the commission despite administration opposition. Following the collapse of world oil prices in the mid-1980s, the coal industry, which had been booming, began another decline. At the same time, increased imports of clothing and textiles put a severe strain on those industries. The result was a renewed interest in ARC by Republican governors Carroll Campbell of South Carolina, where the clothing and textile industries were located in the Piedmont region of southern Appalachia, and Arch Moore of West Virginia, where the coal impacts occurred. The governors proposed an expansion of ARC funding, including enough funds to finish the last third of the original three-thousand-mile Appalachian highway system and additional aid to the most depressed counties. Congress did not provide the requested expansion, but it did indicate that interest in federal regional development efforts had survived the Reagan years with support from more than Democrats in Congress.

As the Bush administration took over in 1989, regional development reappeared in an old form: rural development. The renewed attention began with an effort to alleviate conditions along the southern border. In 1988 members of congress from southern border states secured funding (which came from cuts in other CDBG and Farmers Home Administration programs) to provide infrastructure and housing for the 'colonias', unincorporated regions along the Rio Grande in Texas, New Mexico, and Arizona where upwards of 300,000 people, many of them illegal immigrants, were living in squalor and poverty. The bill passed relatively easily, but it made only a small pretense at economic development. It was simply to relieve the worst of the conditions in the area.

The other element in the revival of federal interest in rural development had originated in the 1985 Farm Bill, which had attempted to cut back on agricultural subsidies. In that bill was a provision establishing a National Commission on Agricultural and Rural Development Policy to examine alternative economic futures for regions likely to be affected by reduced agricultural supports. Before the commission issued its report in late 1990, Bush established his own Rural Development Initiative in January of that year. The administration's initiative was an amalgam of past regional federal policies. It included the creation of partnerships between nine states and the federal government to take a 'strategic approach to rural development.' In addition, the Department of Agriculture would chair a new interagency task force on rural development within the federal government (the president's Council on Rural America) which would coordinate activities of federal agencies' affecting rural development and serve as the point of contact with the rural development councils to be created in the nine states (Kansas, Maine, Mississippi, Oregon, South Carolina, South Dakota, Texas, and Washington). These state councils would have state and federal co-chairs and would create plans that both federal and state governments would follow.⁽¹⁵²⁾

Congress then did the Bush administration one better in the 1990 Farm Act by creating a new Rural Development administration within the Department of Agriculture, headed by a new under secretary for small community and rural development. While budget arguments prevented funding for this new agency until 1991, when it did get up and running it had expanded funds for infrastructure, small business development, and planning. At the same time, a new Office of Rural Affairs was created in the Small Business Administration to increase agency's focus on rural needs. Relatively little additional money was made available in these initiatives, but they served to show that the idea of regional development had not entirely died, even if a Republican administration had to return to the roots of regional development planted more than thirty years previously in the Eisenhower administration.⁽¹⁵³⁾

The Rural Development Initiative was a very low profile effort. Regional development as such played no role in the 1988 presidential election, despite the fact that the Democratic candidate, Massachusetts Governor Michael Dukakis, had been one of the foremost innovators of development policy at the state level during his tenure in office. George Bush continued the Republicans' still-unrequited affair with enterprise zones, proposing them in the campaign, and naming one of their greatest champions, Jack Kemp, as secretary of Housing and Urban Development (HUD). But Kemp, rather than being able to push enterprise zones and other conservative programs, found himself having to confront one of the largest scandals (in financial terms) in American government: HUD's awards of massive amounts of housing rehabilitation money to friends, contributors, and other supporters of the Reagan administration.

So after forty five years, two programs, one originating with the Democrats (the Economic Development Administration, né the Area Redevelopment Administration) and one with the Republicans (Community Development Block Grants), plus a revived effort to coordinate state and federal efforts in rural development were all that was left of federal regional development.

Figure 1 shows the appropriations for the major federal regional development programs from 1962 to 1992. Appropriations are adjusted for inflation using the consumer price index, and are deflated to the first year of program expenditures. For Community Development Block Grants (CDBG), the largest program which is graphed on the right axis, the peak in funding came in fiscal year 1978 under Jimmy Carter; the peak in nominal appropriation amounts came two years later. Since that time, real, funding levels steadily declined. EDA reached its peak in 1967 and declined for eight years until additional funding was added in the Ford administration. Funding continued to climb in real terms through the Carter years, but there was a dramatic drop in fiscal year 1981, the first year of the Reagan administration. Through 1992, despite being at significantly lower levels, real funding for EDA declined only slightly. A similar pattern occurs with funding for the only survivor of the regional commissions, the Appalachian Regional Commission. ARC did enjoy an increase in funding in fiscal year 1988 and beyond, after West Virginia Democrat Robert Byrd took over as chair of the Senate Appropriations Committee.

By the end of the 1980s, regional development was barely on the radar screen of the federal government. Yet it was not dead by any means, and the idea of a specific federal role in regional development re-emerged very clearly with the election of Bill Clinton in 1992. An enthusiastic supporter of economic development programs as governor of Arkansas in the 1980s, the period of greatest activism by state governments, Clinton came to Washington riding on a campaign that emphasized economic growth. Ironically, however, he chose as his principal regional development tool the same idea that had been pushed by his two Republican predecessors: enterprise zones.

The revival of enterprise zones in the 1990s echoed regional policy in the 1960s. George Bush had pushed federal development assistance, in the form of enterprise zones, as the solution to the problems of urban poverty in the wake of the Los Angeles riots in 1992. An enterprise zone program was included in tax legislation that year, but Bush vetoed the bill on the grounds that other provisions were unacceptable tax increases. Thus twelve years after Ronald Reagan had first proposed the idea for the federal government, enterprise zones were still only a proposal.

With the return of both the White House and the Congress to Democratic control following the 1992 elections, however, the proposal was finally able to move beyond this stage and into law. On 10 August 1993, Congress approved a new program calling for the designation of 'empowerment zones' and 'enterprise communities'. HUD could designate up to six urban empowerment zones and sixty-five enterprise communities, while the Department of Agriculture would have responsibility for designating three rural empowerment zones and thirty-five enterprise communities. Selection would be made following a nationwide competition, cities and counties would present their proposals which would be judged on the basis of the extent to which they met criteria for fostering economic development and sustainable communities, formed community partnerships, and demonstrated a strategic vision for change.⁽¹⁵⁴⁾

This approach of a national competition for regional development programs represented a clear departure from past federal practices which designated communities based on strictly defined eligibility criteria, although it should be noted that Congress did not permit a pure competition to take place. There were provisions such as the one inserted by New Jersey Senator Bill Bradley that at least one of the urban empowerment zones had to be located in a metropolitan area that spanned two states. The result was that Philadelphia, Pennsylvania. and Camden, New Jersey were included. Ironically, Los Angeles, which had been the catalyst for all the renewed interest in enterprise zones, was not.⁽¹⁵⁵⁾

Water Resource Development and Industrial Revenue Bonds

The main stem of the story of federal regional policy in the United States has been the combination of policies aimed at providing infrastructure, assisting business investment and growth, training, and later housing to areas of the country whose economic performance did not match that of the nation as a whole on one or more measures. But there are two important tributaries to the story that need to be explored. One is the continuation and expansion of water resource projects directed at providing water, electricity, and other benefits to areas of the country that were endowed with too little water (the west) or too much (the southeast).⁽¹⁵⁶⁾ This tributary was the direct outgrowth of Tennessee Valley Authority (TVA) and the dam projects of the Bureau of Reclamation and was critical to the economic transformation of major parts of the United States. The other is the direct descendant of Mississippi Governor Hugh Lawson White's Balance Agriculture with Industry (BAWI) program: the industrial revenue bond which would provide important development assistance and be one of the only enduring federal-state-local partnerships in economic development, albeit one in which the federal government was a most reluctant partner.

WATER RESOURCE PROJECTS

John Wesley Powell is best known as the first white man to descend the Colorado River through the Grand Canyon. But his most lasting contribution had more to do with the absence of water in the west than with the exploration of one of the region's most important water resources. In 1876 Powell submitted a report to Congress on his ten years of travels west of the Mississippi, A Report on the Lands of the Arid Region of the United States, with a More Detailed Account of the Lands of Utah. Powell was so impressed with the lack of water in the 'arid region' west of the 100th meridian that he recommended redrawing state lines to coincide with river basin boundaries, lest the inevitable result be interstate wars over water if the original boundaries were maintained. He also recommended that Congress lower the 160-acre standard allocation under the Homestead Act, which had been established with the states of the 'old northwest' (today's midwest) in mind because there simply was not enough water in the west to farm an area that size.

Most of all, Powell recommended a major effort at irrigation. The problem was only partly an absolute lack of water; it was more a matter of water in the wrong places and at the wrong time. Water was concentrated in the mountain ranges and the rivers, and would provide enough water if it could be transported to the places where people could use it. Following Powell's report, a number of private ventures to create irrigation systems were attempted, but most failed in the extremely dry years of the 1880s and 1890s. One person who attempted private irrigation was a displaced easterner who settled in Nevada, a person with the oddly prophetic name of Francis Newlands. After the failure of his company, Newlands ran for Congress, where he was instrumental in writing the Reclamation Act of 1902.

The Reclamation Act put the federal government in the dam building and irrigation business. Henceforth, irrigation projects would be paid for almost entirely by the federal government. (An exception would be California, where massive state and local funds from the cities of San Francisco and Los Angeles were used to create a state water projects network.) The reclamation program began slowly in the years before World War I, and took off with the great projects of the Depression era (described in chapter 2).

The construction of dams on the great rivers of the west was slowed but not halted by World War II, and after the war it began again in earnest. Dams were completed on many of the smaller tributaries of the Colorado and Columbia, creating additional upstream storage to regulate the flow of water into Lake Mead (the Hoover Dam impoundment) and the other impoundments created by the dams of the 1930s. TVA and the Bonneville Power Administration also continued their dam building programs. Between 1928 and 1956, Congress approved 110 separate project authorizations for the Bureau of Reclamation. Some of these authorizations included more than a dozen projects, so the total number of dams built or under construction during this period totalled nearly two hundred. And this was just the Bureau of Reclamation. The Army Corps of Engineers was busy building dams as fast or faster than the Bureau of Reclamation, not all of which were in the west.⁽¹⁵⁷⁾

The Truman administration continued the Democrats commitment to dams and other water resource development projects. The administration backed two large omnibus water projects bills in 1946 and 1950, and proposed establishing a Columbia River Valley Administration (CRVA) for the northwest which would have been modelled on TVA. The water projects bills passed, but the CRVA never made it out of Congress. Truman also pushed again for passage of the St Lawrence Seaway Treaty with Canada. But the Senate rejected the treaty in 1951 and again in 1952, as the same coalition of railroads and other east-coast ports that had defeated the treaty in the 1930s remained strong enough to prevent ratification.

The arrival of the Eisenhower administration changed the political climate, with important consequences for some elements of water resources policy. Eisenhower inherited the Republicans' abhorrence of the idea that the government should be in the power business, an attitude that had significant implications for water resources development since one of the principal discoveries of the Depression for the dam builders was that dams need not be just for irrigation. Boulder Dam (later Hoover Dam), the Grand Coulee and Bonneville dams, and above all, the dams built by TVA, were primarily power dams. Hydroelectric sales provided the economic subsidy that made flood control in the east and irrigation in the west possible. But the idea of the federal government being in the electricity business was anathema to many Republicans. Wendell Wilkie, a New York attorney who was Franklin Roosevelt's 1940 Republican opponent, had emerged on the national scene as the attorney for the southern private utilities fighting TVA. It was this attitude towards public power that Eisenhower inherited. He expressed a desire early in his term to sell the entire TVA back to private ownership, but he realized that the merest hint that TVA was going to be sold would create such a storm of protest that he could never get away with it. In this he was probably correct, since when he tried to rein in TVA's power in the late 1950s, the reaction from Congress led to TVA being granted more autonomy than it had had before.⁽¹⁵⁸⁾

Instead of killing off TVA, the Eisenhower administration directed its belief in private power to a proposed dam in Hells Canyon of the Snake River in Idaho. The Bureau of Reclamation was planning to build a large federally owned dam on the river, but in 1952 the Idaho Power Company had filed applications with the Federal Power Commission to build two smaller dams on the river in place of the large federal dam. The Eisenhower administration announced that it would support the private utility plans not those of the Bureau of Reclamation; after three years of hearings, the Federal Power Commission (FPC) approved the Idaho Power Company dams.⁽¹⁵⁹⁾

Ironically, Eisenhower did manage to finally get the St Lawrence Seaway Treaty, with the several power dams incorporated in it, approved. The opponents were still there; indeed, Eisenhower's brother Milton was one of the chief lobbyists for the railroad and coal companies opposing the seaway. But two events in Canada made it clear to Eisenhower that the seaway was necessary. One was the discovery of the great iron ore resources in western Labrador, which Eisenhower saw as necessary for national defence production when the major American iron ore resources of the Mesabi range in Minnesota were depleted. The second was Eisenhower's understanding of the clear intent of the government of Louis St. Laurent that Canada would build the seaway on its own if necessary. Eisenhower was concerned about the costs, but these concerns were greatly reduced when the American government's share of the project was cut by adopting a user-fee financing scheme. With reduced costs and Eisenhower's prestige on anything portrayed as essential for national defence, the Senate ratified the treaty in 1954 and the seaway opened five years later in 1959.⁽¹⁶⁰⁾

Despite the role of the president, water resource development remained largely the province of Congress from the 1930s on. In the 1930s the National Resources Board, which had been established to plan the huge investments in public works undertaken during the Depression, had not been successful at all in determining which water resources projects actually got funded. Instead, the Army Corps of Engineers and the Bureau of Reclamation had both developed their own connections to the congressional committees that authorized all public works. Opposition from this 'iron triangle' of water projects supporters, the bureaus responsible for dam building, and the congressional committees created a dam-building, political-bureaucratic machine that dealt a death blow to the National Resources Board and the New Deal planning efforts designed to rationalize public works planning.⁽¹⁶¹⁾

By the 1950s the water projects machine was well established and well oiled. The Corps of Engineers and the Bureau of Reclamation had both grown into huge bureaucracies surveying, planning, designing, and hiring contractors to build dams. In fact, they had become rivals in the water projects business, a rivalry which actually resulted in more, rather than fewer, dams being built. The Corps had historically concentrated most of its work in the east and midwest, while the Bureau had focused its attention on the west. But during the 1940s the Corps had begun to build dams in the west, starting in California. This led to a rivalry between the Bureau of Reclamation and the Corps of Engineers. The height of the rivalry was the competition to build dams on the Missouri River.

The Missouri is the second largest river in the west, rising in the mountains of Montana and Wyoming and finally joining the Mississippi. No major dams were built on the river during the Depression, but during the war it became prime ground for planning the next phase of dam building, with both agencies developing plans for a complete system of dams on the river. The Corps of Engineers came up with the 'Pick Plan', and, when the Bureau of Reclamation learned of its rivals interest in the Missouri, it came up with the 'Sloan Plan'. The resulting 'Pick-Sloan' controversy, which raged throughout the 1940s, was resolved only when the two agencies agreed to reconcile the plans by building all the dams in each plan, plus a few more. Some of these dams were bigger than anything yet contemplated; Garrison Dam in western North Dakota was 210 feet high and over two and a half miles long.

The competition between the Corps and the Bureau to build dams, combined with relentless pressure on Congress from both agricultural interests who wanted irrigation water (the overwhelming use of the water from federal dams) and urban interests who wanted the power and the domestic water supplies, and from their friends in Congress, drove the dam program forward for nearly thirty years. At one point in the 1960s, the director of the Bureau of Reclamation, Floyd Dominy, became the virtual chairman of the Senate Public Works Appropriations Subcommittee when eighty year old Arizonan Carl Hayden, who actually headed the committee, was hospitalized. Dominy accomplished this feat by simply writing both ends of the correspondence between the Bureau and the committee and both ends of the Congressional Record of the committee sessions.⁽¹⁶²⁾

The result of such arrangements, not surprisingly, was steady funding for water resource projects. Figure 2 shows appropriations in 1952 dollars for water resource development and operations for the four principal federal agencies involved: the Army Corps of Engineers, the Bureau of Reclamation, the Bonneville Power Authority, and the Tennessee Valley Authority. While the appropriations for the Corps of Engineers were not exclusively for dam developments (they included breakwaters, harbour dredging, river flood control, etc.), the relative constancy of funding for water resource development is remarkable. Appropriations in 1990 for both the Corps and the Bureau were approximately the same as in the early 1950s. Three distinct peaks of funding occurred during the Johnson administration, the Nixon administration, and early in the Ford administration.

The political forces pushing dam construction were also a reflection of underlying economic forces in the American west. In contrast to other regional development programs, enacted largely in response to decline, the water projects programs in the west were created in response to growth. The west had been gaining steadily as a share of the national economy since 1910, and over the period from 1910 to 1957 the Pacific, mountain, and southwest regions saw the greatest share of population and employment growth, and with the growth came increasing demands for water for cities and farms.⁽¹⁶³⁾ Dam building came to be driven by a powerful combination of forces in both the west and Washington, as described by Marc Reisner:

To Congress, the federal water bureaucracy has been the closest thing to a schmoo, the little creature out of Li'l Abner that reproduced mightily and lived only to be eaten by us. The dams created jobs (how efficiently is another matter), and made the unions happy; they enriched the engineering and contracting firms, from giants like Bechtel and Parsons to small cement pourers in Sioux Falls, and made them happy; they subsidized irrigation farmers, and made them happy; they offered enough water to the cities to make them happy; they gave free flood protection to the real estate developers, who ran the booming cities of the West out of their pockets, and made them happy; and as a result of all this, the politicians were reelected, which made them happy.⁽¹⁶⁴⁾

In the last years of his presidency, Dwight Eisenhower attempted to slow down the dam machine out of concern that the federal budget was getting out of control. In 1959 he requested that the appropriations bill for that year authorize 'no new starts', and that funds be allocated just for projects already approved. Congress included fifty-seven new dams anyway, and Eisenhower made good his threat to veto the bill. But Congress was in no mood to slow down the dam machine, and for the first time in 157 vetoes, Eisenhower was overridden by both houses. The next year, Eisenhower again requested no new starts, but after a compromise with Congress on a smaller number of starts than the previous year, the 1960 bill cleared easily.⁽¹⁶⁵⁾

The 1960s were both the high point of the dam machine and the beginning of its breakdown. The decade saw the largest of all the water projects authorized, the Central Arizona Project. Nowhere was the population growth that fuelled the demand for additional dams more dramatic than in Arizona, where the population doubled twice from 1920 to 1960. Arizona is a dry state, with only two major sources of water: groundwater and the Colorado River. Groundwater was there to be had for the drilling and pumping, and Arizonans did so with happy abandon, but the Colorado was another matter. The right to use the water in the Colorado was divided among the states through which it flowed, one of which was California. The Colorado was already being used by the fast-growing metropolitan Los Angeles region, and in the early 1950s it was planning a second major viaduct to tap the Colorado. At the same time, a bill to authorize the Central Arizona Project passed the Senate, but failed to clear the House Interior Committee. The struggle between the two states led, in fulfilment of Powell's prophecy, to a suit filed in 1952 in the United States Supreme Court to sort out who should get what share of the Colorado River.

The Supreme Court took eleven years to reach its decision, and when it finally ruled, it favoured Arizona on all points. This was a great legal victory for Arizona, but it had one minor drawback. Arizona now had to build the dams and aqueducts to get the water from the northern part of the state across the mountains to the central and southern population centres. The answer was the Central Arizona Storage Project for upstream storage and the Central Arizona Project of aqueducts to transfer the water, the same ideas that had been proposed in 1951. But moving the massive amounts of water over mountains and deserts required equally massive amounts of electricity to run the pumps. The Bureau of Reclamation had an answer at the ready: two new dams on the Colorado were announced in 1964, with the power from the dams scheduled to power the pumps that would run the Central Arizona Project. There was only one problem: the dams were to be located at the upper and lower ends of the Grand Canyon.

The fight that resulted between the Sierra Club and the Department of the Interior over the Grand Canyon dams is one of the epic stories in the founding of the modern American environmental movement. The Sierra Club mobilized public support through books, letter writing campaigns, and newspaper advertising. It became so involved in the fight that it cost the organization its tax exempt status. The mobilization of opposition against these dams eventually made it impossible for the Central Arizona Project to be funded as long as the dams were included. Secretary of the Interior Stewart Udall, whose family was a major landowner in northern Arizona, eventually had to cut these projects out of the bill and to propose a coal-fired power plant to supply the electricity needed by the Central Arizona Project.

In September 1968 Lyndon Johnson finally signed the Colorado River Basin Project, the largest of all the water project bills. It included not only the Central Arizona Project, but storage dams in New Mexico and Colorado, the beginnings of a Central Utah Project, and an aqueduct to bring water from Lake Mead to Las Vegas.⁽¹⁶⁶⁾ Cost estimates were well in excess of one billion dollars for just the Colorado River storage dams; the total cost of the project was never calculated⁽¹⁶⁷⁾. But when it was completed in the early 1980s, the Central Arizona Project made it possible for the desert of Arizona to become the largest source of cotton in the United States, surpassing all the states of the once-mighty cottonbelt of the southeast.

The Bureau of Reclamation's defeat on the Grand Canyon dams marked the first time that a Bureau-proposed project had ever been effectively defeated in Congress, a turning point in water resource development. The defeat was not anywhere near a death-knell, as appropriations for water resource projects continued to grow steadily. But it opened the way to questions about the wisdom of dam building as a development strategy. Nowhere was this clearer than in the case of the Dickey-Lincoln project, a proposal by the Corps of Engineers to build a pair of dams not in the west but in the east on the St John River in northern Maine.

First proposed in 1916 by the St John River Commission, the idea was revived during the Depression as part of a huge power development project that would have included a series of dams in Passamaquoddy Bay in eastern Maine to take advantage of the forty-five foot tides. In 1965 the Dickey Lincoln project was revived in an Interior Department planning report sent to the president. The idea was quickly seized by Democratic politicians from Maine, including Senator Edmund Muskie, who saw the project as a way of bringing to the poverty-ridden reaches of northern Maine the same benefits that Congress was eagerly bestowing on the citizens of the west. But it was the Dickey-Lincoln project's fate to be caught between old and new battles over dams. The proposal came after the Grand Canyon dams and thus was caught in the emerging environmental movement. In an echo of the 1930s, it was also opposed by the private utilities throughout New England. Private utilities persuaded enough New England Republicans to oppose the bill to keep authorizations, and thus funding, out of congressional water projects bills from 1966 to 1970, much to the annoyance of both Maine senators Ed Muskie and Margaret Chase Smith, who, though a Republican herself, was also a strong supporter of the project.⁽¹⁶⁸⁾ Dickey-Lincoln was reauthorised in the mid-1970s, and detailed studies were completed. The project survived the Carter hit list (see below), but the combination of private utility and environmental opposition ultimately proved too much, and the dam was the first major federal water project to be deauthorised after substantial sums had been spent studying it.⁽¹⁶⁹⁾

The Nixon and Ford years were relatively quiet in terms of water resource policy development. Nixon vetoed a public works bill in 1971 because it was too expensive, but this to-and-froing was little more than a well-established ritual between Republican presidents and Democratic Congresses. After adjusting the amount of funding downward, the bill passed. However, these years did see the final chapters of two dam projects that had been controversial since the 1940s: Pick-Sloan and Hells Canyon. In 1972 Nixon signed a $114 million bill providing additional funds to finish off the Pick-Sloan dams on the Missouri. Then in 1975 Congress passed a bill establishing the Hells Canyon National Recreation Area covering 101 miles of the river in Oregon, Idaho, and Washington, the last major free-flowing stretch of that river. This stretch had been the subject of additional dam proposals since a private utility had filed applications with the Federal Power Commission in 1964. But in the emerging consciousness about environment and natural resources, Congress, which twenty years before had been debating only whether it would be the federal government or private utilities building dams on the Snake River, had decided that no one would build dams there any more.

Scepticism about dam building was enhanced by the collapse of the Teton Dam in Idaho 5 June 1976. It was a 310-foot high earthen dam under construction by the Bureau of Reclamation on a tributary of the Snake River. It was like a hundred other dams that the Bureau had built over the years, with one important exception: it was anchored to unstable geologic formations.⁽¹⁷⁰⁾ When it collapsed it sent a wall of water a hundred feet high roaring down the valley; eleven people were killed. The investigation by House Government Operations Subcommittee concluded that the Bureau 'succumbed] to internal pressures to build dams despite evidence that they might be unsafe.' The Committee went on, 'There existed within the Bureau of Reclamation a bureaucratic momentum to build dams and, once construction has begun, the decision to halt construction is no longer an option. Safety problems are generally met with unquestioned reliance on the Bureau's ability to "engineer workable solutions"'⁽¹⁷¹⁾.

The real break in the pattern of steadily increasing federal support for water projects came with Jimmy Carter, although as with many of his other attempts to redirect policy, he was only partially successful. Carter was not shy about proposing government interventions for regional development purposes, but as a Georgia state legislator in the late 1960s, Carter was a member of the Middle Flint River Planning and Development Council. The Middle Flint was a river on which the Corps of Engineers proposed to build a dam. Carter, the former navy engineer, actually read the Corps' reports and found the analysis justifying the dam to be fundamentally flawed in many ways. Carter turned into an opponent of the dam and a sceptic of the whole dam program. By the time he became president, Carter had avidly taken up river recreation, including fly fishing and canoeing, and had joined the growing number of Americans questioning dam-building projects.

He was thus a willing listener when his staff proposed cuts in water projects as a way to free up resources in the federal budget for other uses. Within months of taking office, Carter announced that he would propose a major reduction in water project funding.,Included was a 'hit list' of nineteen specific projects to be deauthorised. On the list were some of the biggest water projects then being considered, including the Auburn Dam on the American River in California (the largest of all the California dams), the Tennessee-Tombigbee waterway in the southeast, a massive project to link southern Tennessee with the Gulf of Mexico, the Central Arizona Project, and the Dickey-Lincoln project in Maine.

Carter announced the hit list before consulting either his Interior Secretary Cecil Andrus, a former Idaho governor, and he told the members of Congress who were likely to be affected only on the Friday before the Monday announcement. This was not an auspicious beginning to an attempt to break up one of the strongest of the iron triangles. It was made worse by the fact that 1977 was a drought year in the west, one of the driest on record. This combination of political and natural bad timing made for an explosive mixture when the hit list landed on a Capitol Hill still dominated by Democrats who had been reared on water projects and the belief that public works was one of the central purposes of government. One congressional aide equated Carter's dam hit list with Ford's pardon of Nixon in terms of laying the groundwork for working with Congress.⁽¹⁷²⁾ Carter negotiated with Congress to eliminate projects, and in the end the nine smallest projects were deauthorised and a promise made for no new starts in fiscal year 1978. All the large projects in Carter's list remained authorized.

The next year Carter announced a major overhaul of water resources policy designed to make the process more rational and less subject to politics. A new review panel to perform an independent analysis of each project would be created to counter objections that federal agencies slanted their analysis in favour of construction. Projects for which state governments agreed to provide more than 10 per cent of the costs would be given preference. The formula that provided more federal funding for structural than for non-structural flood control alternatives was changed so that both would be eligible for the same share. All told, this would have represented an important change in federal water resource policy; it was the first major attempt to rein in the dam machine since the New Deal planning programs. But it still would not have touched the water going to irrigation in the west, and after announcing the policy, Carter submitted no legislation at all, and the entire effort died.⁽¹⁷³⁾

Carter did seek new water projects, but not new dams. He vetoed public works bills in 1978 and 1979 because they contained projects that did not meet his criteria. But as with the original hit list, he had to accept compromises on what could be passed. His battles with the Congress on this aspect of regional development may have contributed to the slowness with which the Congress responded to Carter's other regional development proposals.

One thing to which Carter's hit list surely contributed was the emergence of the 'sagebrush' rebellion, a movement in the west to protest federal policies affecting the region. A major legacy of nineteenth-century land policies was to leave the bulk of land in the west in public ownership, and a multitude of federal agencies, including the U.S. Forest Service, the Bureau of Land Management, and the National Park Service, became responsible for these huge holdings. In addition to his proposed reduction in water development, Carter was also proposing significant changes in federal lands policy, including a huge increase in the amount of Alaskan land reserved from development (as partial settlement for native land claims) and an increase in the amount of national forest land that would be left as 'roadless' areas, that is, not accessible for timber cutting.

To some residents of the western states, these changes in federal policy were direct threats to their livelihood, and fanned their natural hostility to the federal government into a political movement that was one of the mainstays of the 1980 Reagan coalition. The sagebrush rebels were rewarded when one of their leaders was named secretary of the interior. James Watt, a lawyer from Denver, had directed a 'public interest' law firm funded by ranching, mining, and timber interests to challenge the Department of the Interior's attempts to limit or otherwise restrict their use of public lands.

Ronald Reagan made his political career in California, where water projects had been more important, for a longer time, than in any other state. Indeed, California, and especially Los Angeles, had virtually invented the American business of moving water from where nature put it to where men wanted it. Reagan and Watt's natural constituency in the west were the last group to want a halt in water resource development, and in public at least, it was back to a policy of full speed ahead.

But the Reagan administration was caught in a philosophical and political conundrum. Reagan wanted nothing more than to cut the size of the federal government. The administration viewed other regional development programs as inefficient give-aways. The administration asked for $2 billion worth of projects to be deauthorised in 1981, to which Congress agreed, but since there was still over $56 billion in project backlogs, this was not much of a dent.

But Reagan's continued support for water projects came with a price which only gradually became clear. He would support continued federal funding of water projects, but only if the state governments kicked in a share. David Stockman and James Watt were floating the idea of a 33 per cent state share, and the money would have to come up front. This measure would have meant bills for some of the western states of as much as $100 million or more a year, where before the entire tab had been picked up by the federal government. Carter had proposed a similar idea, with a lower state-funding share, and had been shot down completely by Congress. There was no more enthusiasm under Reagan than there had been under Carter. In what must have been one of the more ironic moments of the Reagan presidency, even Republican Senators accused him of being 'anti-west' because of his proposal.⁽¹⁷⁴⁾ The cost-share policy was received so adversely that it simply became something permanently 'under study' by the administration. A state share was not enacted, and the funding for water resources development continued to expand through the Reagan years, though at a slower pace than in the past.

As the 1980s drew to a close, both the Reagan and Bush administrations supported new water projects bills which came along every two years. But congressional enthusiasm was waning. In 1988 Democratic representatives got into a fight with the Reagan Department of the Interior over the issue of the subsidies provided to western farmers by water projects. Congressmen, including several from western states looking for ways to cut the growing federal deficit, became concerned that farmers were receiving one subsidy from water projects and other subsidies from the Department of Agriculture for the crops they were growing, which were surplus crops in any event. An attempt to investigate the extent of water project subsidies led to a controversy over whether the total spent on federal water projects since passage of the Newlands Act in 1902 was $9 billion as the Department of the Interior claimed, or between $38 billion and $70 billion, as the Congressional Budget Office calculated.⁽¹⁷⁵⁾

Moreover, the character of water projects funding was changing. There were no more major dams being authorized, and the vast majority of money going into all water projects allocated to operations and maintenance rather than construction. The era of major dam building was coming to an end, partly for fiscal reasons, partly because the environmental battles to build new dams were getting more complex, but mostly because most of the sites had already been built or declared off limits. What had been the largest regional development program in twentieth- century America had essentially run out of things to do.

Still, it had been quite a run from the Muscle Shoals project, the predecessor to TVA. The dam building of TVA, the Bonneville Power Administration, the Army Corps of Engineers, and the Bureau of Reclamation was, in dollar terms, certainly the largest federal expenditure on regional development in the twentieth century. There can be little doubt that water resource development played a critical role in the growth of the western United States. As John Wesley Powell observed, the water was in the wrong place for agriculture and the cities could only be changed by bringing the water from the mountains to the deserts and basins. The result was the creation of both urban societies and agricultural production where little had been possible and a significant shift of population and economic activity away from the east and towards the west.

The magnitude of these changes makes the dam building programs of the federal and of state governments (such as California) an integral part of government attempts to shape the economies of specific regions. The politics of dam building was largely consistent with the politics of regional development, albeit at a larger scale in budgetary terms. Over the postwar period support for water resource projects was much stronger among Democrats, particularly congressional Democrats, than among Republicans, particularly Republican presidents. Jimmy Carter was apparently an exception to this generalization; he was more overtly supportive of federal regional development programs than he was of dam projects. It should be remembered however, that Carter's grand redesigns of regional development programs came to very little, while his proposed changes in water resource funding were really fairly small. Carter's proposals were only dramatic in that it represented an attempt to change direction.

But there were also important differences. The dam-building machinery, both in congressional committees and in the Department of the Interior, was well established during the New Deal, so that for most of these years the debate was less about whether and where than about how much and how soon. More importantly, the dam- building programs may have been the final instalment in the use of large-scale infrastructure for regional development. This is not to say that infrastructure is no longer part of the regional development picture, for there are a variety of projects all over the United States that federal, state, and local governments are still undertaking. But dam building was the last major investment in opening up a major region of the country to economic growth. In this sense, it had much more in common with nineteenth-century regional development than with twentieth century efforts.

INDUSTRIAL DEVELOPMENT BONDS

When Hugh Lawson White hit on the idea of lending the tax-exempt status of public debt to businesses in exchange for their location in a particular place, he created a major regional development policy tool. The tool was primarily used by state and local governments, but its growth over the years may be largely attributed to the fact that it was federal tax policy that provided the key exemption. This was important for two reasons: it meant that the effective subsidy to the firm was costless for the state and local government, at least on budget. Moreover, since federal marginal tax rates were much higher than state income tax rates (and many states still did not have income taxes) the effective subsidy was that much larger. (The history of the states' use of industrial revenue bonds is postponed to the next section on state policies, and the federal policy background is presented here.)

Actually, there never was a truly explicit Congressional decision to create industrial development bonds. It has been a long-settled constitutional principle that the various levels of government in the American system cannot tax the assets or debt of the other levels, and so when the states began to use their debt to fund industrial development, the presumption was that the bonds were federally tax exempt as well. However, only over a number of years would a series of legal interpretations formally transform state law into federal tax policy. This occurred through a series of revenue rulings by the Internal Revenue Service, culminating in 1963 with a ruling that all bonds issues by non-profit development corporations were properly public debt.⁽¹⁷⁶⁾ The effect of this and succeeding rulings was to make industrial development bonds federally tax-exempt in all fifty states whether or not the state legislatures had explicitly authorized such bonds.

One of the most telling signs of how little active policy making went into industrial development bonds is that, until 1983, no one knew for sure how much state and local debt was actually involved, for that was the first year that the federal government actually began to keep statistics on 'private activity bonds' (as the practice of using public debt for private purposes became known.) Prior to the reporting requirements initiated that year, estimating the actual volume of industrial bonds issued in any year was largely a matter of guesswork because a large number of bonds were privately placed. While the Public Securities Association kept track of those bonds that were put to public auction,⁽¹⁷⁷⁾ about two- thirds of industrial bonds were privately sold, that is, the buyer and the seller made private arrangements rather than going through a bond market.⁽¹⁷⁸⁾ Studies by the Advisory Commission on Intergovernmental Relations in 1963⁽¹⁷⁹⁾ and byArthur Thompson in 1970⁽¹⁸⁰⁾ attempted to estimate the total volume including private activity bonds, but with results that produced substantially varying estimates of the actual amounts.

States were not long in catching on to the implications of the 1963 Internal Revenue Service (IRS) ruling. Between 1965 and 1968, the volume of publicly issued industrial development bonds increased nearly eight-fold, and with it the revenue loss to the federal treasury. The federal government, in turn, was not long in responding, with the Revenue and Expenditure Control Act of 1968 (RECA). This act was sponsored by Connecticut Democratic Senator Abraham Ribicoff and was a direct result of the same sense of northern frustration that had surfaced in the debates about the Area Redvelopment Administration and the Economic Development Adminsitiration. This time the frustration was about southern states using industrial development bonds were being used to 'pirate' firms. Northern congressmen, including Senator John Kennedy, had tried in the 1950s to eliminate or restrict the use of these subsidies.⁽¹⁸¹⁾

The act attempted to limit the private use of public debt by defining all such uses as either tax-exempt public activity bonds or taxable industrial development bonds. The distinction based on the purpose to which the funds were put and the relative participation of private and public entities in the resulting project. According to the act, if more than 25 per cent of the bond proceeds were to be used by a non governmental industry in a trade or business and more than 25 per cent of the debt was secured by property used in a trade or business, then the bond would be a taxable industrial development bond. If it were less than 25 per cent on both tests, it would be tax exempt. But the legislation also set out a number of categories of uses for which tax-exempt bonds would be allowed, effectively creating enough loopholes so that tax-exempt bond financing of business development would remain a major activity. These categories included government-owned industrial parks, pollution control facilities, ports and airports, convention and sports facilities, and for residential mortgage programs. Schools and hospitals were also made eligible to borrow on the tax-exempt market. There was also a general tax-exempt status for revenue bonds of less than $1 million or $5 million if total capital expenditures did not exceed that amount for five years.⁽¹⁸²⁾

These limits cut the volume of industrial development bonds from over $1.6 billion in 1968 to $50 million the next year. But the new restrictions only temporarily halted expansion; the next year a new round of growth began, and with it, ever more creative interpretations by state and local governments and their attorneys seeking to find ways to use the bonds. Another road block was put in their path in 1968 when the Securities and Exchange Commission required that all bonds over $300,000 be registered under security laws, a time-consuming and costly process. The Commission excluded private placements from this restriction, with the effect that more industrial development bonds were sold in private sales than in public ones in the 1970s.

With renewed growth in bond activity came new attempts to control the bonds. The Revenue and Expenditures Control Act was the first of seventeen laws enacted between 1968 and 1989 that modified in one way or another the rules on revenue bonds. Five acts between 1968 and 1977 made minor adjustments to the definition of public purpose and tightened the rules on arbitrage profits. In 1978 state industrial development authorities successfully lobbied Congress to raise the $5 million small issue limit to $10 million because of inflation. This was the last major expansion of industrial development bond authority for the next time Congress took up the subject it was again to restrict usage.

In 1981 Ronald Reagan had won passage of the largest tax cut in American history, the Economic Recovery Tax Act of 1981. The tax cut was supposed to so liberate private investment that the federal budget deficit would be eliminated within a few years. But within a year it was clear that this was not going to happen. By 1982 the deficit was growing to alarming proportions, and so Congress and the president collaborated that year in enacting the largest tax increase in American history (though it did not match the tax cuts of the previous year in the Tax Equity and Fiscal Responsibility Act, or TEFRA).

TEFRA removed the tax exemption for industrial development bonds entirely, but allowed them a four- year phase-out period until 1986. It also imposed new restrictions on their issuance. Public hearings were now required before industrial development bonds could be approved, and local elected bodies rather than appointed officials had to approve their issuance (states were permitted to continue to use administrative agencies). Congress also attached a long list of types of projects that could not receive industrial development bond funding no matter what the amount. This restriction was in response to media reports about the kind of projects that were getting industrial development bond funding. Included on the prohibited list were golf courses, country clubs, tennis clubs, massage parlors, hot tub facilities, suntan parlours, and racetracks. The accelerated depreciation provisions permitted under the 1981 Economic Recovery Tax Act were also denied to facilities funded with industrial development bonds.

Congress enacted further restrictions on the bonds in each of the next two years. In 1984 the Deficit Reduction Act placed further restrictions on the kinds of projects that could be funded (excluded were luxury boxes in stadiums, airplanes, casinos, and liquor stores), and placed a cap on the amount of industrial development bond financing each state was permitted to issue ($150 per capita). Congress also extended the sunset date until 1988, but only for those bonds being used to assist manufacturing firms. The cap on industrial development bonds was further reduced in the Tax Reform Act of 1986, although the sunset provision for manufacturing companies was further extended.

There were other restrictions imposed through the various provisions of the internal revenue code. Accelerated depreciation and investment tax credit benefits were denied to assets financed with industrial revenue bonds. Bonds used in connection with Urban Development Action Grants were also denied tax-exempt status even if they otherwise qualified. Commercial banks, major purchasers of tax-exempt bonds, were denied part of the normal interest rate deductions on bonds they bought.

Throughout the 1980s the federal budget deficit was taking its toll of a federal development program, although in the case of industrial development bonds there were other forces at work as well. Industrial development bonds were increasingly seen in Congress as lost revenues which might be put to other uses. Stories of development bonds funding projects like golf courses and the luxury boxes at stadiums gave the entire program a frivolous and somewhat unsavoury cast. Not surprisingly, given their apparently costless nature, state and local development officials were the bonds' strongest supporters, and they lobbied Congress relentlessly to keep the program, or at least minimize the adverse changes. It is a measure of their success that, despite increasing congressional hostility to a program that lost revenues for the federal treasury while providing all the visibility to the state and local governments, they were able to stave off complete elimination and keep alive at least a remnant of the industrial development bond program alive.

1. 1 See Preston Hubbard, Origins of the TVA: The Muscle Shoals Controversy (Nashville: Vanderbilt University Press, 1961). The quotation from Norris is in: Tennessee Valley Authority A Short History of the Tennessee Valley Authority, 1933-63 (Tennessee Valley Authority, 1963), 3.