Statement of ARC Federal Co-Chair Earl F. Gohl, April 29, 2010 April 2010

 
Madam Chairwoman and Members of the Subcommittee:

I am pleased to come before the subcommittee this afternoon to discuss the president's budget request for the work of the Appalachian Regional Commission.

The administration is requesting $76 million for ARC's nonhighway work. This is level funding with the FY10 appropriation. At a time of difficult budget choices, this reflects the administration's strong commitment to Appalachia and the 25 million people who call Appalachia home.

The budget will continue ARC's traditional focus on equipping communities with the basic "building blocks" that are essential for economic and community development. At the same time, it will emphasize the importance of working with communities to diversify their local economies. The goal of the administration's budget is to position communities across Appalachia to take full advantage of the emerging economic recovery and create robust, sustainable local economies.

ARC is a federal-state partnership serving all of West Virginia and portions of 12 other states along the Appalachian mountain chain, from the southern tier of New York to northeast Mississippi. It was created to close the profound socioeconomic gaps between Appalachia and the rest of the nation. Our mission is to help the region reach socioeconomic parity with the nation.

Appalachia has come a long way. When ARC was created in 1965, one in three Appalachians lived in poverty. Today, the poverty rate is 13 percent. During that same time, the number of high-poverty Appalachian counties declined from 295 to 116. The more than 400 ARC-funded rural primary care health facilities have helped improve access to health care and reduce the infant mortality rate by two-thirds. The Region's high school graduation rates now meet the national average, with ARC helping build and equip 700 vocational education centers. Over the past five years alone, ARC infrastructure projects have provided over 122,000 Appalachian households with access to clean water and sanitation facilities.

These gains have transformed the region to one of great contrasts. Some communities have successfully diversified their economies, while others, particularly in central Appalachia, remain isolated and require basic education and infrastructure improvements such as roads and water and sewer systems.

As a region, Appalachia confronts a combination of challenges that few other parts of the country face—mountainous terrain, dispersed population, environmental issues, lack of financial and human resources, and weak track record in applying for and receiving funding assistance. The combination of these special problems, aggravated by an economy reliant on a relatively small number of economic sectors that are in decline, has resulted in concentrated areas of poverty, unemployment, and underinvestment.

On key indicators of economic vitality, Appalachia still lags behind the rest of the country. For example, per capita personal income and average earnings were 20 percent lower in Appalachia than in the nation as a whole in 2007. And proprietors' income and dividends and rent—a key measure of regional wealth—are only two-thirds of the national average. Roughly 20 percent of Appalachian households are not served by a public water system, compared with 10 percent of the rest of the nation's households, and 47 percent of Appalachian households are not served by a public sewage system, compared with a national average of 24 percent. And the gap between Appalachia and the rest of the nation in the percentage of high school students who go on to college is widening.

To better assess progress in completing its mission, ARC developed an index that compares the economic condition of Appalachian counties with all counties in the nation (based on unemployment, per capita income, and poverty rates). Appalachia has more of the economically weakest counties and fewer of the economically strongest counties. More than 20 percent of the nation's weakest counties are in Appalachia, while the Region has only 5 percent of the nation's strongest counties, which are often the engines that drive local economic growth.

The Appalachian Economy
Appalachia suffers economic distress in part because its economy has been disproportionately dependent on manufacturing, tobacco, steel, and extractive industries, sectors which have been in decline over the past two decades. From 2000 to 2007, Appalachia lost 424,000 manufacturing jobs and an additional 35,000 jobs in farming, forestry, and natural resources. And those job losses came before the recession hit.

Between 1995 and 2005, one out of three American jobs lost in the apparel sector and one out of five jobs lost in textile manufacturing occurred in Appalachia. Primary-metals sectors, such as steel, have lost 21,000 since 1995. The furniture industry, which had been a robust source of jobs in southern Appalachia, is facing severe challenges from imports. Even the coal industry has lost almost 50,000 jobs since the 1980s, due largely to productivity gains and mechanization.

The current economic downturn has exacerbated these trends, affecting Appalachia even more severely than other parts of the nation. Overall, the rate of job loss has been more pronounced in Appalachia than in the nation as a whole, with southern Appalachia bearing the most significant losses. Over the course of the current recession, the Region has lost all of the jobs it had gained since 2000. Let me restate that: fewer people are employed in Appalachia today than were employed in 2000. In the fourth quarter of last year, nearly two-thirds of Appalachian counties had unemployment rates that were higher than the national average.

Over the past decade Appalachia experienced slower population growth than the nation as a whole, with 179 of ARC's 420 counties actually experiencing net population loss between 2000 and 2008. The out-migration of working-age residents has yielded an Appalachian population that is older than the national average (14.3 percent are over age 65, compared to 12.4 percent nationally). At the same time, Appalachia has higher rates of cancer, heart disease, and diabetes than the nation, in a region where it is much more difficult to access treatment and affordable care.

ARC Programs
To tackle these socioeconomic challenges ARC's programs focus on two broad areas: a 3,090-mile highway program to connect Appalachia with national and international commerce, funded through SAFETEA-LU, and a nonhighway area development program to create jobs, stimulate economic growth, provide needed infrastructure, and improve the quality of life across the Region.

These activities are organized around four broad goals outlined in the agency's strategic plan: increase job opportunities and per capita income, strengthen the capacity of Appalachia's citizens to compete in the global economy; improve the Region's infrastructure to make Appalachia economically competitive; and build the Appalachian Development Highway System to reduce the Region's isolation.

The Appalachian Development Highway System has been the linchpin of ARC's development strategy since the agency's creation. Almost 85 percent of the system is now open to traffic, but some of the most challenging, and expensive miles, remain to be built.

In 2008 ARC released a study suggesting the potential economic benefits that will flow, not just to Appalachia, but to the national economy at large, from completing the ADHS. By 2035, economic activity sparked by the ADHS will generate an estimated 80,500 jobs, resulting in $3.2 billion annually in increased wages, as well as an estimated $2.1 billion annually in value-added activity resulting from market accessibility gains associated with the ADHS. The estimated return for the nation as a whole is $3 for every $1 invested in completing the ADHS.

While highways have been at the heart of our work, ARC recognizes that in today's global economy, Appalachia needs not just a highway system, but a transportation system that can better move goods in international commerce. ARC has been focusing on how our communities can take better advantage of the ADHS corridors by tying them to broader transportation strategies, such as intermodal facilities and inland ports.

I am pleased that the Congress recently extended the SAFETEA-LU programs, including the ADHS, through December 31, 2010. In addition to providing funding stability to our program over this year, this extension gives the administration time to work with the Congress to craft a new comprehensive long-term reauthorization bill to address the nation's transportation needs.

While highways are necessary for regional economic growth, they are not by themselves sufficient. Consequently, ARC has a nonhighway program that helps communities with a broad range of economic and community development resources. Each year almost half of ARC's nonhighway funding supports basic infrastructure projects such as the construction of water and sewer facilities and telecommunications. ARC often provides the first public water supply for residents of isolated communities in rural Appaalchia. The remaining funds target other ARC priorities, including workforce development, entrepreneurship, healthcare, and local leadership development.

ARC emphasizes a bottom-up approach, relying heavily on a network of 73 local development districts to identify local development priorities. These multi-county planning and development agencies, whose boards are composed of local elected officials and private sector leaders, help set the agenda for ARC and their staffs to assist communities in securing funding, not just from ARC, but from other agencies and foundations as well, for critical local development projects. They are well positioned to emphasize regional approaches to economic development, having a vision that transcends local jurisdictional lines and a knowledge of funding sources that can unite the resources of multiple agencies to meet a community's needs.

An independent evaluation of ARC infrastructure projects funded between 1998 and 2004 found that the sampled projects leveraged private-sector investment of $1.7 billion and helped create 17,800 new jobs. Private investment has played an important role in the economic development of Appalachia, and in FY 2009 ARC's job-creating projects attracted almost $8.75 of private investment for every $1 of ARC support.

ARC annually designates counties according to their economic condition, and ARC targets its funds to the areas of greatest need. By law, at least 50 percent of its grant funds each year must go to projects and activities that benefit the Region's economically distressed counties and areas. ARC routinely spends over 60 percent of its grant dollars on these activities.

Economic Diversification
Throughout much of the past 50 years, the Appalachian economy has been dominated by a small number of sectors, many of which are now in decline. Creating sustainable local economies will require a diversification of the Region's economic base. ARC has undertaken a number of steps to help the Region move in this direction. ARC often does this through special "regional initiatives," reserving a small portion of our funding that can be used only on projects in certain topical areas. These dollars spark innovative regional approaches that can be replicated in communities across Appalachia. The two current regional initiatives focus on telecommunications and asset-based development, particularly in energy.

The telecommunications initiative emphasizes the importance of broadband access and use in developing the economies of rural communities. Telecommunications technology can enable businesses in Appalachia to compete successfully in the global economy. Activities include providing infrastructure, promoting the use of distance learning and telemedicine applications, and helping small businesses enter the world of e-commerce.

The asset-based development initiative helps communities identify and capitalize on their existing economic development assets—natural, cultural, structural, and leadership resources that can enable communities to shape a new economic future for themselves. Commission activities in this area have included the promotion of cultural and heritage tourism, support for value-added agriculture, use of the Region's diverse energy resources as a strategy for local economic growth, and support for "gateway communities" that take advantage of their proximity to public lands.

Appalachia's substantial and diverse energy assets offer particular promise as a source of new jobs for the future. While coal will continue to be an important component of the Appalachian economy, the Region has other substantial energy assets that can help broaden the economic base and create jobs—wind, solar, biomass, and hydro. In addition, as a report released by ARC last year pointed out, Appalachia can experience substantial job creation by adopting an aggressive approach to promoting energy efficiency in the Region. Taken together, these renewable-energy and energy-efficiency opportunities can yield a substantial "green economy" in Appalachia.

Your committee recognized the potential contribution this energy sector could make to diversifying the regional economy by creating a new "economic and energy development initiative" in our 2008 reauthorization. In response, ARC has moved quickly to boost its work in this area. Over the past two years the Commission completed several grant competitions intended to help communities revitalize their economies by leveraging renewable-energy and energy-efficiency resources. These competitions have demonstrated that there is a widespread appetite by local communities for these sorts of activities. Later this year the Commission will announce another grant competition focused on developing local community energy plans, with job-creation strategies being an important component of those plans.

ARC projects that suggest the promise of the green economy for Appalachia include support for green business incubators, workforce training in solar and wind energy, energy efficiency audits and retrofits for public facilities, an "energy bootcamp" for start-up businesses, and seed capital for an investment fund targeting green businesses.

Diversifying the regional economy also requires preparing a highly skilled and diversified workforce to take advantage of new economic opportunities. ARC has been working with a network of community colleges across the Region to support workforce development in emerging high-growth, high-demand fields such as health care. In many parts of Appalachia, for example, the demand for nurses and allied health professionals exceeds the supply of trained workers. ARC's support for creating or expanding these training programs is helping meet an employment need and boost local incomes.

ARC believes that there are five key elements to creating a strong, diversified economy:

1. Fostering a vibrant entrepreneurial climate and support for small businesses through education, technical assistance, and access to capital;
2. Preparing a skilled workforce for the high-growth, high demand jobs of the future;
3. Identifying and capitalizing on a community's particular assets;
4. Seizing the possibilities offered by technology; and
5. Helping existing industries remain competitive.

ARC's program seeks to address all of these.

Special Interagency Initiative
Creating a stronger, more diversified economy is the goal of a special federal interagency effort focused on Appalachia: the Appalachian Regional Development Initiative (ARDI). Drawing together more than a dozen federal departments and agencies, the initiative expects to identify ways federal programs can be better tailored and coordinated to achieve greater impact in Appalachia.

As part of ARDI, ARC and the U.S. Department of Agriculture have just concluded a series of five "listening sessions" across Appalachia. These meetings heard from a cross-section of local stakeholders about what they see as their principal economic challenges and opportunities and how the federal government can help them achieve their vision for a strong local economy. We are still analyzing the responses, but some of the common strains are outlined below. These validate the approach that ARC has been taking in its own programming.

• The continuing need for basic infrastructure, particularly in central Appalachia;
• The importance of broadband access and use in making communities competitive;
• The necessity of fostering a strong climate of entrepreneurship and small-business support;
• The imperative of workforce training that responds to a changing economy;
• The need to craft development strategies on a regional basis that reach across jurisdictional lines;
• The opportunities offered by green jobs in renewable energy and energy efficiency; and
• The desire for greater coordination and collaboration across federal programs.

Next month we will be sitting down with our sister federal agencies to work through the findings of the listening sessions and craft an appropriate federal response. We expect to highlight this response, featuring some "best practices" case studies from Appalachian communities, later this year.

We will also be using the information from the listening sessions as an important component of ARC's own strategic planning process, which we expect to complete this year.

Regionalism
ARC believes strongly that a regional, place-based approach to economic development offers the best prospect for sustainable, long-term economic growth for rural Appalachia. This yields strategies that are tailored to the specific needs of the Region, that take advantage of the specific assets the Region offers, and that recognize that commerce does not respect jurisdiction boundaries. We believe ARC's record of success in Appalachia validates this approach. We appreciate the support that this subcommittee has given us through the years, and we look forward to working with you in our common mission of ensuring that Appalachia achieves socioeconomic parity with the rest of the nation.