The Ofﬁce of Economic Opportunity (OEO) designed ''special impact programs'' to reduce unemployment, dependency, and community tensions in urban areas with large concentrations of low-income residents and in rural areas having substantial migration to such urban areas. The purpose of these experimental programs, which combine business, community, and manpower development, is to offer poor people an opportunity to become self-supporting through the free enterprise system. The programs are intended to create training and job opportunities, improve the living environment, and encourage development of local entrepreneurial skills.
One area chosen to participate in several special impact programs was High Ridge. The High Ridge program was the ﬁrst and largest such program to be sponsored by the federal government. It has received more than $960 million in federal funds from its inception through the current year.
Another $250 million was obtained from private sources, such as the Ford Foundation and the Astor Foundation.
High Ridge is a ﬁve-square-mile area with a population of 350,000 to 400,000 in New York City's borough of Brooklyn. The area has serious problems of unemployment, underemployment, and inadequate housing.
High Ridge's problems are deep-seated and have resisted rapid solution. They stem primarily from the lack of jobs in the area and from the fact that local residents, to a considerable degree, lack the education and training required for the jobs available elsewhere in the city. Unemployment and underemployment, in turn, reduce buying power, which has a depressing effect on the area's economy.
The magnitude of High Ridge's problems is indicated by the following data disclosed by the U.S. Census Bureau:
• Of the total civilian labor force, 8.9 percent are unemployed, compared with unemployment rates of 7.1 percent for New York City and 6.8 percent for the New York Standard Metropolitan Statistical Area (SMSA).
• Per capita income is 66 percent that of New York City and 51 percent that of the SMSA.
• Families below the poverty level make up 24.8 percent of the population, compared with 11.4 percent in New York City and 9.2 percent in the SMSA.
• Families receiving public assistance make up 25.4 per cent of the population, compared with 9.6 percent in New York City and 7.5 percent in the SMSA.
A number of factors aggravate the area's economic problems and make them more difﬁcult to solve. Some of these are:
• A reluctance of some companies to move into New York City, particularly after 9/11
• A net outﬂow of manufacturing industry from New York City
• High city taxes and a high crime rate
• A dearth of local residents possessing business managerial experience The area's housing problems result from the widespread deterioration of existing housing and are, in part, a by-product of below-average income levels resulting from unemployment and underemployment.
They are aggravated by a shortage of mortgage capital for residential housing associated with a lack of conﬁdence in the area on the part of ﬁnancial institutions.
One of the special impact programs that High Ridge participates in is intended to stimulate the private economy by providing funds to local businesses, both new and existing. Under this program, begun ﬁve years ago, the sponsors propose to create jobs and stimulate business ownership by local residents. At ﬁrst, investments in local businesses were made only in the form of loans. Later, the sponsors adopted a policy of making equity investments in selected companies to obtain for the sponsors a voice in management. Equity investments totaling about $2.5 million were made in four companies.
Loans are to be repaid in installments over periods of up to ten years, usually with a moratorium on repayment for six months or longer. Repayment is to be made in cash or by applying subsidies allowed by the sponsors for providing on-the-job training to unskilled workers. Loans made during the ﬁrst two years of the program were interest-free. Later, the sponsors revised the policy to one of charging below-market interest rates. Rates charged are now from 3 to 6.5 percent. This policy change was made to (1) emphasize to borrowers their obligations to repay the loans and (2) help the sponsors monitor borrowers' progress toward proﬁtability.
Prospective borrowers learn of the program through information disseminated at neighborhood centers, advertisements on radio and television and in a local newspaper, and word of mouth. Those who wish to apply for loans are required to complete application forms providing information relating to their education, business and work experience, and personal ﬁnancial condition and references.
The sponsors set up a management assistance division that employed consultants to supplement its internal marketing assistance efforts and to provide management, accounting, marketing, legal, and other help to borrowers.
The sponsors proposed to create at least 1,700 jobs during the ﬁrst four years of the loan program by making loans to 73 new and existing businesses.
Required Put yourself in the position of the GAO manager in charge of all audits pertaining to the Ofﬁce of Economic Opportunity. Your staff has undertaken a preliminary survey of the High Ridge program, and the above information was extracted from its report on the survey.
The New York City ﬁeld ofﬁce has been assigned the job of conducting the detailed performance audit of the special impact program just described. Prepare a memo to the New York City ﬁeld ofﬁce in which you indicate, in as great detail as is possible from the information provided, the speciﬁc steps its staff should perform in conducting an evaluation of the effectiveness of the program.