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Community Developments Investments (November 2013)
Appalachian Regional Commission: Improving Economies and Lives in 13 States
Earl Gohl, Federal Co-Chair, Appalachian Regional Commission
The Appalachian Regional Commission (ARC) is a federal-state partnership established in 1965 to promote the economic and community development of the Appalachian region. Since its inception, the ARC has assisted in significantly reducing the number of high-poverty counties within the jurisdiction. The ARC has helped cut the number of high-poverty counties by more than half since 1965, when there were 295 counties in the jurisdiction with poverty rates more than 150 percent of the national average. The commission’s jurisdiction comprises 420 counties: all of West Virginia and parts of Alabama, Georgia, Kentucky, Maryland, Mississippi, New York, North Carolina, Ohio, Pennsylvania, South Carolina, Tennessee, and Virginia—an area of 205,000 square miles with a population of about 25 million people.
Addressing Appalachian Challenges
The ARC funds a wide range of initiatives in the region that are priorities of the governors of ARC states. These initiatives include highway corridors; community water and sewer facilities, telecommunication, and other physical infrastructure; health, education, and human resource development; economic development programs; local capacity building; and leadership development. The ARC focuses efforts largely on the 98 most economically distressed counties in the region—those counties in the bottom decile nationally on a range of employment, income, and poverty metrics.
There are 14 members of the ARC: the governors of the 13 Appalachian states and a federal co-chair, who is appointed by the president and confirmed by the Senate. To promote local planning and implementation of its initiatives, the ARC works with 73 local development districts comprising counties within each of the 13 states.
Appalachia’s Economic Landscape
While nearly 20 percent of the population of the United States resides in rural areas, this share more than doubles in the Appalachian region, to 42 percent. Its rural areas tend to have low population densities, which tend to be homogeneous in their demographic makeup. Furthermore, the average age of Appalachia’s population has been increasing due to out-migration.
The economic challenges confronting the Appalachian region are considerable. The industrial mix of rural areas in the region has historically been heavily reliant on such industries as coal, timber, agriculture, and manufacturing, and employment in these industries has steadily declined. As a result, there are a number of areas in Appalachia with significantly high rates of unemployment; Appalachian Mississippi, for example, recorded an unemployment rate above 12 percent in 2011.
Appalachia’s per capita income is some 25 percent lower than the national average, and the region has an overall poverty rate 13 percent higher than the rest of the nation’s. Some of the Appalachian portions of states such as Kentucky have nearly a fourth of their populations living below the poverty line.
While the Appalachian region is catching up with the nation in the percentage of students completing high school, the percentage of the region’s population that has completed at least a bachelor’s degree continues to lag behind the rest of the country. According to the U.S. Census Bureau’s most recent American Community Survey, 20.7 percent of Appalachia’s population has completed at least a bachelor’s degree, compared with the national average of 27.9 percent.
In addition, much of the Appalachian region confronts a combination of challenges that few other parts of the country face—isolated mountainous terrain, environmental deterioration, and lack of financial and human capital. These challenges translate to persistent economic distress and poverty throughout the poorest counties of Appalachia.
Access to Capital and Credit in Appalachia
The ARC has found that a lack of access to capital and credit is one of the major factors limiting business creation, expansion, and growth in the Appalachian region. This has been a long-term problem in the region relative to many other parts of the country, and ARC studies conducted in 1998 and in 2007 found the following:
These challenges were exacerbated by the severe recession and the long-term trends increasingly driving economic activity and people into metropolitan areas. In addition, Appalachia and other rural regions have been affected by ongoing consolidation and related changes in the banking industry. With the consolidation of larger banks in major cities and urban regions, smaller towns and rural areas are left with fewer community banks. These trends have developed over many years but have been accelerated by the recent economic downturn. The consolidation trend is particularly noteworthy because the presence of banks, bank branches, and bank capital positively correlates with increased business lending in rural Appalachian communities.1
Appalachian Capital Policy Initiative
To address these challenges, in 2010 the ARC convened an Appalachian Capital Policy Initiative Advisory Committee comprising representatives from banks, development lenders, state government, venture funds, and federal financial regulators, including the Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corporation (FDIC), the Federal Reserve System, and the U.S. Department of the Treasury. This advisory group has provided oversight and direction for the development of strategic options to address the region’s capital and credit challenges.
The Appalachian Capital Policy Initiative has four objectives:
Capital Access in Appalachia: Recent Findings
As part of the ongoing work of the Appalachian Capital Policy Initiative to address deficiencies in access to business financing, the ARC has undertaken an updated study on financial access in Appalachia. (See table below.) Results of this research conducted by the National Community Reinvestment Coalition are available at http://www.arc.gov and indicate the following:
Table 1: Percentage of Small Businesses Receiving Loans, in Appalachia and the United States
Source: Appalachian Regional Commission
Initiatives to Move Forward
To accomplish the objectives of the Appalachian Capital Policy Initiative and address some of the financing gaps noted above, the ARC has developed a multifaceted strategy that seeks to influence policy, educate key constituencies and enlist their support and participation, develop and expand programs that deliver capital to businesses, and attract new sources of capital to the region. A number of programmatic efforts are currently under way through the initiative, including:
Appalachia’s future economic vitality—and the future vitality of rural America—will be stronger and more vibrant to the extent that the region is successful in nurturing homegrown firms, encouraging innovation and risk taking, and enhancing investment in start-up businesses. While the region has several outstanding examples of entrepreneurial communities and organizations and possesses many entrepreneurial assets, including the self-reliance of its people, it also faces many challenges. These entrepreneurial shortcomings stem from Appalachia’s long-standing dependence on extractive industries, such as mining, and branch plant manufacturing, coupled with capital ownership by absentee property owners who have siphoned off value from the region. Furthermore, the culture of entrepreneurship is neither broad nor deep throughout Appalachia, and research indicates there are many gaps in the infrastructure for supporting entrepreneurship, including a lack of technical assistance and development financing.
The ARC views entrepreneurship as a critical element in the establishment of self-sustaining communities that create jobs, build local wealth, and contribute broadly to economic and community development. Appalachia needs to cultivate resourceful entrepreneurs who not only create value by recognizing and meeting new market opportunities, but who also increase the value-added within the region.
There are some encouraging signs that the entrepreneurship climate is improving. In 2011, the Appalachian region saw the creation of more than 100,000 net new jobs.3 Some homegrown enterprises that illustrate promising new directions for the region are described in the accompanying sidebar.
Appalachia fueled America’s economic strength for almost 100 years. The region has incredible assets and opportunities waiting to be tapped to support and help grow America’s economy. The challenge for the ARC and its stakeholders is to leverage the region’s assets and overcome its limitations so that it can be a full partner in the U.S. economy.
For more information, contact Ray Daffner, Entrepreneurship Initiative Manager, at (202) 884-7777 or email@example.com.
1National Community Reinvestment Coalition study, 2007.
2U.S. Department of the Treasury, CDFI Fund Community Investment Impact System data, September 2010.
3U.S. Department of Labor, Bureau of Labor Statistics, 2011.