Community Developments Investments (November 2013)

Appalachian Regional Commission: Improving Economies and Lives in 13 States

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Earl Gohl, Federal Co-Chair, Appalachian Regional Commission

Map of Appalachian counties

Counties in red and white are those included in the ARC's jurisdiction. Red indicates high-poverty counties. Click the image to see a larger version. (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:

  • There was a significant gap in the availability of equity capital relative to other areas of the country.
  • Established small businesses in the region had insufficient financing to expand.
  • Nonmetropolitan and distressed counties had considerably smaller shares of bank assets, which resulted in these counties receiving less community development financing.

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:

  • Increase bank lending for business expansion and growth.
  • Attract new sources of equity investment into the region from corporations, pension funds, national financial institutions, philanthropic institutions, and intermediaries.
  • Build the capacity of development loan funds—community development financial institutions (CDFI)—and other providers of capital to expand into underserved communities.
  • Increase the volume and quality of deal flow and financeable transactions by strengthening the entrepreneurial foundation.

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 and indicate the following:

  • In 2007 and 2010, the pre- and post-recession times the study covers, small business lending in Appalachia was about 18 percent lower than lending nationally, on a per business basis, while lending in economically distressed central Appalachia was 43 percent lower than lending nationally.
  • Lending on a per branch basis is at a higher level in the nation than in Appalachia, with 41 small business loans per branch nationally compared with 25 small business loans per branch in Appalachia.
  • The percentage of midsize banks with assets between $250 million and $1 billion is modestly higher in Appalachia than the nation. A statistically significant correlation exists between the percentage of midsize banks and lending levels on a county level, with a higher percentage of midsize banks associated with higher lending levels.
  • Banks are less successful in making Small Business Administration (SBA) 7(a) loans in Appalachia than they are in making 7(a) loans in the United States as a whole. In Appalachia, 30 percent fewer loans are being issued per 10,000 businesses than the number of loans issued by banks at national levels per 10,000 businesses.
  • When measured by loans per small business, the SBA 504 program is not as effective in economically distressed Appalachian counties. In 2007, lenders made one SBA 504 loan per 10,000 small businesses in economically distressed counties, compared with 6.5 loans per 10,000 small businesses in counties achieving economic attainment.
  • Of the $26 billion in new markets tax credit allocations provided across the nation, little of it went to the 11 funds located in Appalachia. In fact, the 11 funds received just 1.1 percent of all tax credit allocations despite the fact that nearly half of Appalachia's geography is eligible to participate in the New Markets Tax Credit Program.2
  • Banks in Appalachia are a significant resource for investment and community development lending, with large banks headquartered in Appalachia having a total of $433 billion in assets and midsize banks having assets of $68 billion. The level of community investing and lending has grown, rising from $5.4 billion in the three-year period ending in 2000 to $8.8 billion in the three-year period ending in 2011.

Table 1: Percentage of Small Businesses Receiving Loans, in Appalachia and the United States

  Year U. S. Appalachia
Number of small business loans 2010 4,197,610 255,231
2007 13,437,779 808,877
2003 7,428,630 530,309
Number of businesses 2010 21,530,378 1,577,370
2007 21,808,201 1,607,645
2003 17,828,895 1,280,941
% of businesses receiving loans 2010 19.5% 16.2%
2007 61.6% 50.3%
2003 41.7% 41.4%

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:

  • Angel investment funds: Angel investors use their own funds to invest in companies, rather than professionally managing funds for a business, trust, or institutional investor.2 Although typically reflecting the investment judgment of an individual, the actual entity that makes the angel investment may be a trust, business, limited liability company, investment fund, or an individual. The expansion of angel investment funds within Appalachia can provide new sources of financing for growing enterprises. The ARC has provided support for the formation of five new angel funds in Ohio, Kentucky, West Virginia, southwestern Virginia, and Tennessee.
  • Bank partnerships: These partnerships bring together banks, bank regulators, state bankers associations, and other groups to provide education and identify opportunities for expanded commercial lending in Appalachia. The OCC, FDIC, and Federal Reserve held bank educational programs in Kentucky, Tennessee, and West Virginia in 2011 and 2012, in partnership with the ARC and state banking associations.
  • SBA 7(a) lending: This important lending program can be expanded among community banks in the region, particularly in areas underserved by the 7(a) program, such as eastern Alabama, Ohio, southwestern Virginia, southern West Virginia, eastern Tennessee, and portions of western North Carolina.
  • CDFI capitalization: A group of high-performing CDFIs is developing a financial intermediary to aggregate capital for relending, seeking capital commitments from the ARC, the Treasury Department, foundations, and bank CRA funding. This intermediary, Appalachian Community Capital, will raise grant capital and leveraged debt from funding sources that are not available to, or are underutilized by, the individual funds. Because the intermediary will pool the capital needs of all its members, it can attract investors that are seeking to make larger investments. The intermediary can also simplify branding, marketing, and communication efforts aimed at large regional or national investors, while dramatically reducing underwriting and servicing costs associated with investing in individual CDFIs.


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.

Looking Ahead

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

Appalachian Regional Commission Success Stories

Among the many new job creators in the Appalachian region that have been supported directly or indirectly by the Appalachian Regional Commission (ARC), these four stand out:

FLS Energy, Asheville, N.C.: Ranked No. 46 in the 2011 "Inc. 500" index of the most rapidly growing private companies, FLS designs and installs solar thermal systems (water heating) and solar photovoltaic systems (electricity generation) for residential and commercial customers. The company finances commercial projects and provides sustainability consulting services to businesses. A community development financial institution (CDFI) supported by ARC, the Natural Capital Investment Fund, helped provide working capital as part of a larger financing package for this growing enterprise. In the last two years, the company has installed more than 70 commercial and residential systems across North Carolina, and it sells solar energy systems all over the United States. For more information, visit

FamilyCare Health Center, Eleanor, W.Va.: This community health center offers services including chronic disease management, disease prevention and screening, urgent care, pediatric care, and prenatal care to underserved communities. At full capacity, the health center will support the practice of three clinicians and provide primary and preventive health care services to approximately 3,000 people. An ARC-supported CDFI, the West Virginia Rural Health Infrastructure Loan Fund, provided a subordinated loan in partnership with another lender for this project. For more information, visit

Information Capture Solutions, London, Ky.: This company provides enterprise content management, focusing on front-end document capture and data entry automation. The company engages in consulting, systems development, information knowledge management, document storage and retrieval, micrographic services, image repository services, and Web repository services. An ARC-supported CDFI, the Southeast Kentucky Economic Development Corporation, provided a Small Business Administration 504 loan for corporate expansion. For more information, visit

The Station, Floyd, Va.: The Station is a mixed-use facility with commercial retail space on the first floor and residential units on the upper two floors, most with low- to moderate-income restrictions for tenants. The Station is a principal component of a $10.5 million revitalization project that has created 14 new businesses and more than 50 new jobs within a two-block area of downtown Floyd. In the past 10 years, Virginia has revived rural downtowns through strategically positioned tourism-related developments. Floyd serves as a celebrated example of such public-private partnerships by restoring historic structures, creating spaces that cater to small business enterprises, and increasing economic activity. Technical assistance from Virginia Community Capital, a CDFI, identified opportunities for pooled investments and combined resources from a variety of funders, including Virginia Community Capital, the Virginia Department of Housing and Community Development, and the Virginia Housing Development Authority. For more information, visit

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.

This publication is part of:

Collection: Community Developments Investments

Deputy Comptroller
Barry Wides

Staff Writers
Ted Wartell
Bill Reeves
Letty Ann Shapiro
Dianne Davenport

For questions or comments, call (202) 649-6420 or email This and previous editions are available on the OCC's website at

Articles by non-OCC authors represent the authors' own views and not necessarily the views of the OCC.

Deputy Comptroller
Barry Wides

Editorial Staff
Ted Wartell
Bill Reeves
David Black
Dan Gibbard

Design Staff
Rick Shacklette
Cheryle Robison

For questions or comments, call (202) 649-6420 or email This and previous editions are available on the OCC's website at

Articles by non-OCC authors represent the authors' own views and not necessarily the views of the OCC.