Using a case study approach, the General Accounting Office (GAO) reviewed the results of 12 projects funded under the Urban Development Action Grant (UDAG) Program, which provided $3 billion in grants to distressed communities for economic revitalization and neighborhood reclamation projects. GAO found that the projects exceeded investment expectations, came close to meeting employment expectations, but fell considerably short of realizing projected increases in local tax revenues. The Department of Housing and Urban Development's (HUD's) information system, however, did not provide complete information on the results. GAO also found that many of the most economically distressed small cities did not participate in the program because they (1) were unfamiliar with the program, (2) had insufficient city government capacity to plan a UDAG project, and (3) had difficulties in obtaining adequate private sector involvement. In addition, many cities that have received UDAG funds have loaned them to private developers; some of these loans are repaid before a UDAG project is completed. At present, there is no clear policy on whether cities can use these early repayments for additional community and economic development activities. GAO has offered recommendations that would improve the accuracy of HUD's information on completed projects, help small cities to participate in the program, and establish a policy on whether cities should be able to use early UDAG repayments. (Author/CMG)