HUD's FY99 Budget
Congressional Justifications
Community Planning and Development

Empowerment Zones

PROGRAM HIGHLIGHTS

   

NA = Not Applicable

SUMMARY OF BUDGET ESTIMATES 1. SUMMARY OF BUDGET REQUEST The 1999 Budget proposes $150 million for Empowerment Zones (EZs). This is the first year of a 10-year mandatory funding program totaling $1.5 billion. These flexible block grant funds will complement the tax incentives authorized by the Taxpayer Relief Act of 1997, which also authorized the designation of 15 new urban EZs and five new rural EZs, and will encourage comprehensive planning to revitalize distressed areas. This funding would support the 15 urban EZs in creating economic opportunity in America's distressed communities, with a special emphasis on stimulating job creation linked to welfare reform. A consistent and reliable source of flexible, mandatory funding over the life of the program is needed to help stimulate economic opportunity in the 15 new Zones and to integrate America's poor into the larger metropolitan economy. Grants could be used for a broad range of activities that assist residents, businesses, and organizations, including workforce preparation and job creation efforts linked to welfare reform; neighborhood development; support for financing of capital projects; financing of projects in conjunction with the Section 108 loan guarantee program and other economic development projects; support for project-based rental assistance; financing other housing activities; community policing; and health care. In addition, this initiative is to revitalize city neighborhoods in a way that retains and attracts middle-class residents. Empowerment Zones embody the core principles of the President's Community Empowerment agenda. The EZ/EC initiative combines Federal tax incentives with direct funding for physical improvements and social services. It requires unparalleled levels of private sector involvement and investment. It brings all stakeholders in a community--residents, nonprofits, business and Government--to the table to develop a locally fashioned and locally controlled, comprehensive revitalization strategy. It makes the private sector the driver of economic growth, with the government acting as a partner. As in the first round, communities that choose to compete for an EZ designation will be challenged to develop their own comprehensive strategic plans for revitalization, with the input of residents and a wide array of community partners. The Federal Government would invest in those communities that develop the most innovative plans and garner significant local and private sector commitments. In 1994, more than 500 urban and rural communities applied to be designated as an urban Empowerment Zone or Enterprise Community. During the first 30 months of this 10-year initiative, EZs and ECs have evolved from establishing governance structures and performance benchmarks to actively implementing programs that will help to revitalize their communities. Significant progress is being made thanks to a strong partnership between Government, the private sector, non-profits and community residents. In the time since their designation, the 72 urban EZs and ECs have generated almost $4 billion in private and public investment to revive inner city neighborhoods once given up for dead, and to create jobs and help families move from welfare to work. The EZ/EC initiative is creating jobs, residents have more opportunities to better their lives and, in general, many communities are improving. But more can be done to revitalize our inner cities. Despite significant progress in reducing unemployment nationally, too many cities and neighborhoods are still lagging far behind. They continue to face deep-seated problems that threaten not only the long-term health of those cities but also their interconnected suburbs. The problems confronting our cities include: disparity in job creation between the cities and suburbs; and training; social and economic isolation of America's poor in neighborhoods that lack access to jobs and long-term migration of the middle class from cities to suburbs. Cities and neighborhoods are facing the new challenges of creating tens of thousands of jobs to move people from welfare to work and accommodating a steady stream of new immigrants. During the past 4 years, there has been a widespread national debate over welfare reform and the need to get individual recipients to work. The focus of this debate has now shifted to cities and to neighborhoods where welfare recipients live in disproportionate numbers. Both Houses of Congress have approved programs to assist welfare recipients with training and other services to help them prepare for jobs. However, additional steps must be taken to generate jobs that are accessible to the socially and economically isolated families residing in distressed cities. The Taxpayer Relief Act of 1997, enacted on August 5, 1997, authorizes the Secretary of HUD to designate 15 additional urban EZs under criteria similar to those enacted for the first round of designations authorized in the Omnibus Budget Reconciliation Act of 1993. This Act also authorizes the Secretary of Agriculture to designate five additional rural EZs. These EZs will be eligible for the special Brownfields tax incentive, allowing designation of up to 2,000 acres of non-poverty, industrial acreage, which will be the focus of job creation for Zone residents; the Public School Renovation tax credit, which will promote the creation of more rigorous schools and job-skilled youth; relaxed eligibility rules for bonds and expensing, including $20,000 in additional section 179 expensing of investments in capital and equipment in order to promote commercial investment; and Enhanced Private Activity Bonds, including $60 million-$230 million in flexible private-activity bond authority, outside the state volume cap, to subsidize job-creation and business expansion in the Zone. 2. CHANGES FROM 1997 ESTIMATES INCLUDED IN 1998 BUDGET     Not applicable. 3. CHANGES FROM ORIGINAL 1998 BUDGET ESTIMATES The 1998 Budget proposed $100 million for Empowerment Zones. The Current Estimate reflects the enacted level of $5 million. This funding is to be used for "planning grants, technical assistance, contracts and other assistance, and training in connection with Empowerment Zones and Enterprise Communities . . . to continue efforts to stimulate economic opportunity in America's distressed communities." It is anticipated that all of these funds will be obligated in 1998. EXPLANATION OF INCREASES AND DECREASES The 1999 proposal of $150million is $145 million more than the enacted 1998 level. The 1999 funding will be used to provide flexible grants to the 15 new urban EZs authorized by the Taxpayer Relief Act of 1997. PROGRAM DESCRIPTION AND ACTIVITY 1. Legislative Authority. The designation of 15 additional urban Empowerment Zones is authorized by the Taxpayers Relief Act of 1997. A legislative proposal for the authorization of grant funding will be submitted. 2. Program Area Organization. In December 1994, 104 distressed urban and rural communities around the country received a combination of tax incentives and flexible block grants to implement 10-year strategic plans to promote economic opportunity and community wide revitalization. The EZ/EC initiative marks the most significant effort launched by the Federal Government in decades on behalf of the Nation's distressed inner cities and impoverished rural communities. The program is notable as an innovative approach to attracting private investment as the foundation for sustainable, comprehensive development and economic opportunity. The EZ/EC program directly advances the Department's Strategic Plan Objective #1, "Empower communities to meet local needs," and Strategic Objective #2, "Provide empowerment and self-sufficiency opportunities to support low-income individuals and families as they make the transition from dependency to work." The EZ/EC program creates job opportunities and promotes partnerships with private and community service providers who can help residents achieve self-sufficiency. Finally, EZs/ECs also advance Strategic Objective #6, "Provide economic opportunities for low- and moderate-income persons through creation and retention of jobs," by bringing jobs access to distressed communities. The EZ/EC program is designed to afford communities real opportunities for growth and revitalization. The framework of the program is embodied in four key principles: -- Economic Opportunity - creating jobs, attracting private partnerships and training residents for new job opportunities; -- Sustainable Community Development - promoting physical and human development, such as safe streets, clean air and water, lifelong learning and a commitment to personal, family and civic responsibility, as part of a long-term strategy of economic development; -- Community-Based Partnerships - a strategic plan must involve the entire community, including residents, community groups, private and non-private sectors, education and religious institutions and local and State governments; and -- Strategic Vision for Change - there must be a strategic map that coordinates a response to the needs of a community by integrating economic, physical, human and other strategies. a. Eligible Recipients. Any unit of general local government, including a city, town, township, county, parish, village, or other general purpose political subdivision of a State, and the District of Columbia, is eligible to apply to receive a second-round EZ designation. b. Allocation of Funds. Grant funds will be distributed on a competitive basis to those communities that win a second-round EZ designation. Criteria for competitive selection may include factors such as the extent to which the activities proposed in the application: create permanent jobs accessible to low-income persons, minority persons, persons receiving public assistance, and unemployed persons; complement welfare reform initiatives that empower low-income persons and families receiving public assistance to become economically self-sufficient; involve interagency and intergovernmental coordination of Federal, State and local public and private (including nonprofit) resources; use private resources to leverage assistance under this Act, including the extent to which there is a firm commitment for the use of the resources; and, establish or expand business opportunities within the Empowerment Zones. c. Eligible Activities. Eligible activities include those that are: eligible under the Community Development Block Grant program pursuant to section 105(a) of the Housing and Community Development Act of 1974 or under the Social Services Block Grant program under title XX of the Social Security Act, subject to conditions and limitations under section 105(a) and title XX only to the extent the Secretary determines appropriate; and consistent with the applicable strategic plan. Grant funds would be available to support the financing of capital projects, including housing and economic development, in urban EZs. Eligible activities include financing of projects in conjunction with the Section108 financing loan guarantee program and other economic development projects; and support for project-based rental assistance and other housing initiatives. The funds could also be used in integrating human capital needs with economic development initiatives. This includes day care, transportation, education, job training and other social service support designed to enable the recipients to achieve economic self sufficiency. d. Program Accomplishments. Although designed as a 10-year effort, in the first 30months of the program, EZs and ECs designated in 1994 have begun to demonstrate significant results. More than $4billion in new private and public sector investment has been made or committed in the urban EZs and ECs. The overwhelming focus of the new investment is targeted toward economic opportunity: job creation; investment pools for capital access and innovative financing needs; job and occupational skills training; and entrepreneurial/business support and assistance. EZs have made significant strides in utilizing EZ funds and tax incentives to attract notable private sector investment, generate job growth, stimulate business openings and expansions, construct new housing, expand homeownership opportunities, and stabilize deteriorating neighborhoods. More than 100 EZ/EC programs and projects are highlighted in HUD's publication, What Works! In the Empowerment Zones and Enterprise Communities, providing reason to celebrate the successful revitalization of our Nation's communities. They serve as models for programs throughout the country, helping to bring businesses and residents back to America's most distressed areas and giving hope to the people of every community. Some examples of successes are: Detroit - Nearly 2,500 jobs are being created or retained in Detroit. In addition, more than $3 billion in private sector investments have been committed to the Zone. This EZ has been aggressive in using its designation and associated tax benefits to attract businesses, revitalize its manufacturing base and generate jobs. Chrysler has located a new engine plant in the Zone, and parts suppliers, packaging industries, and service and food firms have followed. Los Angeles - Los Angeles used its $125 million in HUD Economic Development Initiative (EDI) grants funds and $315 million in Section 108 loan guarantees to successfully create the largest non-commercial lending institution in the nation, the Los Angeles Community Development Bank. The bank has partnered with several private lenders, who have agreed to commit $210 million in loan funds, bringing the total loan pool to $650 million. These funds will be loaned to expand existing businesses and start new ventures in the Zone. Baltimore - More than 1,400 full-time jobs have been reported as either created or retained through the creation, expansion and relocation of 26 businesses in the Baltimore EZ. Approximately $3.7 million is targeted to job training activities and programs. More than 1,000 units of housing are being constructed or rehabilitated in the Zone through the obligation of over $137 million to the demolition and reconstruction of public housing. In March 1997, HUD released reviews of all 72 urban EZs and ECs, and reported progress in all but one EZ and 4 ECs. These performance reviews were intended to serve as a management tool for the cities to receive feedback on how they were proceeding. HUD is further assessing the performance of EZs and ECs through: 1) an early implementation study focusing on the first two years of the initiative; 2) an interim assessment of impact at the five year point; and 3) an evaluation at the 10 year completion of the first round of EZ and EC activities. All of these assessments are being done by contract with outside independent experts. The following key recommendations for success were cited in the early implementation report: Leverage Private Sector Investment - Almost all EZs and ECs that showed progress are creating new partnerships with the private sector, stimulating private investment to flow back into many inner city neighborhoods. The reports show that a small amount of Federal funding can attract significant private sector investment. Projects that depended solely on Federal funds tended to make the slowest economic development progress. Make Community Development Comprehensive - The EZ proposal rejects the traditional approach where communities plan development projects piecemeal, and incorporates the philosophy that local communities are best able, and most likely, to generate overall revitalization of distressed areas if they do comprehensive development in partnership with community residents, the private sector and all levels of government. Achieve Communitywide Buy-In - While there can be tension generated by meaningful and diverse community involvement in the planning and implementation process, this tension is often an effective barometer of the community's commitment to achieving community-wide buy-in and thus generating lasting change. Use Performance Benchmarks - Performance measurement is an important part of ensuring that Federal tax dollars and tax incentives are used effectively. This is also a critical tool to help communities gauge their efforts and make mid-course correction to their projects as necessary. Coordinate Among Government Agencies - Extensive interagency cooperation at the Federal and local levels is vital to the success of community revitalization efforts. STATUS OF FUNDS 1. Balances Available