Mr. Chairman. Thank you for the opportunity to include in the hearing record written testimony on the Clinton/Gore Administration's Empowerment Zone/Enterprise Community Initiative. Secretary Cuomo, Assistant Secretary Cardell Cooper, and the rest of the HUD team have worked tirelessly to make the Urban EZ/EC Initiative a success. We appreciate your commitment to the EZ/EC Initiative, and look forward to partnering with you, other Members of this Committee, and the entire Congress to enhance community revitalization efforts across the nation. This testimony summarizes the accomplishments of the Urban EZ/EC Initiative and provides a brief overview of the Administration's FY 2001 budget request to Congress. We have also provided the Subcommittee with copies of the EZ/EC Initiative best practices guide called, "What Works, Volume III," which details individual success stories within the urban and rural EZ/ECs.

Since its inception in 1994, the Clinton/Gore Administration's Empowerment Zone and Enterprise Community (EZ/EC) Initiative has produced outstanding results by empowering people to create business opportunities and jobs, leverage billions of dollars from public and private partnerships, provide innovative job training, affordable housing, health care, child care, transportation and other critical services to hundreds of thousands of EZ/EC residents, and make communities safer and more attractive places to live and raise a family. Distressed neighborhoods -- with some of the deepest pockets of poverty in the nation -- are now on the road to recovery. After decades of decline, there are now real opportunities and brighter futures for residents and families living in urban and rural EZ/EC neighborhoods.

Hundreds of individual EZ/EC achievements are featured in our best-practice publications: "What Works! - Volume 1, Volume 2 & Volume 3" which has been provided for today's hearing. "What Works, Volume IV" will be provided to the Subcommittee in the coming weeks. The following accomplishments provide a national snapshot of the cumulative successes of the Urban portion of the Initiative as reported by the EZ/ECs through the period ending June 30, 1999. The EZ/ECs reported this information using HUD's cutting-edge Internet-based EZ/EC Performance Measurement System (PERMS). Again, the cumulative results shown below are based on the data submitted by EZ/ECs as of June 30, 1999.

--Workforce Development: The Empowerment Zones and Enterprise Communities report that they are engaged in more than 809 job training programs with over 68,000 Zone residents having received job training. Nearly 35,000 Zone residents have been placed in jobs as a result of these job training programs. Zone residents have attended 246 job fairs resulting in over 14,400 job placements.

--Access to Capital: As a result of the EZ/EC Initiative, access to inexpensive sources of capital -- the lifeblood of commerce -- has greatly improved. Loan pools totaling over $520 million dollars have been created with over 3,000 loans processed and 7,949 jobs created from those loans. In total, the EZ/EC's report that over 26,000 businesses have received financial assistance and 10,225 have received technical assistance to improve operations.

--Projects and Programs: The EZ/ECs report that over 2,500 neighborhood-based projects and programs have been developed and are under way as a result of each EZ/ECs' locally-derived Strategic Plans. One billion dollars in Federal EZ/EC seed money has leveraged over $11 billion dollars in additional public and private sector investments related to the implementation of local EZ/EC Strategic Plans.

Housing: The Empowerment Zones and Enterprise Communities report that they have completed over 4,600 new housing units and have rehabilitated another 18,400. Nearly 20,000 homeless people have been served under various homeless programs. The Empowerment Zones and Enterprise Communities have served over 30,000 residents through homeownership programs.

Private Sector Involvement: Private sector involvement has played a vital role in the EZ/EC Initiative. Countless corporations have hired Zone residents and actively participated in EZ/EC governance, as well as providing funds and in-kind technical assistance to the Zones. Well-known companies involved in the Zones include General Motors, Ford, Chrysler, Home Depot, The Walt Disney Company, GAP, Ameritech, Rite Aid, Microsoft, Starbucks, MCI/Worldcom, IBM, and hundreds of others.

Environment: The EZ/ECs report that they are engaged in 66 Brownfields projects - transforming abandoned and contaminated commercial and industrial sites into clean, reusable parcels of land for development. EZ/EC's have remediated 1,166 Brownfields sites to date. The EZ/EC's are also involved in 226 beautification programs.

Crime Prevention: The EZ/ECs report that 908,000 residents have been served through 413 crime prevention programs.

Health Care: There are 363 health-related programs in the EZ/ECs serving over 400,000 residents. Twenty-six new health-care facilities have opened in the EZ/EC neighborhoods and 9 have been remodeled, providing expanded services to greater numbers of families.

Human Services: Within the Empowerment Zones and Enterprise Communities, there are:

• over 200 child care programs serving over 14,000 Zone families;
• 80 programs for the elderly serving over 10,500 Zone residents;
• over 430 youth programs serving 183,241 Zone youth; and
• over 400 recreation/arts programs serving over 250,000 Zone residents

Education: Education is vital to the well-being and economic development of the EZ/EC's. The following are educational successes:

• 7,350 children have been served by 121 Head Start/pre-school programs;
• over 55,000 EZ/EC residents have been served by 329 K-12 education programs;
• over 6,000 residents have been served by 24 post secondary assistance programs; and
• 3,628 residents have been served by 45 vocational education programs.

On May 23, 2000, the Administration's FY 2001 request for full EZ funding was superseded when President Clinton joined House Speaker Dennis Hastert in announcing a bipartisan agreement on New Markets, Empowerment Zones, and Renewal Communities. Funding for Round II Empowerment Zones and a new competition for a Round III of Empowerment Zones is included in this agreement.

The May 23rd announcement is the outcome of the commitment President Clinton and Speaker Hastert made in Chicago last November to develop a bipartisan legislative initiative on New Markets and revitalizing impoverished communities this year. This initiative will help encourage private-sector equity investment in underserved communities throughout the country to ensure that all Americans share in our nation's economic prosperity. The President's New Markets Initiative was originally proposed in President Clinton and Vice President Gore's FY 2000 budget. President Clinton has highlighted the potential of the nation's New Markets in three separate trips across America to underserved inner-city and rural communities like Newark, NJ, Hartford, CT, the Mississippi Delta, Appalachia, and rural Arkansas, and the Pine Ridge Indian Reservation in South Dakota.

EMPOWERMENT ZONES

The agreement provides for $200 million in funding for Round II EZs and provides a wage tax credit for the Round II EZs. $100 million in funding would be provided for FY 2001 and $100 million would be requested in FY 2002. The agreement also authorizes the designation of 9 new Empowerment Zones (no grant funding--only tax incentives), bringing the total number to 40 EZs, and would extend the duration of all 40 EZ designations to 2009. Seven of the new nine Round III EZs would be urban and two would be rural. The EZ provisions are estimated to cost $2 billion over 5 years and $4 billion over 10 years.

If the agreement becomes law, the following incentives would be available to all Empowerment Zones:

• Wage credit equal to 20 percent on the first $15,000 of qualified wages per employee;
• Authority to issue tax-exempt bonds to promote business development;
• Incentives for EZ business investment by permitting EZ businesses to deduct an additional $35,000 in capital expenditures;
• Zero-rate on capital gains rolled over to another EZ business investment, and a 60 percent exclusion of capital gains derived from small business stock.
• The EZ provision also includes an extension through 2009 of the Empowerment Zone incentives for the District of Columbia.
  

NEW MARKETS INITIATIVES

New Markets Tax Credit. The deal includes the President's New Markets Tax Credit to spur $15 billion in new private-equity investment for business growth in our nation's inner cities and isolated rural communities. Investors in eligible funds would receive a tax credit worth, in present-value terms, more than 30 percent of the amount invested. Investors would take a 5 percent credit for the first 3 years of investment, and 6 percent for the next 4 years. Eligible funds would include a wide range of entities, including community development banks and other community development financial institutions, venture funds, for-profit subsidiaries of community development corporations, America's Private Investment Companies, and New Markets Venture Capital Firms. The New Markets Tax Credit would be widely available on a competitive basis to funds serving low- and moderate-income communities around the country, those with census tracts with poverty rates of at least 20 percent or median family income that does not exceed 80 percent of area income. The proposal costs $1 billion over 5 years and $4.5 billion over 10 years.

America's Private Investment Companies (APICs): This HUD/SBA legislative proposal will create investment funds with minimum private capital of $25 million (which is eligible for the New Markets Tax Credit), that could then borrow twice that amount at government-guaranteed rates and spur $1.5 billion in private investment. APICs would be structurally similar to the existing SBA Small Business Investment Company (SBIC) program, and the Investment Funds of the Overseas Private Investment Corporation, but would generally be much larger. APICs would fund larger businesses, such as new back office operations, plant expansions, and conversions of old facilities into modern industrial "incubators" for smaller businesses. Currently there are few, if any, sources of long-term risk capital for these landmark investments in most poorer communities. The agreement authorizes HUD to guarantee up to $1 billion in low-cost loans that will match $500 million in private investors' contributions, to make a total of $1.5 billion available to invest in low- and moderate-income communities.

New Markets Venture Capital Firms (NMVC): This SBA legislative proposal would create a new class of venture capital funds that target investment in small businesses in low and moderate income areas. NMVC would also provide intensive hands-on management assistance to their small business portfolio investments. NMVCs would target smaller firms with growth prospects that do not currently have sufficient equity base. NMVCs must have $5 million minimum in private equity, plus $1.5 million in cash or in-kind commitments raised from private sources to provide operating and management assistance. For investment capital, the SBA would provide up to $1.50 in financial assistance for each $1 that private investors contribute. The SBA would also match privately-raised operating assistance one-to-one. The agreement authorizes SBA to guarantee up to $150 million in loans to match $100 million in private equity, for a total of $250 million in investment capital for these communities. In addition, the agreement authorizes SBA to make $30 million in grants to match private commitments for operating assistance to the NMVC's portfolio companies.

RENEWAL COMMUNITIES

The creation of 40 Renewal Communities (32 urban, 8 rural), which will be designated by the U.S. Dept. of Housing and Urban Development, will help revitalize communities using targeted, pro-growth tax benefits, and regulatory relief. The tax benefits of Renewal Communities would address key hurdles facing small businesses when they are just getting started - raising capital and maintaining cash flow. Key incentives aimed at spurring investment in Renewal Communities include:

• Zero Capital Gains Rate on the sales of assets held for more than 5 years.
• Increased Expensing for Small Businesses (up to $35,000 more than in current law for equipment).
• 15% Employment Wage Credit (maximum credit of $10,000 ) for each worker.
• Commercial Revitalization deductions for taxpayers who rehabilitate or revitalize buildings in a Renewal Community.

In addition, the New Market/Renewal Communities Agreement includes the following incentives.

EXPANSION OF THE LOW-INCOME HOUSING TAX CREDIT

The deal includes the President's proposal to expand the low-income housing tax credit volume cap by 40 percent, from $1.25 per capita to $1.75 per capita, and to index the credit for inflation thereafter. The tax credit, which is administered by the states, currently helps to build 90,000 affordable housing units each year, but demand for the credits outstrips supply by three to one, and more than 5 million low-income Americans live in inadequate housing. The proposal would help create an additional 180,000 units of affordable housing over the next five years for low-income families. The proposal costs $1 billion over 5 years and $6 billion over 10 years.

ALLOWING FAITH-BASED ORGANIZATIONS TO QUALIFY FOR SUBSTANCES ABUSE FUNDS

This agreement will allow faith-based organizations to qualify for substances abuse prevention and treatment funds on the same basis as other non-profit organizations. Both the President and Vice President believe that faith-based and community-based organizations can play an important and constructive role in addressing some of our nation's most pressing problems, including preventing and treating substance abuse. At the same time, the Administration has been clear that the 'charitable choice provisions' included in this agreement and in other legislation the President has signed can and must be construed and implemented consistent with the constitutional line between church and state.

The provisions of the agreement are substantially similar to the charitable choice provisions included in the welfare reform law signed by the President in 1996, and in the substances abuse bill that passed the Senate on a bipartisan basis last fall.

Content Archived: January 20, 2009