Written Statement of the EZ/EC Initiative Office
Office of Community Planning and Development
before the House Committee on Small Business
Subcommittee on Rural Enterprises, Business Opportunities,
and Special Small Business Problems
June 7, 2000
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.
the Urban Empowerment Zones and Enterprise Communities
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
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
2001 Budget Request and Bipartisan Agreement
- 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 EZ/ECs, New Markets, and Renewal Communities
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.
KEY ELEMENTS OF THE
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
- 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
- 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.
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
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