Testimony of Roy A. Bernardi
April 10, 2002
Assistant Secretary for Community Planning and Development
US House of Representatives
Committee on Financial Services
Subcommittee on Housing and Community Opportunity
Good morning Chairwoman Roukema, Ranking Member Frank, and distinguished
Members of the subcommittee. My name is Roy Bernardi. I am the Assistant
Secretary for Community Planning and Development in the Department
of Housing and Urban Development. On behalf of Secretary Martinez,
I want to extend our commitment to work with you to improve the
effectiveness of the Empowerment Zone (EZ) and Renewal Community
(RC) programs as an effective tool for the revitalization of America's
urban and rural communities.
Let me begin by quickly reviewing funding for Round I, Round II, and
Round III Empowerment Zones. The Omnibus Budget Reconciliation Act
of 1993 authorized HUD to designate six urban EZs by December 1994.
Each EZ received $100 million each in mandatory, Social Services
Block Grants (SSBG) funds.
The Taxpayer Relief Act of 1997 authorized HUD to designate 15 urban
Round II EZs by January, 1999. Only tax benefits were authorized;
however, the 1999 and 2000 budgets proposed 10 years of mandatory
grants totaling $1.5 billion. Instead, Congress appropriated discretionary
funding for Round II EZs from 1999 through 2002 totaling $330 million
or $22 million for each zone.
Most recently, HUD designated eight Round III urban EZs and 28 urban
and 12 rural Renewal Communities (RCs) on December 31, 2001, authorized
by the Community Renewal Tax Relief Act of 2000.
The Community Renewal Tax Relief Act of 2000 provides a valuable array
of tax incentives, which brings the total to more than $22 billion
and applies to all EZs and RCs until December 31, 2009. The Administration
did not request grants for the Round III Empowerment Zones because
we believe tax incentives are the driving force behind economic
revitalization and job creation in Empowerment Zones. The Round
III EZ and RC competition reflected this emphasis and generated
a great deal of enthusiasm. As suggested in the President's Fiscal
Year 2003 budget, the Administration believes that economic revitalization
can be better served by utilizing the $22 billion in tax incentives
or on the average approximately $300 million per Empowerment Zone
and Renewal Community.
To improve the effectiveness of Empowerment Zones, HUD plans on focusing
on two main areas. First, we are implementing an aggressive and
comprehensive plan to market the existing tax incentives to businesses
and individuals in the 30 Empowerment Zones and 40 Renewal Communities
that HUD has designated. The perceived complexity of tax incentives
creates numerous challenges for local governments. Second, Secretary
Martinez has made it a priority to improve HUD's monitoring system
to better track the performance and financial compliance of grantees.
Special attention is being paid to obligations and the timely expenditure
of funds. Collectively, Round II EZs have drawn down only $66 million
($66,448,543.83 as of April 9, 2002) or 20 percent of the $330 million
($329,593.00) million awarded, which suggests that communities can
move forward with their plans without additional Federal resources.
The committee has expressed a concern about the use of existing Appropriations.
Traditionally, HUD tracks progress towards milestones and outputs
through an annual reporting process, and the Department shares the
Committee's concern about performance.
HUD's Interim Assessment of the Empowerment Zones and Enterprise
Communities (EZ/EC) Program (November 2001) looks at a sample of
Round I EZ/ECs to attempt to determine the impact of the program.
The research found a modest, but significant impact in the economic
well being of the Round I EZ/ECs, particularly as concerns unemployment.
Because the impact is modest and there are competing inputs of the
program; for example, strategic planning, grants and several tax
incentives, there is no convincing evidence that the grant program
in and of itself increased the program's effectiveness. The report
concludes that businesses have insufficient knowledge of the incentives,
and I will come back to this issue in my closing comments.
Our goal at HUD is for Empowerment Zones and Renewal Communities to
make a dynamic shift to self-sufficiency and sustainable development.
For example, rather than planning around another custom made temporary
grant program, our most recently designated Round III Empowerment
Zones brought over 100 commitment letters from the private sector,
non-profits and other public entities.
The Committee asked HUD to explain the merits of tax incentives versus
grants. The Round I EZ/EC Initiative was based on an approach that
included both grants and tax incentives. The Department believes
tax incentives should be the center of its job creation efforts
by helping small businesses grow, creating an entrepreneurial environment,
and showing to large corporations that these economically challenged
areas represent opportunities with great hope. The variety of tax
incentives such as employee wage credits, reduced capital gains,
increased deduction of property expenses, zero percent interest
in bonds for schools and economic development projects - provide
an opportunity for success among a much larger pool of individuals.
In light of the potential benefits exclusively earmarked to EZs
and RCs, the Department believes that if utilized, tax incentives
can be a far more effective tool for revitalizing distressed areas
than grants, and truly make these areas the place where individuals
with vision decide to locate their businesses.
The Department has invited all EZs and RCs to an implementation conference
in Washington, DC from May 20 - 22 to learn about the valuable tax
incentives they control as well as determine ways that they can
market them. The success of EZs will stem from grass roots implementation
in communities. If EZs are implemented properly, the results can
be more immediate, with more dollars and greater opportunity remaining
in these distressed communities. The Department's most recent information
shows that businesses in EZs have made only a modest use of the
Federal tax incentives. Our concern is that a large infusion of
federal grants to Round II EZs may continue to create situations
where the large majority of the EZs fail to take full advantage
of the tax incentives. Even with our Department's aggressive efforts
to train and guide EZs and RCs they must decide if they will take
advantage of the $22 billion tax incentive package. We will provide
conference calls with the communities, regional update seminars,
weekly faxes, and HUD headquarters and field staff working with
EZs and RCs.
We fully believe that these tax incentives, for the communities and
individuals who embrace their power, will help small businesses
grow, attract new businesses and provide job opportunities. These
very important parcels of land truly can provide wonderful economic
opportunities for all Americans today.
Content Archived: June 25, 2010