Good afternoon Chairman Houghton, Ranking Member Coyne, 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.

The Department is pleased that this hearing is occurring in conjunction with the Community Renewal Implementation Conference. Over 400 participants including tax law specialists, executive directors, planning coordinators, city managers, mayors, and residents have gathered to learn how Federal tax incentives and community partnerships can encourage economic development in Empowerment Zones (EZs) and Renewal Communities (RCs). The Department's most recent information shows that businesses in EZs have made only a modest use of the Federal tax incentives. This conference is just the beginning of HUD's aggressive and comprehensive campaign to market the existing tax incentives to businesses and individuals in the 30 Empowerment Zones and 40 Renewal Communities that HUD has designated.

The Community Renewal Tax Relief Act of 2000 provided for 12 rural and 28 urban Renewal Communities and set forth 2 rural and 7 urban Round III Empowerment Zones. The new legislation provided for measures that included a $22 billion package of tax benefits, of which $11 billion is unique to the EZ/RC communities.

In the Fall of 2001, HUD received over 100 Renewal Community applications from 35 states. Our eligibility and completeness review yielded 77 qualifying applications. The enthusiasm for this program is evidence that our neighbors from coast to coast are anxious to reduce poverty and provide opportunity through tax incentives. In January, Secretary Martinez was able to announce 40 RCs with the most severe economic distress, 20 of which were Enterprise Communities that chose to become RCs. Unlike many grant competitions, Congress mandated that the applications be judged strictly by objective criteria. At a minimum the applicants needed to have a set of continuous census tracts with at least 20% poverty and 9.4% average unemployment. The 40 RCs selected had an average poverty rate of 40% and an average unemployment rate of 17.1% percent.

Unlike many Federal programs, which provide cash grants for narrowly defined projects, HUD requires Renewal Communities to adhere to four of six required goals to promote economic growth at the local level. Renewal Communities commit to a combination of reducing local taxes, improving local services, reducing crime, reducing local government requirements, involving community partners, and soliciting in-kind donations. In return, the U.S. Treasury agrees to reduce the Federal tax burden through the Renewal Community Employment Credit, Commercial Revitalization Deduction, Zero Percent Capital Gains, and Increased Section 179 Deduction for Renewal Community Businesses. The tax incentives are the beginning of the strategic alliances that are being formed among private, public, and nonprofit actors in our 40 Renewal Communities. Ultimately, the success of RCs and EZs will stem from grass roots implementation in communities.

Presently, we are aware of the efforts being made by several Renewal Communities and Empowerment Zones to market their tax incentives to potential business partners. In Eastern Kentucky, RC staff is going door to door with tax publications raising enthusiasm in the business communities. In Memphis, Tennessee, the mayor has brought together representatives from non-profit, for-profit and other levels of government to help target tax incentive outreach strategies. Nissan has expressed interest in the rural Mississippi RC because of the new tax incentives. A business in Burlington, Vermont is considering using the RC tax savings to have more full-time, rather than part-time employees. I will defer to other witnesses and let them share with the subcommittee their accomplishments in detail.

New Empowerment Zones are also enthusiastic about tax incentives. Tucson, Arizona has launched an Empowerment Zone tax incentive website that has already received over 2500 hits since March 1. Finally, in my hometown of Syracuse, New York, developers will use the tax exempt EZ Facility Bond to help build Destiny, a 65 acre lakefront recreation, commercial and retail center that will include a replica of Erie Canal, rock climbing, hotels and a monorail link to the airport and convention center.

In closing, the Department believes tax incentives should be at the center of its job creation efforts by helping small businesses grow, creating an entrepreneurial environment, and showing to large corporations that these economically distressed areas represent opportunities with great hope.

Thank you for this opportunity to testify and I would be pleased to respond to your questions.