SPEAKERS CONTENTS INSERTS
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REVIEW OF THE CURRENT STATUS
OF EMPOWERMENT ZONES AND
WEDNESDAY, APRIL 10, 2002
U.S. House of Representatives,
Subcommittee on Housing and
Committee on Financial Services,
The subcommittee met, pursuant to call, at 2:10 p.m. in room 2128, Rayburn House Office Building, Hon. Gary G. Miller, of the subcommittee, presiding.
Present: Acting Chairman Miller; Representatives Kelly, Capito, Grucci, Tiberi, Jones, Capuano, Clay, and Israel.
Mr. MILLER. Without objection, we'll go ahead and start the hearing today. Today the Subcommittee on Housing and Community Opportunity meets to review the Empowerment Zone/Enterprise Community program.
In 1993, the 103rd Congress set in motion a major economic development initiative designed to revitalize deteriorating urban and rural communities by enacting the Omnibus Budget Reconciliation Act of 1993, OBRA 1993, which established the Empowerment Zone/Enterprise Communities (EZ/EC) program. The EZ/EC program targets Federal grants for social services and community redevelopment and provides tax and regulatory relief intended to attract and retain businesses in designated areas.
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Federal funding for EZs and ECs is made available through the Title XX Social Service Block Grant (SSBG) program. As with other SSBG funds, those allotted for the EZ/EC program are granted by the Department of Health and Human Services (HHS) to the States that are fiscally responsible for these funds. The authorizing legislation provides for a one-time appropriation of $1 billion for HHS to be made available to SSBG funds over a 10-year life of the program, thus ensuring the Round I designated areas would not be dependent on annual appropriations, as is typically the case.
The program originally consisted of six urban and three rural areas designated as empowerment zones (EZs). An additional 60 urban and 30 rural areas were designated Enterprise Communities (ECs) which receive a smaller package of Federal incentives.
Each urban EZ was allocated $100 million and each rural EZ was allocated $40 million in SSBG funds over use for a 10-year period. All of the urban and rural ECs were allocated just under $3 million in SSBG funds. In 1997, Congress added Cleveland and Los Angeles as empowerment zones and designated them for purposes of funding as part of the Round I EZ.
In 1997, Congress created Round II of the EZ/EC program authorizing the designation of 20 additional EZs, 15 urban and 5 rural. Round II EZs were given a different mix of tax incentives, and unlike the Round I EZs, the enabling legislation for Round II zones did not include SSBG funding. Businesses in the Round II EZs are eligible for more generous tax-exempt financing benefits than those in Round I EZs. Round II EZs are also eligible to designate up to 2,000 acres of underutilized developable property outside the normal zone area which it can receive zone benefits and can be used for job creation for zone residents. For example, Indian tribes with poverty areas also qualify to apply for and receive designation.
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The TRA of 1997 did not appropriate SSBG funds as had been available in Round I EZs and ECs. For fiscal year 1999 through fiscal year 2002, Congress approved a total of $22 million in funding for each of these zones. The HUD VA appropriation bill for fiscal year 2001 provided each zone EZ with $5 million in SSBG funding. It also provided a total of $15 million SSBG funding for Round II, rural EZs and ECs. A total of $10 million was for the five rural EZs, $2 million for each, and $5 million for the rural Enterprise Zones, $250,000 each. The 15 urban Round II EZs received a total of 330 over 10 years.
The 106th Congress passed the Community Renewal Tax Relief Act of 2000 as part of the Consolidated Appropriation Act of 2001 which authorizes the Secretary of HUD and Agriculture to designate nine additional Empowerment Zones, 7 urban and 2 rural. And also included provisions that impacted Round I and II EZs. For example, the designation of EZ status for Round I and II zones, other than the District of Columbia, was extended through December 31, 2009, and the 20 percent wage credit was made available in all Round I and II zones for qualifying wages paid or incurred after December 31, 2001.
Further, $35,000 rather than $20,000 of additional Section 179 expensing was available for qualified zone properties placed in service after December 31, 2001.
This hearing will examine the EZ/EC program generally and then focus on the discrepancies in funding between the Round I, II and III zones. Witnesses have been asked to comment on the process of EZs in their respective States. In addition, witness have also been asked to comment on H.R. 2637, the Round II EZ/EC Flexibility Act of 2001, which authorizes specific urban and rural Empowerment Zones and permits the use of these funds for zone or community strategic plan implementation.
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The legislation would also provide for the use of Federal funds to pay matching fund requirements to prevent the Empowerment Zone or Enterprise Communities from losing Federal funding because of reclassification as a renewal community.
We look forward to hearing from each of our witnesses this morning. I will now turn the mike over to Mr. Frank if he was here, but I see that Mr. Frank is not here at this point in time, so I will reserve time for him later at this point.
Also, because Ms. Capito is a Member of this subcommittee, we're going to recognize her first at this time. Ms. Capito.
Ms. CAPITO. Thank you very much, Mr. Miller, Mr. Chair. At this time I would like to begin by thanking you and the Chairwoman for holding this all important hearing on the current issues of Empowerment Zone and Enterprise Community program.
I would also like to take this opportunity to acknowledge the support and thank my colleague, Mr. Rahall, also from West Virginia, and his staff for their efforts on behalf of the EZ/EC program in our home State of West Virginia.
In 1997 while serving as a State delegate in the West Virginia Legislature, a portion of my district known as the Upper Kanawha Valley in Kanawha County, along with portions of Fayette County in Mr. Rahall's Congressional District, competed with numerous other community development groups from around the country for selection to receive Federal grant funding as a designated Round II Enterprise Community.
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My fellow Members, it gives me great pleasure to sit here before you todaysome 5 years laterto give you evidence and report on the remarkable progress and achievements that have been realized by that same determined and highly successful economic development group now known as the Upper Kanawha Valley Enterprise Community. Coincidentally, I think it's important to note that the Upper Kanawha Valley in West Virginia has some of the highest poverty and highest unemployment rates in our State.
It is worth noting that in the last 4 years alone, the Upper Kanawha Valley Enterprise Community has been recognized as a top five Enterprise Community nationally, and they have skillfullyand I emphasize skillfullyleveraged an astounding $84 million in private sector investment and State and local matching funds for the $1 million in Federal grant funding that the Upper Kanawha Valley Enterprise Community has received over the past 4 years.
As you will soon hear today, the hard work carried by those associated with the Upper Kanawha Valley Enterprise Community has been demonstrated in countless acts of volunteerism and community development. From a new small business incubator to health clinics and community centers, the local residents, business owners, elected officials and UKVEC staff have all truly made the Upper Kanawha Valley Enterprise Community an indispensable tool for economic development as one of the Nation's more successful ECs.
In closing, I would like to state for the record my sincere appreciation and full support for Representative LoBiondo's hard work and dedication in introducing H.R. 2637, the Round II EZ/EC Flexibility Act of 2001. If we truly value all the progress and economic development resulting from the EZ/EC program, then we must enact a measure that both secures continued funding and maintains flexibility. H.R. 2637 would restore and safeguard adequate funding levels while allowing each individual EZ/EC to continue implementing their own economic development plans within a framework that works best for that particular region and the character of that region.
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I know just how successful these programs have been, because I have seen their potential firsthand. And if we have to hold these funding deliberations again each year, next year and the next year, I will gladly come before this subcommittee to voice my full support for the Empowerment Zones and Enterprise Community program.
[The prepared statement of Hon. Shelley Moore Capito can be found on page xx in the appendix.]
Thank you, Mr. Chair.
Mr. MILLER. Thank you.
We have a vote on the floor right now. I think if we recess for a moment to do that, when you come back, Mr. LoBiondo, you'd have a better audience here probably. So we will recess for approximately 10 minutes.
Mr. MILLER. We're going to reconvene the hearing. The first witness will be the Honorable Frank LoBiondo. You have 5 minutes, sir.
Mr. LOBIONDO. Thank you very much, Mr. Chairman. I would like to thank Chairwoman Roukema for helping to arrange this very important hearing, and I'm very pleased today that on panel three there will be included Jim Sauro, who is the Freeholder Director in my home county of Cumberland County, New Jersey, and Jerry Velazquez, the Executive Director of our Empowerment Zone.
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Congressman Mike Capuano and I co-chair the Enterprise Communities Caucus. It's a bipartisan group of Members who have Round II Empowerment Zones and Enterprise Communities.
The EZ/EC initiative provides critical Federal support for the comprehensive revitalization of designated urban and rural communities across the country. It is a 10-year program that targets Federal grants to distressed urban and rural communities for social services and community redevelopment and provides tax and regulatory relief to attract and retain businesses. This Federal investment generates funding at the State and local level as well as significant investment from the private sector.
As you pointed out, Mr. Chairman, the original Empowerment Zones received full funding. They don't have to come back hat-in-hand every year. The Round IIs are not so fortunate. The benefits promised for the Round IIs as you identified is flexible funding grants of $100 million for each of the urban zones and $40 million for each rural zone, $3 million for each Enterprise Community.
Round II zone designations were required to prepare strategic plans for comprehensive revitalization based on the availability of $100 million in Federal grant funding over the 10-year period. That's how our Round IIs prepared to make application. Unlike the Round I, as I said, the Round IIs have only received a small fraction of the funding.
The zones lack the certain and predictable funding stream to implement their strategic plans and must seek an annual appropriation to secure the promised Federal grant award. This is causing a huge problem. The success of this plan is based on private sector involvement. The private sector is very nervous and shaky abut the Federal commitment being so swayed from one year to the next. It is difficult for us to continue to attract the private funding that's so necessary for this being a success.
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Cumberland is the second fastest spending zone in the Nation, having committed 100 percent of the nearly $19 million that has been made available by HUD so far. Three hundred jobs have been created so far, and an additional 1,100 jobs will be created over the net 18 months if the Federal funding source continues.
Over 100 housing units have been renovated, rehabilitated and constructed or purchased in EZ neighborhoods, and a $4 million loan pool is available to be reinvested back into the targeted communities.
The Cumberland Count initiative has funded over 60 programs through the EZ, utilizing more than $11 million in funding. These projects are estimated to leverage a total of more than $123 million in private, public and tax exempt bond financing.
And to put it very plainly, Mr. Chairman, in just 2 short years, the Cumberland Empowerment Zone has leveraged nearly $10 in private investment for every $1 in public funding, a remarkable achievement that shows the success of the zone.
I don't know how many, if any, Federal programs can point to the fact that they are leveraging $10 for every dollar invested. I think this is what the program is supposed to be aboutto give communities a helping hand and allow them the tools necessary to be able to move forward. We have been very successful in being able to do that with the private sector, not to utilize public dollars. But unless we can somehow generate a regular stream of dollars into these communities for these programs, we're going to have everything that will be in serious jeopardy.
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The existing Round II Empowerment Zones must receive multi-year funding to continue the success and implement the zones' long-term strategy plan.
The EZ partners in the private sector will continue to be reluctant to commit their own resources without a demonstration of the Federal Government's commitment that EZ funding will be available to complete these projects.
Last year I introduced, along with Mr. Capuano and several other Members, H.R. 2637, which would authorize funding and correct certain inconsistencies with the Round II Empowerment Zone/Enterprise Community program. When the Round IIs were originally designated, we believed that they would be supported with mandatory funding from social service block grants. However, because of the constraints in these fundings, these zones have instead been funded through annual discretionary appropriations. My bill would address the issue by establishing a formal funding authorization for urban and rural Empowerment Zones and Enterprise Communities through the Financial Services and Agriculture Committees. H.R. 2637 also includes language to allow specific authorization for grants to be used as matching funds for other relevant Federal grant programs, all in an effort to offer the EZ/EC program maximum flexibility at the local level.
Mr. MILLER. Are you wrapping up at this point I hope?
Mr. LOBIONDO. I'm wrapping up. I just want to thank you once again for the opportunity and stress how critical it is to these communities that the Federal dollars that we've already put in will basically almost be wasted if we don't consider continuing in some way, shape or form.
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[The prepared statement of Hon. Frank A. LoBiondo can be found on page xx in the appendix.]
Mr. MILLER. Thank you very much, Mr. LoBiondo.
The next witness will be the Honorable Ted Strickland. You have 5 minutes, sir.
Mr. STRICKLAND. Thank you, Mr. Chairman, and Members of the Subcommittee. Empowerment Zones across the Nation are similar in the positive economic impact they have on communities, but they differ greatly depending on whether they were designated in the first round or the second.
Empowerment Zones in both rounds received various tax incentives, but only Round I Empowerment Zones receive mandatory appropriations in the form of cash grants. On the other hand, the 20 Round II Empowerment Zones are forced to depend on the vagaries of annual discretionary appropriations for their funding.
The Round II Empowerment Zone in Ironton, Ohio, and Huntington, West Virginia, is one of only two EZs that straddle a State line, and I am pleased to voice my support for this critical economic development initiative. In addition, I am honored to welcome Cathy Burns, who is the Administrator of the Ironton/Huntington Empowerment Zone, who will testify before you later today.
Page 11 PREV PAGE TOP OF DOC As I'm sure Cathy Burns will tell you better than I can, tax incentives alone simply cannot get the job done. Although tax incentives are an important component of each Empowerment Zone's mission, the projects that many of these communities pursue would be impossible without the ability to offer cash grants. When the Round II communities applied for EZ status several years ago, their applications were judged on the strength of their economic impact over a 10-year period. The goals that they hoped to accomplish by 2009 are predicated on the delivery of the funding they were promised. For this reason, I find it troubling that the President in his budget for fiscal year 2003 has not provided any money for Round II Empowerment Zones. If our goal is to revitalize distressed communities, we must recognize that it cannot happen without an infusion of cold hard cash.
I recently received this letter from the Director of the Office of Management and Budget, Mr. Mitch Daniels. In his letter, Mr. Daniels writes that, quote: ''tax benefits are the driving force'' behind the EZ program, and that most grant money for Round II EZs has not been spent. I have met with many leaders in the Huntington/Ironton area and I can say that tax benefits are not the driving force behind the initiative. The driving force is undeniably the cash grants. In the most technical sense, Mr. Daniels is correct in saying that all of the money has not been quote/unquote ''spent''. But it has been obligated, allocated, budgeted and otherwise committed to secure private investment in the community.
In fact, as Cathy Burns will tell you later, the Empowerment Zone in my district has taken the $18 million in Federal grants that it has received and it has used that to leverage more than $120 million in private funds. It would be hard if not impossible to find another Federal program whose return on investment is so great. If an Empowerment Zone can be so successful after just 3 years, imagine if it were allowed to develop unfettered for the full 10 years.
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I'm pleased to say I'm not alone in this opinion. The conferees to the fiscal year 2002 VA/HUD Appropriations bill reported that they believe the EZ program, quote: ''should be funded as a mandatory program.'' Similarly, the House Budget Committee in its report to the fiscal year 2003 Budget Resolution states that it, quote: ''strongly supports the continued funding of Empowerment Zone . . . initiatives . . . at least at the level pledged by the Round II designation of 1999.''
The Administration in its budget proposal for fiscal year 2002 recommended that $185 million be appropriated for EZs in the current fiscal year and foresaw a request of $150 million for fiscal year 2003. I was puzzled to read that the President had zeroed out the initiative in his request for fiscal year 2003. My strong hope is that we in Congress will push for mandatory funding for Round II Empowerment Zones but that we not settle for less than the continued funding of a commitment that we've made to these communities. Cutting short an initiative that's already seen so much success and whose potential is even greater would be a tragedy for the many communities that prosper under this program.
That's my statement, Mr. Chairman, and I thank you for this opportunity to share it with you and the subcommittee.
[The prepared statement of Hon. Ted Strickland can be found on page xx in the appendix.]
Mr. MILLER. Thank you very much. It can be very difficult trying to turn a community around and dealing with the issues they have to deal with. And I guess one question I have, do you think that tax incentives are a more effective tool than grants in revitalizing zones? Any one of you?
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Mr. LOBIONDO. No, I don't think they're a more effective tool. I think that it's a combination of the two that provides the incentive for the private sector. We've, I think, clearly proven that both in Huntington and New Jersey, in West Virginia and New Jersey, that it's a combination of the two. And if you take away the grant part of this, you're going to absolutely scare away the private sector investment. The tax incentives alone won't do it. They're not big enough.
Mr. MILLER. And do you feel that Round II zones are making measurable, tangible progress in their revitalization efforts at this point?
Mr. LOBIONDO. I believe so. You heard Mr. Strickland's testimony, which is similar to New Jersey's experience with the private sector leverage that they had been able to accomplish. We have in the next little more than 12 months 1,200 jobs we'll be creating. That's a very successful program with tangible results that can be measured by any yardstick that anyone wants to use.
Mr. MILLER. Is there one tool that you'd consider to be most important for an economic developer that we could help them with in revitalizing these zones? Or have you pretty much covered that in your legislation?
Mr. LOBIONDO. I covered it in the legislation, but let me answer that for all of us.
Mr. MILLER. Why I'm saying that is because we talk about housing issues in many areas and too often in my opinion we just look at putting a band-aid over the problem and trying to deal outside of that to make things work rather than really addressing the real issue. And that's why I wonder if there's a tool that you think would be most important that we could provide.
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Mr. LOBIONDO. The tool is the combination of the grants and tax incentives put together that gives the private sector the incentive to keep jobs and create new jobs. There's not magic to it, but that's what does it.
Mr. MILLER. Great.
Ms. CAPITO. I think if I could interject here at least in the Enterprise Community in Upper Kanawha Valley, which, I think, I mentioned has very high unemployment rates and a high level of poverty, the first dollars in are always the most difficult to jumpstart any kind of project.
Mr. MILLER. Yes.
Ms. CAPITO. And, you know, the sense of desperation that some of these areas have because they can't go to a traditional banking route, they don't have the credit history or whatever to initiate these projects on their own, that's where, I think, the value of having something that has a multiplier effect as this one does and we've all demonstrated in our areas we've used very well. We actually have it in Montgomery, West Virginia are going to have a technology park. It's going to have as many as 300 jobs. And that's very significant.
Mr. MILLER. Absolutely. Mr. Clay, I'm sorry.
Mr. STRICKLAND. Could I just speak to your question?
Page 15 PREV PAGE TOP OF DOC Mr. MILLER. Absolutely.
Mr. STRICKLAND. I think it's a good question and it's a very fair question. And one of the things that I think is so unique about this approach is that it requires communities to take a comprehensive, integrated look and to pull together various aspects of the communities and to come up with long-term planning. And that may be as valuable as the tax incentives or even the cash grants, I think, in the long run.
But it's the combination of the integrated planning that looks forward and considers a community's overall needs and sets goals and then to provide the tax incentives and the cash grants. I think all those factors in combination really are necessary for these kinds of programs to be successful. But I think your question is on the mark, because we do need to, I think, understand why this particular program is valuable and has the success that we all believe it has.
Mr. MILLER. Thank you. Mr. Clay, do you have any questions?
Mr. CLAY. Thank you, Mr. Chairman.
Mr. MILLER. Five minutes, sir.
Mr. CLAY. Thank you for the opportunity to hear these witnesses. And let me ask the chief sponsor, Mr. LoBiondo. In February, Secretary Martinez in his statement before the Senate Banking Committee, stated that Round II Empowerment Zones do not need additional grant funds because we are more than halfway through the program and the currently appropriated dollars have not been utilized to the extent of 80 percent, and it's apparent you don't agree with that. Can I just hear how you feel about that?
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Mr. LOBIONDO. Well, I don't agree with that, because in many respects, these zones had a number of different funding opportunities. All the dollars from the Federal portion of this have basically been spoken for and obligated. In some cases, it's because of the Federal Government's foot-dragging on its own that these dollars were not able to be expended because they were not made available from HUD. And second, in the plan that we were all asked to develop, the dollars are all accounted for.
So, I think, with all due respect, I don't believe the Secretary fully understands the implications of his statement. And something else that's been missed, and Mr. Chairman, if I might, in response to Mr. Clay and also to your question, but of our zones in West Virginia and New Jersey have created revolving loan funds. This is maximizing even to a greater degree the ability to use Federal dollars, because these businesses must first qualify for the loan. So it's not a handout. It is not a band-aid approach. But once these businesses qualify for these loans, there are Federal dollars that are matched with private dollars to further expand the opportunity for the loan itself, and then these dollars come back into the fund and are used over and over and over again.
I mean, it's a marvelously ingenious way to use our Federal dollars that our funds have been able to maximize. But if in fact the Secretary continues to miss the point and we don't get the point on our end, then these dollars will just dry up.
Mr. CLAY. Thank you. Mr. Strickland, did you have something to add?
Page 17 PREV PAGE TOP OF DOC Mr. STRICKLAND. I would just add that, although, as I said in my testimony, these dollars may not have been technically spent, they are obligated. They're in the budget. They have been committed in a long-range manner. That's why it would be so devastating because these communities have developed the plans. They are following through with those plans, and although in a technical sense the funds may not have yet been spent, they have been obligated in a way that would be absolutely devastating if they were to not materialize.
Mr. CLAY. Thank you. Let me ask one part of the bill on page 3 in Section (d), can you give me an example of how the authority to use the funds to pay non-Federal share. Could I get an example for a layman of how that would work?
Mr. LOBIONDO. We'll try to get that for you here in a second. I don't have that memorized.
Mr. CLAY. OK.
Mr. LOBIONDO. In New Jersey there was a State program that would allow additional dollars to be put into Empowerment Zones, but because we couldn't match it, we were not able to take advantage of that funding.
Mr. CLAY. So this would allow the State of New Jersey to use some of that funding as the non-Federal match?
Mr. LOBIONDO. That's right.
Page 18 PREV PAGE TOP OF DOC Mr. CLAY. To leverage the other funding.
Mr. LOBIONDO. That's right.
Mr. CLAY. That sounds like a good idea. Thank you. Thanks, Mr. Chairman.
Mr. MILLER. Mr. Strickland, it sounds like you're saying that these are unspent dollars that are basically obligated in the long run and should communities be forced to spend those dollars each year, it could be a huge waste of funds at that time trying to find programs that aren't necessarily high priority or ready to spend those dollars just to utilize Federal funds so you get it the next year?
Mr. STRICKLAND. I think you're absolutely right, Mr. Chairman. For example, there's an industrial park under development in Ironton, Ohio. We have so much confidence in the ultimate benefit of the development of that park, but that's not something that you might be able to do in a concentrated period of time.
Mr. MILLER. I would hate to see you be forced to spend money to have it next year.
Mr. STRICKLAND. That's right.
Mr. MILLER. Mr. Capuano, do you have any questions, sir? The Member has 5 minutes.
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Mr. CAPUANO. Thank you, Mr. Chair. Well, I just want to thank the panel for taking time to talk about an issue that's this important to all of us, and particularly Mr. LoBiondo. He has been one of the most aggressive pit bulls I have ever witnessed on this issue, and there is no one I would rather be on the same side as Mr. LoBiondo, and I want to congratulate him for that and thank him.
I guess the only thing I wanted to addnot add, just kind of a different twist to itbecause it has bothered me from day one that people who allegedly understand the business mind don't understand that it's difficult to find businessmen on a regular basis to come into partnership when you can't guarantee the cashflow. Well, we're not sure the money's going to be here next year. We can't guarantee you it's going to be here 5 years from now, or 2 years from now or 10 years from now, but don't worry. Trust us.
Well, that's an almost impossible situation. The fact that we have been able to spend some of this money to me is actually the better story. It's also the more amazing thing, that you can get businessmen to come into partnership with a Government agency that can't guarantee anything. And particularly, the fact that we've been having this hearing is actually going to make it even more difficult to actually get the dollars that are currently pending out. Because no businessman in their right mind is going to get in bed with us. They're just not going to do it.
And, I think, it's a self-fulfilling prophecy. Because every time the Administration comes out, or this Congress comes out, and says we're not going to fund or we'll fight about it, and well, we'll fund it a few bucks, every time we do that we hurt the future of this program and we make it more difficult to put the next dollar out in the street and to make progress in all the communities across America. And I just wish at some point people would get it.
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And the fact that the Round III Empowerment Zones are doing so well without direct benefit, for a very simple reason. In my experience, rule number one about businesspeople is you tell them what the rules are and how you play the game. If you don't change the rules, at least they can make a legitimate business decision as to whether they want to play or they don't want to play. And things work out well. It's when you change the rules that most businesspeople walk away, and I think wisely so. And we have changed the rules repeatedly in this particular game to the great detriment of communities across this country that we have given promises to. And again, I wanted to thank the panel for coming today and helping us out on this.
Mr. MILLER. Thank you.
Mrs. Jones, do you have any questions?
Mrs. JONES. Well, I come from the great city of Cleveland and we were an Empowerment Zone number one, and I just want to quickly just read two short paragraphs to talk about the greatness and the importance of Empowerment Zones and to go on record for my support of additional Empowerment Zones across this country.
This is a letter from former Mayor Michael R. White, who was the Mayor of the city of Cleveland when Empowerment Zones came into Cleveland. And it says: ''Close your eyes. Dream a second and imagine the construction of a new $25 million nursing home in Huff.'' And Huff, as an editorial, was the location of the riots back in the 1960s in the City of Cleveland. ''A brand new health museum in Fairfax. A $10 million new headquarters for vocational guidance services. The move from Chicago to Fairfax neighborhood by one of the world's leading biotech firms. The development of over 300 new homes around League Park, which was the original baseball stadium for the Cleveland Indians. The construction of 11,000 square foot office building in Glenville for a leading minority-owned construction company. The opening of a $16 million neighborhood services center, an eight-acre technology park in Midtown, and a dozen other high powered developments within a scant 18-month period.
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''Imagine all this. Now open your eyes and realize that this picture is not a dream, but is one of the Nation's leading Empowerment Zones right here in the city of Cleveland.''
Then just as an aside, the Cleveland Empowerment Zone is one of if notand this is editorialone of the most successful zones in the country. In addition to the $72 million invested through Empowerment Zone loans and grants, over $130 million of private funds have been invested in other community projects.
Our labor force program has taken strides by establishing free tuition and individual training accounts for zone residents. And we are proud of our one-stop career services center of Cleveland.
And these are just backgrounds of what can happen in communities with the addition of dollars for the Empowerment Zones. And I think it would be a travesty that we do not provide additional dollars for Empowerment Zones across the country. And I know what happens sometimes is a program gets started under one Administration under one party, and so the next time around will change the name and we won't do the same thing because we don't want that program to be successful.
But I think it would be terrible for us not to proceed with Empowerment Zones and to support the additional communities to have an opportunity to be supported like my own great city of Cleveland. And rather than ask questions, I just thought I'd editorialize and tell you how supportive I am of the work that you're all doing.
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Mr. MILLER. Thank you, Mrs. Jones.
I'd like to thank the distinguished Members for their great presentation today. At this time we're going to be calling Panel number II, which would be the Honorable Roy Bernardi, Assistant Secretary for Community Planning and Development, Department of Housing and Urban Development. Mr. Bernardi, welcome. It's good to have you here today. At your leisure, you have 5 minutes, sir.
STATEMENT OF HON. ROY BERNARDI, ASSISTANT SECRETARY, OFFICE OF COMMUNITY PLANNING AND DEVELOPMENT, U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
Mr. BERNARDI. Good afternoon. Thank you, Congressman and distinguished members of the panel. I'm Roy Bernardi, Assistant Secretary for Community Planning and Development at the Department of Housing and Urban Development, and I'm here on behalf of Secretary Martinez, and I want to extend our commitment, the Secretary's and mine, to work with you to improve the effectiveness of the Empowerment Zones.
Just very briefly, and I know you did this Congressman, I'll review the funding for Rounds I, II and III of the Empowerment Zones. The Omnibus Budget Reconciliation Act of 1993 authorized HUD to designate six urban EZs by December of 1994. And each EZ, as you mentioned, received $100 million in mandatory social services block grant funding.
The Taxpayer Relief Act of 1997 authorized HUD to designate 15 urban Round II EZs by January of 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 for a total of $330 million or approximately $22 million for each zone.
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Most recently, HUD designated eight Round III urban EZs, and 28 urban and 12 rural Renewal Communities on December 31st, 2001, and that was authorized by the Community Renewal Tax Relief Act of 2000. That Act 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 31st, 2009.
The Administration did not request grants from 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 EZs and RC competition reflected this emphasis and generated, as you probably know, a great deal of enthusiasm. 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 to focus on two major areas. First, implementing an aggressive and comprehensive plan to market the existing tax incentives to businesses and individuals in the 30 zones and the 40 RCs. The perceived complexity of tax incentives creates numerous challenges for local governments, and I think we've heard that today.
Second, Secretary Martinez made it a priority to improve HUD's monitoring system to better track the performance and the financial compliance of the grantees. Special attention is being paid to obligations and the timely expenditure of funds. Collectively, Round II EZs have drawn $66 million as of April the 9th, 2002, or 23 percent. We know, as one of the Congressman indicated, that they have other obligations, and we will track committed funds as well, since they have not been tracked for the previous 9 years.
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Still, with a total of $330 million awarded, it allows the communities to move forward with their plans with tax incentives and Federal competitive grants. There's also $100 million more in our Office of Economic Development and Rural Housing Offices for further competition.
The subcommittee has expressed a concern about the use of existing appropriations. Traditionally, HUD tracks progress toward milestones and outputs through an annual reporting process, and the Department shares the subcommittee's concern about performance. HUD's interim assessment of the Empowerment Zones and Enterprise Community program looks at a sample of Round I EZs 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 EZs, particularly as concerning unemployment. Because the impact is modest and there are competing inputs for the program, for example, strategic planning, grants, several tax incentives, there is no convincing evidence that the grant program in and of itself increases the program's effectiveness. The report concludes that businesses have insufficient knowledge of the tax incentives.
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 another custom made round for temporary grant programs, our most recently designated Round III Empowerment Zones brought over 100 commitment letters from the private sector, non-profits and other public entities. A great deal of interest by the business community.
Page 25 PREV PAGE TOP OF DOC The subcommittee asked HUD to explain the merits of tax incentives versus grants. The Round I EZs initiative was based on the approach that included both grants and tax incentives. 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 challenged areas represent opportunities with great hope.
The variety of tax incentives such as the wage credits, the reduced capital gains
Mr. MILLER. Are you summing up, sir?
Mr. BERNARDI. Yes I will. Another minute. The increased Section 179 deduction, zero percent capital gains, all of that will go an awful long way in making sure that the business community takes full advantage of the incentives that are being offered.
And we invited all of the EZs and the RCs to an implementation conference that we'll be holding here in Washington on May 20, 21st and 22nd. And our information indicates to us that this will be very well attended and we'll have the opportunity to showcase what this $22 billion in incentives can do for these communities. And after that conference we'll have regional conferences. We'll do updates, weekly faxes. We want to make sure, along with everyone else, members of the panel, that we use every possible advantage to utilize these tax incentives so that these zones can prosper.
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[The prepared statement of Hon. Roy Bernardi can be found on page xx in the appendix.]
Mr. MILLER. Thank you very much. Just to kind of correct the record, there's been a few things said today. When Round I was initiated, they were given $1 billion in funding. Round II basically they said, well, we'll see what we can do.
Mr. BERNARDI. That's true.
Mr. MILLER. When Round III was started, they said you'll get tax incentives only.
Mr. BERNARDI. That's correct.
Mr. MILLER. That's just to correct the history. That's how it was processed, and now some believe that is not a reasonable approach, and that's why we're here discussing this bill.
The first question I have is, can you please explain whether HUD has evaluated the effectiveness of the EZ/EC programs? And if so, what have you learned?
Mr. BERNARDI. Well, the evaluation of it has not been everything that we wanted. The system that we have in place now, which is called the PERM system, performance management system, we've made some initiatives there as opposed to just looking at the drawing down of funds, we want to look at the funds that are obligated and at the same time be able to take a look at the financing in each individual project or program in all of the EZs.
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That system is in place, and we should have some reports on that I believe in May of this year and we'll be able to indicate to all of the EZs by July with this new financial system that we're putting into place exactly where they all stand. So we're not really pleased with the inability to track the failures and successes of the EZ program.
Mr. MILLER. And are you familiar with the HUD-funded external evaluator, Apt Associates, who prepared the interim assessment on Round I zones, noting that limitations of tax incentives and value of grants that appears to be contradictory to HUD's assertions at this point?
Mr. BERNARDI. Well, they indicated that they were not utilized. The university I believe was also part of that study, that they were not utilized to the extent that they could be. You know, first and foremost, as a former mayor, and I look at economic development, your businessperson is always going to be looking for a grant.
However, if you look at the 15 Round II EZ zones and the people you had represented here today, Congressmen Strickland and LoBiondo, they talked about their areas, and those areas are working extremely well. But if the 15 EZs, five of them have not created a single job since the program took place in 1999. That's not being critical of them. There's been an awful lot of difficulty in implementing some of these programs.
The tax incentives gives the business community, the people that are out there, the opportunityand no one knows better, Congressman Caputo, I believe he left, he talked about letting the rules be known what the game is going to be. Well, in the Empowerment Zones in Round III and in the RCs, when you talk about tax credits, that's something a businessperson can understand. Whether it's a wage credit, welfare-to-work credit, a work opportunity credit, and the amount of monies each year that they will be able to deduct those credits from their taxes by being able to establish a business in an area that really needs it.
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As I looked around my city and I looked around other cities as I travel this country, and I see the Brownfield remediation that needs to take place, some of these are wastelands. They're fertile lands now because of these tax incentive programs. And we feel very strongly that utilization of these $22 billion in credits by not just the newly announced eight EZs and 40 RCs, but the remaining 30 EZs and the ECs will give tremendous value to all of the areas in this country to continue to improve. Has there been progress made by some of the EZs? Yes there has.
Mr. MILLER. Is it possible to capsulize the Administration's position on Round II and Round III zones then? What's their position to date on this?
Mr. BERNARDI. Well, the position is to utilize the tax credits that are available to the business community that's out there. We've had some people indicate to us, some of the EZs that we've just designated, that they're pleased to be able to deal with tax credits as opposed to grants. I think the statement was made, well, if the grants were there, people feel comfortable, the businesspeople feel comfortable that they'll always be there. But the tax credits give an opportunity to the community, to the businessperson to make a sound investment and realize what's going to happen on a year-to-year basis.
Mr. MILLER. Thank you very much.
Mrs. KELLY. Thank you, Mr. Chairman.
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Mr. Bernardi, can you tell us a little bit about the economic conditions of the Enterprise Zones before the Federal designations? Were there any in Syracuse?
Mr. BERNARDI. Well, Syracuse just received an Empowerment Zone designation in the latest round. Of course, with every urban area, there are pockets of poverty. The census tracts high unemployment, high poverty. And these tax incentives, the eight that we announced in the past few months, obviously the condition warrants a designation. The application process that's put forth. In the RCs it was basically on need. The EZs, obviously a performance plan had to be put in place as well.
But as I look at Syracuse, Congresswoman Kelly, we have right now they're expanding a mall in Syracuse. It's a 1.5 million square foot operation right now. They're going to add 4 million square feet to that. That is now in the Empowerment Zone. And hearing from that developer and the people associated with that, they're really looking forward to the tax credits that they will be able to provide to the businesses that are going to be there.
So it does what we'd like it to do. It's going to give opportunity to businesspeople to go into areas where they would traditionally not go, create jobs, better quality of life.
Mrs. KELLY. I have a little concern, because if you say in Syracuse they're using the money to develop a mall, the people living in and around an area need to be able to partake, I think, of these Empowerment Zones. And if you build a mall, will those folks be able to shop there at the mall? Will they be able to get into the mall? My concern is that tax incentives may not be enough to do this.
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I haven't talked to the other Members of the subcommittee, so I don't know how they feel about this. But I feel that there is a concern in two things. The way that you get a business in there, you have to have somebody who's got a viable business plan. I was under the impression that the Empowerment Zones were to help people in that community develop and build a business. Some of those folks may not have enough equity to even get a loan in some respects. And I'm concerned that they be able to participate rather than use it for something like a mall.
I don't know what the conditions were in Syracuse, so I can't answer that, but you could and maybe you can help me understand. I'm just searching for some information.
Mr. BERNARDI. Well, many of the employees, to take advantage of the wage credit for example, in the Empowerment Zone, that businessperson would have to hire someone that lives in that zone. And obviously people living in those zones are designated as zones that really need an awful lot of assistance.
Mrs. KELLY. Excuse me, sir, but is that a mandate? That they have to, if they use that?
Mr. BERNARDI. Yes. The wage credit
Mrs. KELLY. It is a mandate that they hire people who live in that zone?
Mr. BERNARDI. Have to live in that zone, yes.
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Mrs. KELLY. Thank you.
Mr. BERNARDI. And if they live in that zone, obviously they have a better opportunity for employment.
Mrs. KELLY. Well, from what you said, it implied that they have to hire someone who lives there. If they cannot find an appropriate person, then they're allowed to reach out?
Mr. BERNARDI. Yes.
Mrs. KELLY. To hire someone from outside the EZ?
Mr. BERNARDI. If they do that, though, they don't have the $3,000 wage credit that comes with that employee who resides in that zone. And it's not just that zone. It's any of the census tracts that are within the entire zone of course. But those census tracts, for the most part, it's high unemployment, high poverty. In the designation process, that's what it was tailored to do was to help people, especially low and moderate income people.
Mrs. KELLY. How does it work, then, if the people are living theresuppose I'm Jane Q. Housewife but I've got an absolutely terrific cookie recipe and my name is Mrs. Fields and I live in poverty, but I've got this really neat cookie recipe. I can't do it with tax credit because I've got nothing but my recipe. How do you help me?
Page 32 PREV PAGE TOP OF DOC Mr. BERNARDI. Well, talking for a community, they all have the community development block grants. There are other programs that can be utilized to assist people startup business. And in fact, a good percentage of monies that are utilized by each community can be utilized for economic development to provide assistance to people who want to be entrepreneurs, who want to start their own business.
Mrs. KELLY. I just want to pursue this just one more step and that is, I'm sorry. I just need to get it so I understand. When you say you can get CDBG money, do you help people get that? Is there an integration from what you are doing with an EZ to something like reaching into CDBG so if somebody comes and says I'm in the EZ, I want the money, you will turn to them and say you can get the money out of CDBG?
Mr. BERNARDI. The community itself establishes how they're going to expend their CDBG dollars. But there are other programs and dollars that are available. Obviously each community I would believe would spend those dollars to encourage people to create businesses, to become entrepreneurs. But the real purpose of this is to provide businesses the opportunity. I understand what you're saying about the individual person who perhaps wants to start a business. But, you know, that person needs employment. And this is going to be geared to small businesses, large businesses, taking advantage of those opportunities. And I think the program, there will be approximately $300 million for each EZ as opposed there was only $500 million total in the Round II EZ designation.
It's taking at the other end. It's giving people and opportunity to create their business, to make their way of life and to save money. I mean, this money is not going to come into the U.S. Treasury if all of the $22 billion is utilized. So on the one hand, obviously,the Government is not giving money, but the money is not going to be there because these businesspeople are taking advantage of it. And I think in this country you give businesspeople an opportunity if they can look at their bottom line and see that something good is going to happen, they're going to go ahead and make those kind of investments.
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And we have provided to everyone the Tax Incentive Guide for Businesses, and there will be a followup to this which just lists, there's a myriad of opportunities here when it comes to capital gains and deductions and bond financing. It's a great program. And we have an awful lot of enthusiasm for it. And we know that we need to market it and that we need to make sure that when we have this conference that we just don't let the conference end there, that we get out in the communities both from headquarters and from our field offices.
Mr. MILLER. You're going to have conclude this question. We are a little bit over. Thank you, Mrs. Kelly.
Mrs. KELLY. I'm sorry.
Mr. MILLER. Those were good questions.
Mrs. KELLY. Thank you.
Mr. MILLER. Mr. Clay.
Mr. CLAY. Mr. Bernardi, can you tell me when does HUD plan to award the fiscal year 2002 funds?
Mr. BERNARDI. They will be awarded within the next month.
Mr. CLAY. HUD also claims that Round II EZs are not spending their money when 65 percent of the funds were only awarded last year. What is HUD's policy on awarding these non-competitive grants? What is your policy?
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Mr. BERNARDI. Obviously the policy is to have the expenditure rate be in a timely way. I think as was already indicated here, I think 23 percent of the funds have been expended. Other people have testified that there's a significant amount of money that's been obligated of that $330 million. But until a contract is in hand. I mean, arrangements are obviously made between an EZ and the people that they're doing business with, but once the contract is completed and the process goes back to HUD, then HUD obviously releases that funding.
And with the $3 million approximately that each EZ will receive for 2002 in the next month or so, I mean we feel that there's no jeopardy to any of the programs or any of the engagements that these EZ communities have made with prospective businesspeople.
Mr. CLAY. Now you also
Mr. BERNARDI. The utilization hasn't been there for the tax incentives. Obviously we want to concentrate on that. We really want to market that. We want to make sure that everyone uses it to the utmost advantage. It hasn't been done. Probably a lot easier to just have a grant and provide a certain amount of dollars to a businessperson as opposed to having that businessperson sit down and understand through the tax system exactly how much money can be saved and how they can start a business and take it to their advantage.
Mr. CLAY. But keeping in mind that the EZs were 10-year programs that started from the ground up from community-based planning, you do keep that in mind as a Department?
Page 35 PREV PAGE TOP OF DOC Mr. BERNARDI. Sure. And the tax incentives are going to be for all of the EZs, not just the Round III EZs and RCs. And those tax incentives will go through December 31st of 2009. So they'll have an opportunity to really utilize this over the next 7 or 8 years.
Mr. CLAY. You have also urged the use of CDBG and home funds. When you being a former city mayor and you pretty much or are aware that those funds are obligated long before those communities even receive them.
Mr. BERNARDI. Well, they may be promised.
Mr. CLAY. I mean, so isn't it kind of unfair to those communities to dilute those CDBG funds and then say OK, try to do three things now with these funds?
Mr. BERNARDI. Well, there's other programs. There's the Brownfield initiative competitive program. There's the 108 loan guarantees off of the CDBG. I mean, obviously communities right now utilize their CDBG programs, their 108 loan guarantees, their Brownfield initiatives, economic development initiatives, to create business opportunities. You can leverage that as well into other areas.
Mr. CLAY. Let me, on a more local level, let me make you aware of St. Louis's unique situation. We are the other EZ that crosses State lines and several county lines. It requires a coordination of several county and State governments. And I just want to make you aware of that, that that is not always an easy task. And I'm sure you've looked at the situation there. Are you aware of what's going on in the St. Louis community as far as what we have obligated and what we are trying to accomplish in that EZ?
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Mr. BERNARDI. Not the particular numbers of how much you've expended and how much you've obligated, no.
Mr. CLAY. Well, we're trying to fund a $100 million plan with $22 million. And I don't know. We are pleased to report that the St. Louis regional EZ is preparing to approve another $6 million in grant requests, $1 million which will be in May, which will put us at a 55 percent spendout rate.
Mr. MILLER. Is the Member summing up?
Mr. CLAY. Moreover, the leveraging of $285 million in non-EZ funds on a 30 percent rate is second only to Miami-Date, which is $410 million at 70 percent. I just wanted to make you aware of some of the obstacles in our State.
Mr. MILLER. The Member's time has expired.
Mr. CLAY. I'm sorry. I didn't hear you.
Mr. MILLER. That's OK. The Member's time has expired.
Mr. CLAY. I was trying to put in a local pitch there.
Mr. MILLER. You made a good comment about CDBG funds and the BEDI program and 108s. We're marking my bill up tomorrow on Brownfields that decouples BEDI from 108 and CDBG, so I'm sure you'll be excited to attend that hearing tomorrow.
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Ms. CAPITO. Thank you. I'd like to make a comment about the Enterprise Community that is in my district that I testified to, that if the funding, the $250,000 that we get, is discontinued in the next round, in the next year, our efforts will absolutely not only be diminished but will probably fold.
We've played by the rules. We've built step by step. We're in a high poverty, high unemployment area in rural West Virginia, formerly coal fields, still coal fields in some instances, but abandoned buildings and people leaving this area. The ray of hope that the Upper Kanawha Valley has lies in the good hard work of the people who are trying to put together this Enterprise Community and maximize the dollars. What can I tell them when they know that private industry and private business is not going to be able to fill this gap?
Mr. BERNARDI. Well, private business and private industry can take advantage of the tax incentives that are going to be offered with this authorization. I mean, $22 billion, $6 billion of which will be used for the Round II EZs, that's about $300 million for your area.
Ms. CAPITO. We're an EC. So that's, I think, less.
Mr. BERNARDI. It would be less. You're right. Well, the opportunity to utilize those tax incentives.
Page 38 PREV PAGE TOP OF DOC Ms. CAPITO. My other question is, when we began to investigate the discontinuation of this, I think it wasI'm not sure exactly who the conversation wasit goes to the fact that all the money hasn't been drawn down and there's still money left in the accounts.
And in your comments, you say that's an indicator that those funds are not necessarily needed or an indication that they can go on without additional Federal resources, but there have got to be other places like Mr. LoBiondo's EZ and I know the EC in my area where this is absolutely not the case. So while in some in that may be the case, you know, you're absolutely zero funding out everybody and you're catching the ones that absolutely are relying on this like the Upper Kanawha Valley.
What I would like to see is flexibility so that you can look at each one specifically and see where these needs are. If there's some that no longer need to access these funds, then OK, zero them out. But there are still a lot of good, viable projects ongoing that are relying on this and need those extra years ongoing to be able to build.
Mr. BERNARDI. You're right. A good part of the expended funds have not been expended. What has been expended is approximately 23 percent overall. I don't know yours in particular. And there's obligated monies that are out there. The fact of the matter remains is that every year, Congress appropriated additional money, starting with $45 million I believe in 1999, $55 million, $185 million and $45 million in 2002. There's still money that's remaining to be expended. It'll be obviously up to the wisdom of this group and the Congress to make the final determination as to whether additional monies are going to be forthcoming.
Page 39 PREV PAGE TOP OF DOC Ms. CAPITO. Thank you.
Mr. MILLER. Mr. Capuano, you have 5 minutes, sir.
Mr. CAPUANO. Thank you, Mr. Chairman.
Mr. Bernardi, I want to make it real clear. I haven't heard anybody say that tax credits are not a useful way to entice businesspeople. It's just many of us feel that it's not the only way to do it.
I guess I'd like to ask just a basic question. Even on the tax credits, if you're a true believer in tax credits and that they work miracles and that's a great way to go, I guess I'd ask you how much would they be worth to most of the businesspeople you dealt with when you were mayor if Congress were to pass a law tomorrow that says from now on, instead of that tax credit being effective until 2009, that each year from now on, it has to be passed by two-thirds majority of both branches of the Congress? Do you think many businessmen would want to jump into bed and start throwing millions of dollars around in investment based on that kind of a lack of certainty?
Mr. BERNARDI. Well, the certainty in what we're proposing now is these tax incentives would be put into place in January of this year and go through December of 2009.
Mr. CAPUANO. No. Do you know businessmen that would want to just jump around and say, great, we'll trustthat's great? We don't know what the rules are going to be, but we're going to do it.
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Mr. BERNARDI. Well, Congressman, with all due respect, I mean, you make the rules and the Empowerment Zones for Round II, the money was indicated that it would be there. Maybe it was promised, but then it wasn't there, and that's how you ended up with an earmark for the last 4 or 5 years to put the money in the budget.
Mr. CAPUANO. That's kind of what we've done to veterans as well. We kind of told them don't worry about it. Trust us. We'll take care of it. And I personally an am embarrassed Member of Congress for what we've done to veterans and breaking our promises to them. I just don't think that you tell people
Mr. BERNARDI. No, of course not. Making promises is not why I'm here. I'm here talking about tax incentives that we feel would be a great tool
Mr. CAPUANO. And no one is arguing that. No one is suggesting that they're not. I totally agree with you. But I also think that we need more than tax incentives, especially when we as a Government have raised the bar and raised expectations.
I was the mayor of my community as well. And I presume and some point during your tenure as mayor that you made some either tax agreements or assessing agreements with various businesspeople or interpreted zoning laws. Did you change the rules in the second year or the third year in, the fifth year in?
Mr. BERNARDI. No. Obviously you don't change the rules. But the rules have been changed year-to-year here, depending on what the Congress would like to do. I mean, the fact of the matter is
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Mr. CAPUANO. Excuse me. It's not based on what the Congress wants to do. We're in partnership with the Administration. And if the Administration had come in and said they wanted half, we'd probably say OK. And therefore, we could have governments all across this country, city and county and municipal governments, making decisions based on that. But right now I can't look at my people at home and say, don't worry. Make commitments based on we're going to get you some money this year. Why? I have the Administration zeroing it out. And it's not a matter of compromise, it's a matter of the Administration has clearly said now 2 years in a row, they don't like this program. I respect that. I understand that. That's why I had no problems voting for bills last year on the Renewal Communities. I don't have any problems with new things or changing rules prospectively. That doesn't bother me.
What bothers me is, how do you expect any municipal official, having been one yourself, to make progress or to sit down with a businessperson when they can't have the slightest idea what the rules are going to be?
Mr. BERNARDI. Well, the rules as we're putting them forth, there are going to be tax incentives. We feel strongly that the tax incentives utilized the way they can be would provide tremendous advantages to the EZs and the RCs.
Mr. CAPUANO. That's fair enough, but then you can't criticize them for not having spent money when you've changed the rules. Here's the money. Go spend it, because you're going to have some more. No, no. No, you're not. We changed our mind. We're not going to do that anymore.
Page 42 PREV PAGE TOP OF DOC Mr. BERNARDI. Not a criticism with the spending. The fact of the matter is that HUD over the past few years hasn't done its due diligence in monitoring the expenditure of those funds.
Mr. CAPUANO. I won't even argue that point. I'll accept that point.
Mr. BERNARDI. What we're proposing is that we feel strongly that these tax incentives, utilized as they can be, utilized by each one of the EZs and the RCs, can provide tremendous advantages, more so than a grant could. Obviously
Mr. CAPUANO. I will repeat myself for the third time in this 5-minute period.
Mr. BERNARDI. Grants, obliviously everybody likes grants. We utilized grants when I was mayor of the city of Syracuse. But we feel at this particular point in time with the money that's in the pipeline for the EZs, especially Round II
Mr. MILLER. Another 20 seconds, sir.
Mr. BERNARDI. That there's enough funding there that we take a look at give us 12 to 24 months to see how we can go ahead with the tax incentives.
Mr. CAPUANO. No one. Again, I guessI don't know where the communication failure is. No one here has said anything bad about tax incentives.
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Mr. BERNARDI. And we're not saying anything bad about grants.
Mr. CAPUANO. Well, but you are. You're saying we're not going to give them anymore. They don't work.
Mr. MILLER. Your time is concluded, Mr. Capuano.
Mrs. Jones, you'd have to yield him time.
Mrs. JONES. I'll yield him 2 minutes.
Mr. MILLER. I yield 5 minutes to Mrs. Jones who yields 2 minutes to Mr. Capuano of her time.
Mr. CAPUANO. Thank you, Mr. Chairman. But you have. By saying you don't support them, that is something bad. And again, I understand and I actually would support a comment that says, henceforth for new, for Round III, Round IV, Round V, whatever we're going to door there won't be anymore. Just last year we did the Renewal Communities different, a little different twist. I voted for that. Why? Because there's no one way that works and just because a program is not necessarily working the best way it can doesn't mean that you keep going.
Same thing with public housing. My same arguments there. No one in their right mind would build public housing in the way half of the public housing across America has been built, yet what do you do? Walk away from it? No. Over time you change the rules for future public housing. Mixed housing, different grants, different awards to builders. You try different things that work. And the same is true here. I just think it's dead wrong to turn to communities and to turn to businesspeople trying to work with these communities and simply say we don't think it works any longer, so therefore, for those of you who were already working together, forget it.
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To say to them prospectively, that's not a problem to me. But to say it retroactively, which is effectively what this is doing, to me it's about as unfair, and by doing that, you invite the lack of expenditures because you invite businesspeople to walk away from the table.
Mr. BERNARDI. It was just pointed out to me that our position is to postpone it until fiscal year 2005 to give the opportunity to implement the plans for the tax incentives for the EZs and the RCs. I know that's not going to satisfy you, but that's
Mr. CAPUANO. I respect that. But again, I don't have any problem with the prospective part of it. For new communities coming in. But postponing it says the same thing. We have no faith in this, and so therefore if we postpone it this year, there's no guarantee. As a matter of fact we're telling you, we're probably going to come back next year and say we don't like it again for the third time. There's nothing here to give anybody any hope whatsoever except Congress imposing its will against a reluctant Administration that says you may not feel committed to this, but we do, and we're going to live up to this commitment, which I think is a bad message to send. We should be in this together, particularly as a former mayor.
Mr. BERNARDI. We are. We're committed to it. But the tax incentives in the past have not been utilized, and they were much less than they are now. And I think part of that is based on the fact, Congressman, that the grants have been the bloodline, if you will, of the economic opportunities in these zones.
Page 45 PREV PAGE TOP OF DOC Mr. MILLER. Time has expired.
Mr. BERNARDI. I think it's time to utilize the other end, the other tool.
Mr. MILLER. Thank you. In all fairness to the Assistant Secretary, we in Congress are the ones who established Round II and Round III and didn't implement language that would have created the programs you wanted.
Mrs. Jones, you have 3 minutes, ma'am.
Mrs. JONES. Thank you, Mr. Chairman.
Good afternoon, Mr. Secretary, how are you?
Mr. BERNARDI. Good. How are you today?
Mrs. JONES. I'm doing great, thanks. Explain to me what you are going to zero out. What funding you are going to zero out and why for these programs. And do they only affect Round II and III or do they affect I as well?
Mr. BERNARDI. There's no funding for Round III.
Mrs. JONES. OK. Round II.
Page 46 PREV PAGE TOP OF DOC Mr. BERNARDI. Round II, the money, $330 million, there's another, the remaining $45 million in 2002 will be dispersed to the communities within the next month.
Mrs. JONES. But there was some discussionI'm sorry. Go ahead.
Mr. BERNARDI. We're not going to be taking money away, if that was your question.
Mrs. JONES. Well, I don't know. I was trying to kind of clarify what my colleague, Mr. Capuano, was saying. What I do know is that in some instances in other sections of HUD, not the empowerment necessarily, but some of the housing areas, particularly with public housing, there was some discussion in fact in this most recent legislation that we were dealing with that if they had not used funds that those funds would be zeroed out and no additional funds would be allocated for a particular program. That is something that the Department plans to do because there is a statement that those funds are not being appropriately used. I wish I could be a little more specific for you, Mr. Secretary.
Mr. BERNARDI. There are programs obviously in HUD where if the money isn't expended over a certain period of time, it goes back to the Treasury. But in the Empowerment Zones, the Round II that you're speaking of, that money has been appropriated and it will be utilized.
Mrs. JONES. And the issue that I thought he was raising about it being funded out is not really an issue. Is that what you're saying to me?
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Mr. BERNARDI. The money that's been appropriated, the $330 million, the last installment is $45 million, which will be given to the 15 communities within the next 30 days.
Mrs. JONES. OK. What's the best thing about Empowerment Zones from your perspective as Assistant Secretary, sir?
Mr. BERNARDI. Well, when we made the designations for Round III and I traveled to some of the areas to make those announcements, what it really does is it energizes the opportunity knowing full well that they can bring their total business community to the table.
You look at the Empowerment Zones that have been successful in Round II, if I may
Mrs. JONES. Well you only can may for about 30 seconds, then I'm out of time. But go ahead.
Mr. BERNARDI. OK. Then let me just say that the benefits are is that the areas, the census areas that have been designated where the poor people reside, areas that have been neglected. And what we really want to do is to retain businesspeople there, bring them into that area, have them create jobs and opportunities, especially for the residents of those areas.
Page 48 PREV PAGE TOP OF DOC Mrs. JONES. Let me just real quickly, I think I might have 30 seconds left. One of the issues that was raised early on about Empowerment Zones in the city of Cleveland was similar to what my colleague, Mrs. Kelly, was saying about the fact that there are businesses, startup businesses that would want to take advantage of the Empowerment Zones who are not eligible to do so. That was one of the issues raised in Cleveland. And I guess I'm out of time. The only thing I want to say is, if there are some issues about the Empowerment Zones in the city of Cleveland, I would surely like to be given any information that would assist me in helping them or continuing our work. Thank you very much.
Mr. BERNARDI. And you're very welcome.
Mrs. JONES. And I yield the balance of my time.
Mr. BERNARDI. And if I may, Cleveland
Mr. MILLER. Sometimes being gracious comes with a price.
Mrs. JONES. He's complimenting Cleveland. Hold on a second.
Mr. BERNARDI. Cleveland has done an excellent job with its Empowerment Zone designation.
Mrs. JONES. Thank you very much. I'll take that back.
Mr. MILLER. Well, sometimes being gracious does come with a price. But nevertheless. Mr. Assistant Secretary, thank you very much for your testimony today. Are there any concluding remarks you'd like to make?
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Mr. BERNARDI. Just that we want to continue working with the subcommittee and the Congress. Obviously there's always a difference of opinion. The fact of the matter remains that when grants are utilized and they're utilized effectively, like you heard from some of the speakers here, that's wonderful. But at the same timeand I'm not here to say grants are not effective. I'm here to say that we really need to do more with incentives for the businesspeople in this country. This country is a great country. There's always business opportunities, and if we can give people a tax break, that's really what they're looking for at that end when they start putting their business in place, I think it would be beneficial for all of us. Thank you, sir.
Mr. MILLER. Well, thank you for your excellent testimony. We're now going to call up Panel III. Mr. Rahall I believe has an introduction. I'd like to notice the gentleman for an introduction.
Mr. RAHALL. Thank you, Mr. Chairman. I appreciate first the opportunity that you, Chairwoman Roukema and Ranking Member Frank have extended to me to allow me to join you here this afternoon to introduce a constituent of mine. Where is she?
Mr. MILLER. Would the panelists take their seats, please?
Mr. RAHALL. There she is.
Mr. MILLER. So we know who we're introducing here.
Page 50 PREV PAGE TOP OF DOC Mr. RAHALL. She is Cathy Burns, the Executive Director of the Huntington, West Virginia/Ironton, Ohio Empowerment Zone, which of course is on the border of West Virginia and Ohio, that part of Ohio being represented by our colleague, Ted Strickland. And if he were heremaybe he's already been hereI'm sure he would join me in accounting for the tremendous benefits that Empowerment Zone has given our constituents.
Cathy Burns is a native of West Virginia, a graduate of Marshall University in Huntington, West Virginia. She worked for the mayor of Huntington as a grant writer and then moved to the Department of Development and Planning. Under her leadership the Department earned national recognition as a top performing Enterprise Community and a model of excellent community and economic development.
Ms. Burns played a role, a key role, in getting the Huntington/Ironton area designated as a Round II Empowerment Zone and in September of 1999, she was hired as its executive director. Through her diligent work and the diligent work of her staff, the Huntington/Ironton Empowerment Zone has created 620 jobs in Huntington. It has renovated buildings, developed sites for future industrial use, created new housing and childcare facilities and created school-based training and services.
In addition, the Huntington/Ironton Empowerment Zone has created another 715 jobs in the surrounding region. As this subcommittee is acutely aware, the fiscal year 2003 budget includes no new funding for Empowerment Zones. And I joined other Members of the Empowerment Communities Caucus in urging President Bush and the appropriators to fund Empowerment Zones at least at the fiscal year 2002 levels. I received a letter back from Mr. Daniels, Director of the OMB, saying the Administration did not request additional funds because, quote: ''most EZs have been slow to spend their grants.'' Daniels also said, and I quote: ''The Administration believes that tax benefits are the driving force behind these programs and that additional grants will not increase their effectiveness.''
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Members of this subcommittee, I'm sure you're aware of these quotes. Nothing is new. I do thank you for giving me this platform to rebut these charges and certainly to allowing the witnesses today to do such as well. First the Empowerment Zones are not slow to spend their grants. They draw down the funds as necessary. Under the able hand of people like Cathy Burns, the Huntington/Ironton Zone has committed 100 percent of its funds, but has actually drawn down 43 percent of the funds to pay for projects as they progress while leveraging over $120 million in the process.
So that shows that just because, and the point is, just because the money hasn't been spent doesn't mean the money hasn't been put to work.
And second, tax benefits are not the only driving force behind the Empowerment Zones. I've heard statements from the directors of many Empowerment Zones discuss their projects.
Mr. MILLER. May I ask you to conclude your introduction?
Mr. RAHALL. Yes, sir, I will. And they each say that tax credits are just one tool in a package. Empowerment Zones need cash to work with tax credits.
So finally, Mr. Chairman, I do thank you for indulging me. We're all working to overcome the recession, stimulate the economy, and it is a mistake for the Administration to zero out this vital program.
Page 52 PREV PAGE TOP OF DOC So I again thank you for allowing me to be here, and I introduce Cathy Burns from Huntington. I know we have another member from Huntington, West Virginia on the panel as well that will be introduced by his Congresswoman. Thank you.
Mr. MILLER. Thank you, Mr. Rahall. Appreciate that.
Mrs. Capito, you have two introductions.
Mrs. CAPITO. Yes I do. I would like to introduce two members of the panel and recognize a third gentleman who is with them. They're all three associated with the Upper Kanawha Valley Enterprise Community.
First I would like to recognize Ben Newhouse, who is in the audience. He's the Executive Director of the Upper Kanawha Valley Enterprise Community. Thank you for being here with us, Ben, and thank you for your dedicated service.
I also would like to introduce two who will testify. First is Mayor Damron Bradshaw, who is Chairman of the Upper Kanawha Valley Enterprise Community. He's a United Methodist Church pastor, mayor of the town of Chesapeake, and he's a wonderful community support for that town and for the area that he represents.
Second, and last but not least, I would like to introduce the Honorable W. Kent Carper, who is Kanawha County Commissioner for over 6 years. I have known Kent for a very long time, and he's been very active in all aspects of economic development in the Kanawha County. Welcome to Washington.
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Mr. MILLER. Thank you. The first witness will be the Honorable Jim Sauro, Freeholder Director, Cumberland County, New Jersey. You have 5 minutes, sir.
STATEMENT OF HON. JAMES SAURO, FREEHOLDER DIRECTOR, CUMBERLAND COUNTY, NEW JERSEY
Mr. SAURO. Thank you very much. First I'd like to thank the subcommittee for allowing me to testify on how important the Empowerment Zone is to Cumberland County.
As the Cumberland County Freehold Director, I dream of creating a program that would benefit the citizens of Cumberland County. You have created such a program, a program that I would love to say was my idea.
In Cumberland County we have one of the highest unemployment rates, the lowest per capita income, and I'm sorry to say, one of the highest tax rates in the State of New Jersey. Over the years, businesses have been slowly leaving our area, but along came a fantastic opportunity named the Cumberland County Empowerment Zone, a program you created, a program that provided the flexibility and the foresight to meet the needs of our community and a program that has already had a significant and long-lasting impact on our county.
Cumberland County is finally moving forward with the assistance of the Empowerment Zone. By having the Empowerment Zone and the Urban Enterprise Zone work hand-in-hand, we are able to offer and entice businesses to come to our community. In just a short time we have created over 300 jobs, expanded existing businesses and helped a number of non-profit organizations that serve the citizens of Cumberland County.
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Now I want you to imagine having a great idea that you would like to implement and start on your own. But after completing a business plan, you realize that you just can't quit making the payments to the bank. Now you find out about a program that allows you to have access to capital at a low interest rate; that gives you tax incentives for being in that area and that gives you incentives for hiring people from that area. Now you get all of those savings and you put them into the business plan and you realize that you can open the business because you can now make the payments. You are not only able to open your new business, but now you are revitalizing the area and hiring individuals from that area, again making people and yourself self-sufficient.
I'm going to deviate a little bit from this testimony. Being a small businessperson myself, being involved with the Chamber of Commerce in Vineland, you cannot operate a business only on tax incentives because they don't last the whole amount of time. When you're able to get a low interest loan that lasts the whole 10 or 15 years, you can actually figure that into your business. This is what helps a businessperson. Big businesses might benefit with tax incentives and capital gains. A small businessperson is not going to benefit that much from these programs. It's called hard earned cash.
Now with the Cumberland County Empowerment Zone, they're not just giving you the money. You have to qualify. You have to sit there and do a business plan. You have to prove to them that your plan is going to work. And then when you create that business and put that business in that area, you are making that area better, and people are working in that business from that area. So what happens? We turn around and revitalize it and you're making a person be self-sufficient.
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Cumberland County is moving in the right direction. If funding were not to continue, all the good that has been done and the initiatives that have been started would be in vain. We have a number of projects that we wish to implement, and businesspeople are waiting for answers that would lead to additional jobs and ratables. But we can't give them answers, because we need the answers from you.
It is easy to think of this program s just job creation. But it is not. It is creating a quality way of life, allowing people to have confidence in themselves by making them able to take care of their families on their own. It also brings pride back to the community and changes people's attitude from maybe it can be done to how can we make it happen? When people's attitudes change, positive things happen.
I will now allow the Executive Director of Cumberland County Empowerment Zone to give exact details and figures of the program and its successes. Hopefully after hearing his and the other testimonies, you will understand how important this program is to our community. Please continue to keep the American Dream going by giving people a chance to own their own business and to become self-sufficient. You are doing that right now with the Empowerment Zone. Thank you.
[The prepared statement of Hon. James Sauro can be found on page xx in the appendix.]
Mr. MILLER. Thank you, Mr. Sauro.
Page 56 PREV PAGE TOP OF DOC The next speaker will be Mr. Gerard Velazquez III, Executive Director, Cumberland Empowerment Zone, New Jersey. You have 5 minutes, sir.
STATEMENT OF GERARD VELAZQUEZ III, EXECUTIVE DIRECTOR, CUMBERLAND EMPOWERMENT ZONE
Mr. VELAZQUEZ. Thank you, sir. I would also like to thank you for the opportunity to speak before you today. And at the risk of taking all my time by regurgitating information you already have in front of you, I want to focus on a couple of major points.
I think one of the things that's been lost throughout the testimony today is that the Empowerment Zone program was created as a 10-year strategic plan, a strategic plan that made local communities come together, think about how they could revitalize their entire community, and then implement that strategy over the long term. When we talk about businesses and their strategic plans, we actually give accolades to the businesses that create a business plan, implement that plan and then change that plan as change is needed to meet the requirements of each community.
The beauty of the Empowerment Zone program was that it did just that. It made us work together as a community. In Cumberland County we have four different cities that are involved in our Zone, and those communities had to come together to create a plan that made sense, that created revitalization over the long term.
We just completed a local business survey in our community, and we asked the businesses to indicate to us what the top five priorities were for the community for business development in a community. Number one was workforce. Number two was neighborhood revitalization. Number three were working with Government in overcoming regulations. Number four was crime and vandalism, and number five was the need for access to capital.
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When we had discussions today in testimony, what was definitely lost throughout the conversation was that the Empowerment Zone program is a business program and also a neighborhood revitalization program; a program that allows us to take the opportunity to step back and implement.
We've talked about obligation of funds. In Cumberland County, we've obligated 100 percent of funds to particular projects that we're going to invest in over the course of the next 18 months. We are quite frankly proud of the fact that we've not spent our money. We're proud of the fact that we have money that's still sitting in the treasury, because that means that we are monitoring our programs. That means that we are taking careful consideration to make sure that each program that we fund meets its milestones either for a business starting up, for a program that's serving the community, or for a project that's under construction. We only fund based upon each project meeting its milestone. So for us, the idea that we haven't spent our money is exactly what we thought we were supposed to do.
Now we're being penalized because the consistent terminology or the consistent issues that continue to come from HUD are you haven't spent your money. Well, quite frankly, we have spent our money. We will continue to spend our money. And if we rush to spend, in essence we're total disregarding the strategic plan that was set up initially, the strategic plan that tells us exactly how we should move forward over the course of 10 years. Keep in mind, there's some testimony that said this is a 5-year program. This program was funded in June of 1999. That means from June of 1999 to now, we have received $19 million. Three million dollars was approved in November. We're still waiting for the final contract.
Page 58 PREV PAGE TOP OF DOC So again, from 1999, June of 1999 until today, that should be the time that's being looked as far as how the Empowerment Zone has been around.
The other key thing I want to talk about are tax incentives versus grants. Tax incentives are very important tools for attracting and retaining businesses in our Empowerment Zone. We quite frankly have been called from Empowerment Zones and Enterprise Communities throughout the country asking us how we utilize our tax incentives. And everybody wants to know, how do you use the money, how do you get businesses in a process. And we've used the tax incentives in our community. However, one of the things I want to point out is we have a tax incentive program in our community called the Urban Enterprise Zone, which is a State program similar to the Empowerment Zones. One of our communities received 75 percent of all the new businesses that come into the community.
Mr. MILLER. You have 30 seconds, sir.
Mr. VELAZQUEZ. The reason for that is because they have cash. They have money that's lent to the businesses that want to locate into that community that assist them with the tax incentives. So tax incentives are equal across the board in each of our communities. However, one of our communities, because they have cash available to lend to these businesses who want to locate in our county, is receiving 75 percent of all the new business. Thank you.
[The prepared statement of Gerard Velazquez III can be found on page xx in the appendix.]
Page 59 PREV PAGE TOP OF DOC Mr. MILLER. Thank you very much. I want to say that it's important that you know that you're here to have your words put in the record so we understand the situations you face in your communities. And don't let the lack of attendance today bother you. This is very common, especially when we're in recess for the day. So don't take it personal. Don't take it that nobody's paying attention because the record is being kept, and that's what's important.
Thank you very much for your testimony. Next will be Mr. Damron Bradshaw, Chairman Upper Kanawha Valley Enterprise Community, West Virginia. You have 5 minutes, sir.
STATEMENT OF DAMRON BRADSHAW, CHAIRMAN, UPPER KANAWHA VALLEY ENTERPRISE COMMUNITY, WEST VIRGINIA
Mr. BRADSHAW. Thank you, Mr. Chair. We appreciate the opportunity to be here today. Our 3-year-old community lies within three census tracts over 20,000 residents. This area has a population of 25 percent of the residents being below the poverty guidelines and 19.8 percent unemployment. This area includes parts of Kanawha and Fayette Counties in rural Appalachia.
We have two county commissions, five municipalities and the remainder are residents that live up at the creeks and hollows and along the Great Kanawha River, having mostly two-lane roads. We have one hospital, a college, three watersheds, two clinics, several secondary schools and small businesses. Today we still have coal mining, which for the time being is a major positive economic factor in our communities. However, we and other economic development entities feel that new vibrant businesses and technology must be attracted to our area.
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Demolition and cleanup will provide some sites, but the methods of attracting development are critical and complex, but we have proved we're up to the task. We're an organization helping to structure our community as an attractive place to live and do business. Our Enterprise Community, just 3 years old, is helping to utilize ideas and knowledge moving us to the place that Congress intended when the zones and the communities were established.
The effect has been very beneficial to the economic and community development of our area. It has allowed new businesses to enter the area due to tax credits that come along with the designation of Enterprise Community. It also allows funding availability to clean up some of the Brownfield sites that before would never have been addressed.
Our Enterprise Community is neither self-sustaining nor self-reliant. If our Enterprise Community goes unfunded or even partially funded, it cannot leverage enough other monies into the area to allow economic and community development. Enterprise Communities, as opposed to Empowerment Zones, are not fully funded and only receive abut $250,000 per year. Therefore, we're in a constant struggle for alternative funding to bring infrastructure and housing and economic and community development and rural renewal to our areas.
House bill H.R. 2637, if passed, will improve the ability of our Enterprise Community to provide essential development activities that tax incentives alone cannot do. With a continued Enterprise Community, the ability to leverage other monies, we can help provide investment capital and begin revolving loan funds as well as site preparation and small business incubators and shell buildings.
Page 61 PREV PAGE TOP OF DOC We have other agencies in the area with which we collaborate to provide customized workforce training and placement and supportive services that allow job creation and placement. In the 3 years of guaranteed funding that we have received, we have parlayed our seed money of $750,000 into a leveraged $84 million for this community. We would hate to see that cease in the future if the expected Federal commitment is not continued.
We've been most effective in soliciting new businesses by providing a business incubator through leveraged money that our county commission and then-Congressman Bob Wise solicited for us, which allows new small businesses to start and to grow.
The business incubators allowed space for education and training. In our satellite locations, which are actually offices of our collaborative entities, we have provided computer training for youth and seniors alike. If the expected Federal commitment is continued, and by networking with other entities we can be an integral part of providing training for the disadvantaged residents that we have and see that unemployed and underemployed residents have another opportunity to be part of the workforce.
We have used the funding that we have received very prudently. It has gone for administrative costs as well as infrastructure, helping to upgrade water facilities for a financially strapped municipality. The money has been used to help a senior nutrition center be able to start a hot food program. We have spent the money to help at least three watershed organizations and other nature and ecological programs. We have kept our staff at the proper level so that more money can actually go into the community.
Mr. MILLER. You have 15 seconds, sir.
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Mr. BRADSHAW. The tax incentives have helped where infrastructure is in place, but infrastructure is needed besides. The people will not come to the area with their businesses if infrastructure is not in place. We appreciate the difficulty that you have, but we do appreciate the thoughts that you have and we urge you to continue the funding. Thank you.
[The prepared statement of Damron Bradshaw can be found on page xx in the appendix.]
Mr. MILLER. Thank you, sir.
The next speaker will be the Honorable W. Kent Carper, Kanawha County Commissioner, West Virginia.
STATEMENT OF HON. W. KENT CARPER, KANAWHA COUNTY COMMISSIONER, WEST VIRGINIA
Mr. CARPER. Good afternoon, Mr. Chairman. Your comment a little bit ago about us not being dissuaded by the empty chairs is why we're here. I'm a County Commissioner from one of the poorest States in our country. We've lost tens of thousands of people in our county. That impact is incredible. In the last several years we have lost thousands of jobs, coal mining jobs, chemical jobs, jobs that are irreplaceable in today's economy.
Two years ago, Congress got it right when they funded this program. I defined it at that time as the turning point for our county. Today the loss of this program to us would revisit a tragedy that we don't think we can take.
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I've listened to the comments of those who have testified here earlier. They're correct. Business has to have predictability. And this program no longer has predictability, as it may be funded, it might be funded, it might be this and it might be that. That's doing damage to the program almost to the point as if the program was not funded at all.
Perhaps I just don't understand or appreciate the way the program is being judged by the Administration. The percentage of spending equals whether or not a Government program is a success or a failure. I guess if the program wasn't so important to us I would just say send us the money and I will guarantee you we'll spend 100 percent of it quickly. The fact that the ECs and the EZs have been responsible and careful and diligent have proven the success of the program.
What we're basically asking Congress to do is to do what our congressional representative, Congresswoman Shelley Moore Capito has done, that is, recognize how important this program is, how vital it is. The area that I represent has been determined by you, the Federal Government, as being an area of pervasive poverty with high unemployment. Well, we have about a 20 percent unemployment rate in this area, which is why we have this program to try to turn it around. And the truth of the matter is, we would have greater than 20 percent if the 10, 20 or 30 thousand people who have left our county because they can't find a job were still there.
I know that we have limited time to speak. We are honored to participate with you. We urge you to revisit the decision made by the Administration. We really don't think we can take another hit in an area that has been hit time after time economically. Thank you so very much.
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[The prepared statement of W. Kent Carper can be found on page xx in the appendix.]
Mr. MILLER. Thank you, sir, for your testimony.
The next witness will be Mrs. Cathy Burns, Executive Director, Huntington, West Virginia/Ironton, Ohio Empowerment Zone. You have 5 minutes, ma'am.
STATEMENT OF CATHY BURNS, EXECUTIVE DIRECTOR, HUNTINGTON, WEST VIRGINIA/IRONTON, OHIO EMPOWERMENT ZONE
Ms. BURNS. Thank you. I just want to say that when we received the designation, Huntington, West Virginia/Ironton, Ohio, we had the economic tools, the cash grants and the tax incentives, and we made a 10-year commitment to improve the economic opportunity for our zone residents. That partnership, as you know, is at risk for two reasons. The Administration claims that the expenditure rate is slow. HUD's data, though, is only based on the withdrawals from the Federal treasury. My zone has one of the highest expenditure rates. But more importantly, 100 percent of our funds are committed. But even more important than that, of the 12 Round II zones self-reporting, over 80 percent of the funds are committed.
So a policy decision has been made based on not enough data, and that's unfortunate. But good economic policy is more than just how quickly you spend your money. We should be evaluated based on the projects that we invest in, projects that should drive our economy for leveraging other funds and for measurable jobs above the average local wage, and that's exactly what we've done in our community. We've invested in premier projects that fill the gap.
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We've invested in Kinetic Park, a technology business. Technology parks are not a new thing, but it's the fact that we've attracted Amazon.com East Coast Customer Service Center and the American Foundation for the Blind to be tenants in this park makes it unique. That would not have been possible just relying on the tax credits, because there was a significant amount of earthwork needed to do this project. The same thing applied in South Point, Ohio at the industrial site that Congressman Strickland mentioned. That project also would have never gotten off the planning shelf had we only had the tax incentives to use. We had to have those cash grants in order to get those projects from the planning shelf to the implementation.
We've created over 690 jobs just within our Zone. And Assistant Secretary Bernardi has said that he wants to spend the next 2 years with HUD to develop a plan to market the credits. Well, in all due respect, I've been marketing these very tax credits that Congress passed since 1994, and they have limitations. I'm not saying that they don't work, but they are limitedthere's an assumption made that if they are marketed more fully, they will be used more fully, and that is not true, because we've been doing it since 1994.
These tax credits were never adopted to be a stand-alone credit. They always had in mind to have the grants to go along with it. And let me just tell you real quickly what the Amazon deal. They didn't qualify for the 179 deduction because they were not separately incorporated. They didn't qualify for the wage credit because at that time we didn't receive it. They made a $1.5 million investment, which is a pretty tremendous investment, but it was not large enough to qualify for the tax exempt bonding. This is just an example of how these credits have limitations. Sometimes they work and sometimes they don't, and that is why you need these cash grants to fill the gap.
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Another thing that we know is, Wal-Mart is who is using these credits. But Wal-Mart can locate 10 miles outside of your zone. Wal-Marts typically don't want to locate in your inner cities where there's higher poverty and higher crime. That's why we had the zone designation to begin with. Wal-Mart can claim the majority of these tax credits just as easily as a business in my zone. So what's the benefit for them locating in my zone? They can claim the work opportunity tax credit. They can claim the welfare-to-work tax credit without ever stepping foot in my zone.
So therefore, that's another limitation of these tax credits, sometimes they work and sometimes they don't. But our goal is to get businesses to locate in our zone where we already know historically we have higher poverty and we have a larger number of people on unemployment who need training. And that is why the cash grants have to work in cooperation with the tax credits.
In conclusion, I would just say that by taking away the cash grants, you're seriously impeding our progress. As I mentioned before, I have no problem utilizing the credits, but they don't always work. They're not the answer to economic development. Any economic development professional will tell you that cash is really what drives an economic deal. The credits are a little bonus at the end, but it's the cash grants that truly make the deal work. Thank you.
[The prepared statement of Cathy Burns can be found on page xx in the appendix.]
Page 67 PREV PAGE TOP OF DOC Mr. MILLER. I thank you for your time. The testimony was excellent. I hope you're enjoying Washington, DC. Visit your local congressman. That's what you're here for. I ask unanimous consent to submit for the record a joint statement by Congressman Amo Houghton, Thomas M. Reynolds and Jack Quinn. Without objection, so ordered. And I ask unanimous consent to submit for the record a statement by John LaFalce. Without objection, so ordered.
The Chair notes that some Members may have additional questions for the panel which they may wish to submit in writing. Without objection, the hearing record will remain open for 30 days for Members to submit written questions to these witnesses and place their response on the record.
Without objection, so ordered. This hearing is adjourned. Thank you.
[Whereupon, at 4:07 p.m., the hearing was adjourned.]