RECORD TYPE: PRESIDENTIAL (ALL-IN-1 MAIL)
CREATOR: Sheryll D. Cashin ( CASHIN_S ) (VPO)
CREATION DATE/TIME: 2-JAN-1996 17:57:40.29
SUBJECT: Briefing memo for Thursday Lunch with POTUS
TO: Albert Gore ( GORE_A ) Autoforward to: Remote Addressee ( Albert Gore@LNGATE@EOPMRX ) (VPO)
READ:NOT READ
CC: Ron Klain ( KLAIN_R ) Autoforward to: Remote Addressee ( Ron Klain@LNGATE@EOPMRX ) (VPO)
READ:NOT READ
CC: Kumiki S. Gibson ( Kumiki S. Gibson@EOP_OVP@CCGATE@EOPMRX )
READ:NOT READ
TEXT:
PRINTER FONT 12_POINT_COURIER
You will be meeting with the President for lunch on Thursday.
Attached is a memorandum that briefs you on the apparent policy
consensus among NEC principals for an additional "urban"
initiative in the FY 1997 budget -- a brownfields initiative (tax
credits and regulatory relief) targeted to all EZ/EC
-eligible
communities. While the proposal has some merit, Ron Klain,
Kumiki and I are concerned that it will not meet a likely need in
1996 to articulate a credible urban policy. You may wish to
discuss this with the President. Specifically, we recommend that
you (1) emphasize that any additional "urban" initiatives should
be cast as a second phase of the EZ/EC program; and (2)urge the
President to commit to a second round of EZ/EC designations in
his State of the Union address.
January 2, 1996
MEMORANDUM FOR THE VICE PRESIDENT
FROM: SHERYLL CASHIN
KUMIKI GIBSON
SUBJECT: COMMUNITY EMPOWERMENT POLICY
This memorandum advises you of the apparent consensus of the
NEC working group that has been deliberating over possible
additional urban efforts for FY 1997 and of our concerns that
this group's ultimate recommendation-
-although tied to the EZ/EC
program-
-may not meet the need to articulate a credible "urban
policy" in 1996. We recommend that you alert the President to
this concern and urge him to pledge in the State of the Union to
seek an additional round of EZ/EC designations in 1997.
I. The Views of the NEC Working Group: A Brownfields Initiative
The NEC working group -- which includes, among others, OVP,
DPC, OMB, HUD, and Treasury -- has been considering various
options that offer new tools for private
-sector investment in
distressed communities. Specifically, the options include: (1)
enhancing the existing EZ/EC program by providing additional tax
credits for ECs; (2) proposing a substantial increase in funding
for the Community Development Funding Institutions ("CDFI")
program; and (3) supporting redevelopment of urban brownfields by
offering an expensing tax credit and regulatory relief for all
EZ/EC
-eligible areas. (The group also endorses pursuing three
non
-budgetary options: (i) ending public housing as we know it
through demolition, deregulation, and market
-based management;
(ii) working with Congress on a job training block grant
legislation to include high performance standards and incentives
for connecting residents of poor areas to jobs; and (iii) working
with Congress to pass the Local Empowerment and Flexibility Act
to vest more waiver authority in the Community Empowerment
Board.)
Of the budgetary items, the brownfields redevelopment tax
credit for all EZ/EC
-eligible areas has received the most
favorable response. This approach would permit qualified
businesses to deduct the cost of environmental remediation over
three years, rather than over the life of the property. In
addition, this proposal would compliment current EPA regulatory
efforts to make many more environmentally
-degraded urban sites
available for redevelopment. Apparently, this proposal is
popular with some urban mayors. Finally, many believe that
Congress would be more willing to support this effort than
investing additional funds in for the EZ/EC or CDFI programs,
both of which are closely associated with the President.
While the group believes that any brownfields initiative
should be promoted as a second
-phase of the EZ/EC program, we
believe that a credible second
-phase would have to include other
efforts targeted to EZs and ECs. Such a package could include:
(1) providing additional tax incentives for existing ECs to
encourage private sector investment (such as liberalized
restrictions on EZ/EC bonds and extra Section 179 expensing to
all ECs);
(2) maintaining and strengthening the Administration's
capital access programs for poor communities, such as CDFI and
reformed enforcement of the Community Reinvestment Act ("CRA");
(3) Secretary Reich's proposal to target additional funds
for youth development, training, and job placement in
EZ/EC
-eligible communities; and
(4) issuing the Empowerment Contracting Executive Order,
which would provide federal procurement preferences for
businesses that locate in EZs and ECs or hire residents from
those communities.
At this juncture, we should embrace any additional tax
incentives for EZs/ECs that we can secure in the current budget
discussions. The EZ/EC program would be enhanced substantially
with the additional tax incentives the NEC has suggested. We,
therefore, recommend that you tell the President that you can
support the brownfields initiative, but make clear that (1) we
should continue to work to secure a viable package of additional
benefits for EZs and ECs (as outlined above) and
(2) that this final package -- no matter what it includes -- be
cast as a second
-phase of EZ/EC.
II. Community Empowerment Agenda: A Second Round of EZs and ECs
Despite the policy merits of a second
-phase package, this
effort, standing alone, is not likely to serve as a credible
urban policy -- which we believe we will be forced to articulate
in 1996. Simply put, we doubt that a second
-phase package is
bold enough to resonate with the average urban voter.
We therefore recommend that you urge the President to make
clear (either in budget discussions or in the State of the Union)
that our urban policy must be centered on our successful
community empowerment agenda, the core of which is the EZ/EC
program and which includes CDFI and CRA reform. The most
compelling way to deliver the "community empowerment" message is
to have the President commit to another round of EZ and EC
designations.
A. Background on the Community Empowerment Agenda
As the HUD Urban Report makes clear, our community
empowerment agenda encompasses a full range of initiatives --
e.g., EZ/EC, CDFI, CRA reform, community policing, and HUD
demolition of public housing. With its emphasis on comprehensive
strategies, the EZ/EC program represents all of our community
empowerment initiatives, many of which are being implemented by
EZs, ECs and our "champions communities" (those EZ/EC applicants
that were not designated). Ground
-breakings and openings of
EZ/EC projects have begun and will continue throughout 1996.
As you know, in December 1994, you and the President
announced 105 EZ/EC designations in 42 states, including two
supplemental zones in Los Angeles and Cleveland. At that time,
we promised Los Angeles and Cleveland that we would seek
legislative authority to provide them with tax incentives that
were available to the designated EZs. At the time of the
announcement, you, the President, and others (including Leon
Panetta) agreed that because of the level of interest in the
program (as evidenced by the number of applicants), we had to
consider a second round of designations.
B. Justifications for A Second Round of EZs and ECs
Several strong reasons exist for securing a second round of
EZs and ECs, in addition to the political imperatives. First, a
second round would evidence our commitment to the core principle
of the EZ/EC program -- i.e., that comprehensive planning with
direct community involvement and bringing together of private
sector partners create enormous potential for revitalization.
(The initial round leveraged in excess of $8 billion in private
and public sector commitments.) Second, it would offer new
incentives for existing ECs and champion communities to move
forward with their comprehensive strategies. Third, raising the
profile of the program will advance our current efforts to
involve major private sector partners in the program. Finally,
and perhaps most importantly, because of the level of investment
in this program to date (by you, other members of the White
House, Federal agencies, and mayors) and the resulting
infrastructures and networks, this program provides the best
platform we have for promoting our urban agenda.
As you are aware, downsides exist to seeking a second round.
First, such a move is likely to meet with strong resistance from
the Treasury Department (on tax policy grounds) and from HUD
(which believes that the program reaches too few communities).
Second, the wage credit is controversial: it is extremely
expensive, and urban mayors have shown more interest in capital
incentives. Third, Congress may not endorse legislation that
would create a second round because this program is viewed as
Clinton
-Gore signature initiative.
In order to address some of the valid policy concerns about
the initial round, we believe we should modify the scope and
contents of the second round of EZ/EC designations.
Specifically, we could develop a new zone designation that has a
more cost
-effective package of tax incentives and a more modest
block grant. (If the President supports the idea of a second
round, we will have to determine the number of designations and
the corresponding size of the block grants and the available tax
incentives.)
III. Recommendation
In sum, we recommend that you alert the President to the
fact that his advisers may propose that he embrace a brownfields
redevelopment initiative as a core component of our urban policy,
but that you believe that this approach, while beneficial, will
fall short of satisfying our critics who call for an urban
policy. You should make clear that you believe that we should
continue -- and build upon -- our existing community empowerment
agenda by expanding the EZ/EC program.