[CHAPTER 1: The Community Empowerment Agenda -- a New Framework for National Urban Policy
President Clinton's National Urban Policy -- Guiding Principles
The Clinton Urban Policy in Historical Perspective
Toward Thriving Communities in a Global Economy]
CHAPTER 2: Metropolitan America in the 1990s
Evolution of Metropolitan Regions
Disparities Between Cities and Suburbs
Consequences for All Americans
[CHAPTER 3: A Firm Foundation for Economic Growth
Middle-Class Tax Relief
Open the World to U.S. Products
Outlook: A Revitalized National Economy]
CHAPTER 4: Expanding Access to Opportunities
Rewarding Work and Making Work Pay
Investing in Education and Training
Expanding Access to Metropolitan Opportunities
Ensuring Access to Financial Capital
Expanding Homeownership Opportunity
Freedom from Fear
Empowerment Zones and Enterprise Communities
[CHAPTER 5: A New Vision for a Community Empowerment Partnership
A National Partnership for Urban Revitalization
Community Empowerment Budget
Reducing the Burden of Federal Mandates and Regulations
Reinventing Government to Support Local Solutions
Making Federal Uran Policy Work at the Grass Roots Level]
If you don't have work in neighborhoods and in communities, it is hard for people to organize their lives. It is hard for parents to feel self-esteem... It is hard for the child to look out and imagine that by working hard things will work out all right ... And I believe that in order to deal with this, we're going to have to all work together in a whole new national contract.
The United States is an urban nation. Today, eight out of ten Americans live in one of 330 metropolitan areas, and more than half live in the 39 metropolitan areas with populations of one million or more. Between 1950 and 1990, the U.S. metropolitan population grew by 103.4 million, more than doubling to reach a total of 192.7 million. Over the same period, the country's non-metropolitan population actually declined (by about 6 million).
Metropolitan areas are the building blocks of the national economy. They account for 83 percent of national income and virtually all employment in the advanced technical and service sectors of the future. We used to think of our country as relatively homogeneous, with all of its regions rising or falling together with the national economic tide. But today it may make more sense to think of America's economy as a "common market" of metropolitan economies. These metropolitan regions, though strongly interdependent, compete with one another and with urban centers throughout the world. Today, Detroit's real competition is not its suburbs, but the metropolitan regions of Baden-Wurtemburg in Germany and Kyushu in Japan.
The cities at the core of America's urban regions have long been the primary source of the nation's wealth and progress. They are:
o Headquarters for the factories and offices that form the foundation of our economy;
o Centers of banking and commerce that generate investment for the future;
o Magnets for the expertise and creative talent upon which future economic and cultural achievements depend; and
o Home to institutions of education and research that support innovation and advancement.
Some people have speculated that the rise of global technology and information networks might erode many of downtown's traditional economic functions, with computers and other forms of interactive communication reducing the need for face-to-face contact in centralized office districts. Increasingly, however, experts recognize that the concentration of expertise and economic interchange that occurs in urban centers is critical to the knowledge-intensive industries of the future. The ability of the U.S. to prosper in today's highly competitive global economy will depend upon the economic performance of its metropolitan regions and upon the health and vitality of the cities at their core.
Evolution of Metropolitan Regions
Suburbanization, first of homes and then of jobs, has continuously expanded and transformed America's urban areas. Throughout the post-World War II era, urban settlement has exploded beyond the boundaries of central cities to form metropolitan regions. Just after World War II, central city jurisdictions contained most of the nation's urban population and three-quarters of urban jobs. Today, just over half of all metropolitan jobs and almost 60 percent of metropolitan residents are located outside of central cities.
Residential suburbanization has been going on for a long time. Families seeking larger, more private homes with better schools, safer streets, and more amenities have left established neighborhoods in successive waves to create new communities further and further from the urban core. Three-quarters of metropolitan population growth between 1950 and 1990 occurred in the suburbs. In fact, central city populations have actually declined somewhat in the Northeast and have grown much less rapidly than suburban populations in all other regions of the country.
Beginning in the 1950s, jobs began to follow people to the suburbs in significant numbers. As improved highways and trucking freed them from the need to be close to rail heads and ports, manufacturers were drawn to the suburbs, where they could build sprawling single-story industrial plants. Central cities lost their competitive advantage as the location for new factories. More recently, many business services firms have also moved "back office" functions such as accounting and data processing to the suburbs to take advantage of lower costs and abundant labor, as middle-class suburban women increasingly joined the labor force. By 1990, 57 percent of the nation's office space was located outside central cities, compared to only 25 percent in 1970. And finally, retailers and consumer service firms have migrated to the suburbs, seeking proximity to middle-class suburban customers. Between 1970 and 1990, for example, over 25,000 suburban shopping centers were constructed.
The march to the suburbs continues today. In 1990 the suburbs constituted nearly 60 percent of the U.S. metropolitan population. Between 1980 and 1990, the rate of population growth in the suburbs more than doubled the central city pace. And between 1977 and 1987, two-thirds of net employment growth in America's sixty largest metropolitan areas was located in the suburbs. Over the same period, the suburbs captured 120 percent of the net job growth in manufacturing, while central cities suffered absolute losses in manufacturing employment. Although the manufacturing sector currently appears to be rebounding as a contributor to the national economy, it is not growing as a share of national employment. The trend in American manufacturing today is toward smaller scale, customized, flexible production in which design, marketing, and management are much more important than in the past. As a result, fewer low-skill workers are needed per unit of production. Manufacturing will no longer provide an abundant supply of low-skill, high-wage jobs in central cities, or anywhere in America.
One consequence of suburbanization is that today's economies typically cover huge metropolitan regions. For example, in the 1950s, 80 percent of the San Antonio metropolitan population lived within the 70-square mile area of the city; today the urbanized area covers a three-county region of 438 square miles. The urbanized land area of Minneapolis-St. Paul has expanded 25 percent for every 10 percent increase in population. And in Chicago, land used for housing increased 46 percent and land used for commercial development grew by 74 percent between 1970 and 1990, even though the metropolitan population only grew by 4 percent. These metropolitan regions are home to interrelated clusters of economic activity, among which the original central city usually remains the largest and most important. But the fastest growing clusters are often the new "edge cities" at the fringes of the larger metropolises. Suburban jurisdictions are no longer the homogeneous "bedroom communities" of the 1950s, and their residents are more likely to commute to work in another suburb than in the central city.
Despite the national trend toward the decentralization of both people and jobs, the impacts of industrial restructuring on patterns of urban growth vary substantially across metropolitan regions. Regions with diversified economies have adapted more successfully to global competitive pressures than those dependent upon a narrower economic base. Areas engaged in advanced services and knowledge-based industries have fared best.
Disparities Between Cities and Suburbs
One consequence of America's steady suburbanization has been growing disparities between the jurisdictions that make up urban regions. Although metropolitan regions are highly interconnected in terms of labor, housing, capital, and consumer markets, many are fragmented politically. Suburban jurisdictions tend to compete vigorously with one another and with the central city for new sources of growth to keep treasuries full and tax rates low. While poorer jurisdictions are under tremendous pressure to expand services for their needy residents, voters in the more affluent suburban jurisdictions have strong incentives to support land use regulations and growth controls that maximize property values by discouraging lower income households from moving into their communities. Poor people -- and especially poor minorities -- are often trapped in inner cities and older suburbs.
Discrimination in urban housing markets perpetuates disparities between jurisdictions within metropolitan regions. More than a quarter of a century after the passage of the Fair Housing Act, minority homeseekers routinely face discrimination when they search for housing. They are told about fewer available units than comparable white homeseekers, provided with less information and assistance, and steered away from affluent white neighborhoods. In fact, African American and Hispanic homeseekers who visit real estate or rental agents to ask about housing advertised in the newspaper experience discrimination almost 50 percent of the time. Because of the persistence of discrimination in housing, American communities remain profoundly divided on the basis of race and ethnicity. Most African Americans and Hispanics live in neighborhoods that are predominantly minority, while most whites live in neighborhoods that are predominantly or even exclusively white. And because minorities experience higher poverty rates than whites, the spatial concentration of minorities also concentrates poverty and compounds its social costs.
As jobs, wealth, and economic opportunities have migrated outward, poor minority communities in the central city (and in older suburbs) have become increasingly isolated from the opportunities and prosperity of their metropolitan regions, the nation, and the emerging global economy. Most jobs in the American labor market today are filled through employee referrals, direct application at the work site, and other informal mechanisms. Vacancies are not widely publicized, and job seekers need personal recommendations from people that prospective employers trust. Recent evidence also indicates that minority jobseekers face discrimination in urban labor markets. Young black men, applying for entry level jobs in Washington, D.C. and Chicago, received less favorable treatment than comparably qualified white applicants about 20 percent of the time, and Hispanic job applicants in Chicago and San Diego were treated less favorably than comparable whites 31 percent of the time. Thus, inner-city residents face real barriers to finding employment in outlying areas where job opportunities are expanding fastest.
Stark contrasts now exist between central cities and their surrounding suburbs. As of 1990, median income levels in central city jurisdictions were almost 30 percent lower than in the suburbs, and the poverty rate was 18 percent, compared to only 8.1 percent in the suburbs. Disparities between cities and suburbs are even greater in the largest metropolitan areas of the Northeast and Midwest. For example, in New York City, almost one in five (19.2 percent) people live in poverty, nearly three times the suburban poverty rate (6.5 percent). And the poverty rate is a staggering 30.2 percent in Detroit, compared to only 6.2 percent in the surrounding suburbs.
Poverty is further concentrated within central cities. Between 1970 and 1990, the number of people living in areas of concentrated poverty (where over 40 percent of the residents are poor) grew from 3.8 million to 10.4 million. In 1990, 11 percent of the population of the nation's 100 largest cities lived in these extreme-poverty neighborhoods,compared to 8 percent in 1980 and 5 percent in 1970. Within such severely distressed neighborhoods, social conditions are bleak:
o More than 60 percent of families with children are headed by single women, compared to less than 20 percent in non-poverty neighborhoods.
o More than half of all adults have less than a high school education, compared to less than 20 percent in non-poverty neighborhoods.
o More than 40 percent of working age men are not working, compared to just over 19 percent in non-poverty neighborhoods in the central city.
o Almost 1 in 5 youths ages 16 to 19 are high school dropouts, compared to about 1 in 10 in non-poverty neighborhoods.
o One in three households receive welfare benefits, compared to only 11 percent of all central city households.
In these high-poverty neighborhoods, the problems of poor education, discrimination, joblessness, teen pregnancy, single parenthood, drug abuse, and crime all reinforce one another, perpetuating a vicious cycle of poverty, inequality, violence, and despair. High-poverty neighborhoods cannot support the businesses and civic institutions necessary for a healthy community. Retail businesses close down, employers move elsewhere, civic and religious institutions find it impossible to survive. The city of Los Angeles has lost a third of its supermarkets since 1970; Boston has lost two-thirds. Beginning in the late 1980s, the Roman Catholic Church closed 40 parishes in downtown Chicago and 32 in Detroit. Nationally, 50-60 Catholic schools have closed annually in recent years. As central city neighborhoods lose their economic and civic infrastructure, middle-income and working families have fewer and fewer reasons to remain.
The concentration of poverty and the suburbanization of wealth converge on central city treasuries, where a declining tax base collides with rising public sector costs. Cities with high poverty rates face high per capita expenditures for welfare, hospitals, and other public health services. For example, the problems of homelessness, AIDS, and crack abuse -- all phenomena that barely existed before 1980 -- have had a devastating impact on city budgets. But high levels of poverty also raise the cost of other city functions, such as police, fire, and education. And as a result, the total public costs that must be covered by non-poor taxpayers are greater in high poverty cities than elsewhere. Analysis of expenditures in selected central city jurisdictions shows that per capita spending on poverty-related functions averaged $124 in low-poverty cities, but $277 in high-poverty cities. And expenditures for other local functions (including police and fire protection) totaled $656 per non-poor person in the low-poverty cities, compared to $1,040 per non-poor person in the high poverty cities.
This situation yields a disastrous set of secondary effects, which further exacerbate the downward spiral of poverty concentration and fiscal distress. First, non-poor families and businesses -- already discouraged from locating in the central city by high crime and poor schools -- are inclined to leave to escape the increasing tax burden. This further erodes the tax base and puts enormous pressure on local governments to reduce expenditures, cutting the quality and scope of public services to poor and non-poor residents alike, and making the central city an even less attractive place to live, work, and invest. Central city governments -- some of which are bloated and inefficient -- fail to deliver the decent schools, public safety, and other services that families and businesses need and expect.
In some cases, public policies intended to address the problems of central city distress have actually contributed to the concentration of poverty and the isolation of central city communities. For example, urban renewal programs, which were intended to return city neighborhoods to health, often uprooted poor families and destroyed functioning communities while frequently failing to create new economic uses for which there was a real market demand. In many large cities, the public housing program produced large low-rent housing developments that disturbed the delicate social ecology of inner-city neighborhoods. As federal policies tightened the targeting of housing subsidies, many of these developments became home to increasingly poor, non-working populations, creating unmanageable living environments and exacerbating the concentration of poverty and distress. And in their efforts to generate revenues and serve poor residents, some city governments have created a web of taxes and regulatory restrictions inhospitable to private business investment.
Consequences for All Americans
The vicious cycle of poverty concentration, social despair, and fiscal distress that plagues much of urban America today weakens our nation's economic health and undermines the ability of metropolitan regions to compete in the global economy. Moreover, isolation of the poor in distressed, high-poverty neighborhoods saps America's spirit, weakening the bonds of trust and common purpose. If these problems continue to go unaddressed, America's future could be severely compromised, both economically and socially, in ways that we are only beginning to understand.
The distress and decline of high poverty areas does not confine itself to the central city, but gradually spreads out to affect suburban areas as well. Older suburbs -- and even some "edge cities" -- increasingly find themselves in competition with newer areas of development that can attract more affluent families, retail centers, and jobs. To illustrate, Lakewood, Ohio, one of Cleveland's oldest suburbs, declined in population from 70,000 in 1980 to 60,000 in 1990. Today, nearly 10 percent of its residents receive welfare assistance of some kind, and the community is experiencing an increase in teen pregnancies and juvenile crime. Older residents, opposed to increases in property tax rates, have voted down tax levies for the local public schools four times since 1993, resulting in an anticipated million-dollar deficit for the 1995-96 school year.
Central city decline is also a problem for us all because it can paralyze metropolitan growth and development. Streets full of potholes, boarded-up buildings, failing public services, poorly educated workers, homeless people camped out in public parks, and high crime rates all damage the image and economic viability of a central city and -- by extension -- the entire metropolitan region. These problems translate into high costs and risks in the minds of business managers looking for places to locate, and the flow of new capital slows to a trickle.
Metropolitan regions need economically vital central cities to thrive. Despite the increasing trend toward decentralization of many types of business and employment, concentrations of high-skill labor and value-added firms are still critical to knowledge-based producer services, such as market and financial analysts, strategic planners, lawyers, marketing specialists, high-level accountants, and computer systems designers. Metropolitan economies increasingly depend upon such clusters of economic activity if they are to thrive in the new economy. This is one of the important competitive advantages that central cities must exploit.
Communication and transactions costs are minimized in these clusters of knowledge intensive firms and workers. Wall Street and Silicon Valley both provide good examples of how the spatial concentration of workers in a particular field facilitates the flow of information, and may lead to important leaps forward in knowledge and productivity.
Spatial concentration also facilitates technical specialization. Every suburban office park cannot support an expert on the legal complexities of doing business in China, for example. But every large metropolitan region probably needs at least one such expert, and downtown is normally the most efficient place for such expertise to be located. Analysis of business transactions in New York, Los Angeles and Chicago confirms that both central city and suburban firms rely overwhelmingly on central city providers of specialized business services (such as investment banking and law).
While a strong regional economy benefits from a vital central city, the reverse is also true. A city's ability "to access competitive clusters is a very different attribute -- and one much more far reaching in economic implication -- than the more generic advantage of proximity to a large downtown area with concentrated activity." According to Michael Porter, cities can create their own competitive advantage by supporting the growth of firms that provide supplies, components and support services to their nationally and globally competitive regional clusters, and by specializing in so-called downstream products and services for which the clusters create a strong demand. An example of the latter would be an inner city company in Boston drawing on that city's strength in financial services "to provide services tailored to inner city needs -- such as secured credit cards...both within and outside the inner city in Boston and elsewhere in the country."
Thus, urban and regional economies are intimately connected. Considerable research now documents strong statistical relationships between metropolitan economic performance and city-suburban disparities. For example, data on 56 large metropolitan regions shows a strong correlation between metropolitan-wide employment growth and the ratio of central city to suburban income. More specifically, employment grew most where income disparities were lowest. Although the evidence of a causal connection is not yet conclusive, there are strong reasons to believe that the social and fiscal distress of high-poverty central cities impedes the growth of the specialized producer service activities that are the drivers of metropolitan economies.
Moreover, the costs to our economy of extreme spatial dispersion and inner-city abandonment are high. Because metropolitan regions sprawl across such large areas of land, the U.S. has had to build and maintain infrastructure networks that are far more extensive than those of its competitors in the global economy. Acreage in new development has been increasing 86 to 100 times faster than population in Chicago, New York, the D.C.-Baltimore region, Dallas-Fort Worth, Atlanta, San Francisco and other regions. And as development extends outward, existing infrastructure in central cities goes underutilized; since 1950, the metropolitan population of the U.S. has almost doubled, but the population density in its central cities has fallen by half.
An even greater threat to our economic future is the failure of inner-city school systems to adequately educate large numbers of the nation's children. In the highly technical, knowledge-based industries of the future, education is the key to individual and collective success. "America's economic and global primacy depends on the success of the children now being educated in our city schools. They are, after all, the next generation of citizens, workers and voters." Concentrated poverty not only reduces the resources available for education through its drain on a jurisdiction's tax base; it also increases the resources needed (per child) to provide an effective education. Today inner-city schools are often "chaotic and ineffective for all their students."
The educational achievement of public school students in inner cities is well below that of their peers in more affluent communities. The 1992 National Assessment of Educational Progress, for example, indicates that three quarters of fourth graders in disadvantaged urban areas were reading below basic skill levels, and less than 6 percent were rated as proficient or advanced. In more affluent urban school districts, only 18 percent of 4th graders were reading below basic skill levels, and 60 percent were rated as proficient or advanced. Math and science scores showed similar disparities. Yet inner-city students represent a substantial share of tomorrow's workforce -- public school districts of central cities are educating almost one in three American youth.
In addition to the economic costs of concentrated poverty, the polarization of urban communities today is exacting a high social and civic toll. The crime and violence of distressed neighborhoods have made suburbanites increasingly afraid of the central city and its residents. At the same time, the isolation of poor central city residents -- especially poor minorities -- from mainstream institutions and opportunities in the metropolitan area engender alienation and hostility. This widespread breakdown of trust and reciprocity among major segments of society poses a fundamental threat to our cherished democracy. It threatens civic engagement, interferes with communication and collaboration, and undermines the capacity of public and private institutions to solve our common problems. "Some neighborhoods in this nation are so violent and menacing that terms such as community building and shared civic values are meaningless. No community organization can thrive on streets where children murder each other without remorse and where gangs, drugs, and violence have replaced family, work, and the rule of law."
The problems facing urban America today are severe, and their potential consequences are frightening. But these problems are by no means insurmountable. The United States remains a tremendously wealthy nation and the work ethic persists as a fundamental norm, even in the most distressed communities. For example, in central Harlem, where 40 percent of the population is poor, two thirds of all households have at least one full-time worker and 14 people apply for every minimum wage job opening. Moreover, although poverty concentrations and distress may overwhelm some central city jurisdictions, these problems appear less daunting when viewed in the context of whole metropolitan regions. America is not a Third World country where the poor are many and the middle class are few. In America the middle class are many and the poor are few. This country has the capacity to end the isolation of the poor and to address the decline of central cities.
Solutions to the problems confronting metropolitan regions -- as well as the leadership and resources to implement them -- will come primarily from within. Communities are able to generate opportunity and prosperity only to the extent that the people who live there -- acting as parents, as neighbors, as members of civic and religious organization, as citizens -- assume responsibility for their individual and collective welfare. But the federal government must become a more constructive partner to families, businesses, and communities in their efforts to help themselves. The next two chapters provide the details of President Clinton's Community Empowerment Agenda. Chapter 3 describes the Administration's national economic policies to foster sustainable, high-productivity economic growth across metropolitan regions, upon which poor families and poor neighborhoods depend for opportunities. And Chapter 4 outlines the strategic federal investments that reconnect poor people and distressed communities to jobs, helping them share in the nation's expanding economy.
CHAPTER 4: Expanding Access to Opportunities
Our job is to work together to grow the middle class, to shrink the underclass, to expand opportunity and to shrink bureaucracy, to empower people to make the most of their own lives. We can't give any guarantees in this rapidly changing world, but we can give people the capacity to do for themselves. And we must do that -- all of us must do it.
A stable and expanding national economy, though essential to the revitalization of distressed urban communities, is not sufficient. The Clinton Administration's policies to establish fiscal integrity, ensure tax fairness for working families, and open the world to U.S. products are generating national economic growth with low inflation, and creating jobs and economic opportunities for Americans. However, not all Americans are able to take advantage of these expanding opportunities. Too many people and too many neighborhoods are disconnected from economic opportunity -- cut off by the combined barriers of poor education, low skills, distance, discrimination, and work disincentives in the existing system of social supports. We cannot end the isolation of distressed inner-city communities without forceful efforts to lower these barriers and to build bridges that allow families to overcome them.
This chapter describes Clinton Administration initiatives that empower people and communities to overcome the barriers to opportunity that perpetuate the isolation and despair of many inner-city neighborhoods. By re-entering the world of work and responsibility, residents of distressed neighborhoods can rebuild their lives and their communities. And America's cities can regain their historic position as vital centers of innovation, investment and economic progress. As discussed in Chapter 1, the Community Empowerment Agenda encompasses policies that link families to work -- empowering and encouraging them to get jobs and achieve self-sufficiency -- as well as policies that leverage private investment in cities -- rebuilding jobs and opportunities in distressed urban communities. Both types of initiatives are described here. All of these initiatives support solutions that are locally driven, rather than dictated by federal bureaucrats. And all of them affirm and reinforce traditional values of work, family, responsibility, and community.
Some of the Clinton Administration's Community Empowerment initiatives are currently being implemented on a relatively small scale. Nevertheless, they represent critical first steps in the right direction. Others open up new and expanded opportunities for all persons in need. And when government is effective in lifting barriers and eliminating disincentives, the productive energies of individual Americans as well as the private and non-profit sectors can be unleashed at relatively little cost.
Rewarding Work and Making Work Pay
A fundamental tenet of the Clinton Administration is that all Americans must assume responsibility for the well-being of their families and that people who work full-time should be able to lift themselves and their children out of poverty and dependency. Tragically this basic principle seems to have lost its meaning for many Americans today. When people see that working at an entry-level or low-skill job will not lift them out of poverty, they are less likely (and less able) to step onto the first rung of the employment ladder. Instead, they remain disconnected from the economic opportunities that exist around them, dependent upon welfare or on illegal activities.
Even among the vast majority of Americans who work hard and play by the rules, a growing number must struggle to provide for themselves and their families in jobs that do not pay a living wage. Since the early 1970s, the relative wages of lower skilled workers have fallen in real terms. By 1993, 16.2 percent of all full-time, year-round workers earned too little to lift a family of four above the poverty line, and 11.4 percent of families with a working parent nevertheless lived in poverty. In addition to violating our basic sense of justice and fair play, these realities create strong disincentives for people with limited skills or experience to join the labor market. And they make it difficult for people attempting to escape from poverty and dependency to stay in an entry-level job long enough to build their skills and credentials.
The Clinton Administration's strategy for linking poor people to the expanding employment opportunities of the future begins with three key initiatives that make work pay and encourage people to take the first steps out of dependency toward self-sufficiency. The Earned Income Tax Credit and the President's proposed increase in the minimum wage directly increase wages for people at the bottom of the employment ladder. And the Administration's welfare reform proposals would create strong incentives for people to make the transition to the world of work, without creating unreasonable hardships for children and young mothers.
The expansion of the Earned Income Tax Credit in the Omnibus Budget Reconciliation Act of 1993 effectively provides a pay raise for America's working poor. For a family with two children, the Earned Income Tax Credit makes a $4.25-per-hour job pay the equivalent of $6.00 an hour, allowing a full-time worker to lift his or her family out of poverty, and strengthening the incentives for non-working parents to take a low-paying job and assume responsibility for their families' support. The expanded Earned Income Tax Credit now totals about $20 billion per year, a substantial investment which can be expected to draw non-working Americans back into the labor force and encourage low-skill and entry level workers to climb up the opportunity ladder.
Today, fully 2.1 million Americans work at minimum-wage jobs. At $4.25 per hour, the minimum wage will sink to its lowest real value in 40 years if it is not increased in 1996. President Clinton has proposed a 90-cent increase in the minimum wage (to $5.15 per hour) to be implemented over the next two years. In conjunction with the Earned Income Tax Credit, this increase will enable Americans in entry-level and low-skill jobs to better support themselves and their families. And, like the Earned Income Tax Credit, a higher minimum wage creates strong incentives for welfare recipients to rejoin the world of work and responsibility. Although economists differ on the secondary impacts of an increase in the minimum wage, several recent studies indicate that the net effect of a modest increase will benefit American workers (particularly in today's expanding economy) without costing jobs.
The third component of the Clinton Administration's strategy for rewarding work is its commitment to welfare reform, which would further strengthen incentives for poor Americans to make the transition from welfare to self-sufficiency. The current welfare system creates too many unintended disincentives for work. For example, in most states, the Aid to Families with Dependent Children Program (AFDC) imposes more stringent requirements for families with both parents present than for single-parent families. When AFDC recipients go to work, they quickly lose cash benefits, and their automatic receipt of Medicaid health coverage ends after twelve months. Residents of federally assisted housing must absorb rent increases as soon as their incomes rise and may even lose their subsidies long before they have achieved any real measure of stability and security.
Since taking office, President Clinton has vigorously advocated an end to welfare as we know it. He has proposed in its place a system that offers meaningful opportunities for people to move from welfare to work as quickly as possible, providing only temporary benefits to help them make the transition to self-sufficiency. The President's welfare reform principles recognize that these benefits impose an obligation on recipients in return, requiring them to move toward resuming their responsibility for supporting themselves and their families.
The Clinton Administration's welfare reform principles require that people work as a condition of assistance. To help people make the transition from welfare to work, job search and job training would be available for welfare recipients who lack connections to the labor market, and child care would be provided so that mothers could return to the workforce without neglecting their children. People unable to find jobs would perform work assignments in the public, private, and nonprofit sectors in return for their welfare benefits. Welfare reform proposals that do not create meaningful opportunities for work, or that fail to ensure the safety and well-being of dependent children, may appear to save the federal government money in the short-term, but they will not be effective in moving welfare recipients toward lasting self-sufficiency.
In addition, the Clinton Administration's vision for welfare reform strengthens child support enforcement to ensure that noncustodial parents assume responsibility for the financial support of children they bring into the world. Today, less than half of all custodial parents receive any child support, and among mothers who have never married, the rate is dramatically lower -- only 15 percent receive support. Therefore, the Clinton Administration seeks to establish child support awards in all cases where children are born out of wedlock, to ensure that award levels are fair, and to ensure that custodial parents actually collect the awards they are owed.
As part of the Administration's overall approach to welfare reform, the Department of Housing and Urban Development (HUD) has incorporated work incentives into its proposed reinvention of housing assistance programs for very low-income renters. Local housing authorities are authorized to give preference to working families on their waiting lists and to temporarily "disregard" increases in income -- thereby holding rent payments fixed -- when an unemployed resident goes back to work. Moreover, assisted families who do not work will be required to perform at least eight hours of community work per month. These reforms will help reward work and make federal housing assistance a platform from which assisted families can move toward self-sufficiency.
Investing in Education and Training
American workers need to improve and upgrade their skills in order to meet the challenges of today's rapidly changing economy. Fewer and fewer low-skill jobs pay decent wages, making it increasingly difficult to earn a good living without high-level skills. Investments in education prepare Americans for the world of work and help build the skills they need for the jobs of the future. Studies show that each year of post-secondary education or job training -- whenever it occurs in the course of a career -- boosts earning power by 6 to 12 percent on average. Investments in education also pay off for employers. A recent employer survey found that a ten percent increase in worker education is associated with an 8.6 percent increase in productivity -- well over twice the payoff from investments in physical capital. Initiatives that improve the quality of public education and expand training opportunities play a critical role in linking people to jobs, self-sufficiency, and upward mobility.
Federal policy must strengthen the crucial ties between learning and productivity. It is essential that our system of public education equips all our children for work in a highly competitive global economy. Efforts to prepare the nation's workforce for the challenges and opportunities of tomorrow must span the entire educational continuum -- from pre-school to college. Therefore, the Clinton Administration has proposed to increase federal spending on education and training by $40 billion over seven years. And President Clinton's plan for balancing the budget by 2005 sustains his commitment to priority investments in education and training, investments that empower individual Americans to make the most of the economic opportunities of the future and to achieve self-sufficiency and prosperity for their families and communities.
The first prerequisite is that all children start school ready to learn, and the expansion and reform of the Head Start preschool education program passed by the Clinton Administration provides that foundation. But preparing preschoolers to learn will not be effective if their elementary and secondary schools cannot deliver an education for the 21st century. Therefore, the Administration's Goals 2000 Educate America Act, enacted by Congress in 1994, supports state and local efforts to achieve the National Education Goals. This bipartisan Act provides a framework for states to set challenging content and world-class performance standards for what all students should know and be able to do in science, mathematics, history, English, geography, civics, foreign language, and the arts. Under Goals 2000 the responsibility for change in educational systems is properly assigned to states and local communities, which will develop and implement their own plans for achieving the National Education Goals and maximizing student performance.
Many central city schools face special challenges as they attempt to prepare an increasingly diverse student body for the job opportunities of the next century. Nearly 40 percent of the nation's African American children, 32 percent of Latino children, and 36 percent of students with limited English proficiency are being educated in just 47 big-city school systems. Many of these young people emerge poorly prepared for the world of work, as reflected in high rates of functional illiteracy and school dropouts. Therefore, in conjunction with Goals 2000, the Improving America's Schools Act targets funds to raise the educational achievement of children in low-income areas. This Act focuses on ensuring access to a quality education for our most disadvantaged students so that they can learn the basics and achieve challenging academic standards. It promotes proven strategies to improve teaching in more than 50,000 schools and benefits five million children in high poverty areas. States will apply the same high standards for these children as for those in more affluent communities, and it will hold their schools accountable for making progress toward these standards. In addition, the Clinton Administration's increased investment in education includes $20 million for Charter Schools that will eliminate excessive regulations and enhance parental choice, and will condition funding on achieving higher student performance.
Historically, American public education has not done an effective job of assisting most young people with the critical transition from school to work. For the first time, the School-to-Work Opportunities Act addresses this often precipitous leap. This initiative, jointly administered by the Departments of Education and Labor, brings together local partnerships of employers, educators, and others to develop new programs of work-based learning, apprenticeships, and internships. These linkages between learning and work experience are particularly beneficial for students isolated in inner-city schools, and will help prepare all young people for high-skill, high-wage jobs and a life-time of learning.
The Clinton Administration is also committed to helping more of America's high school graduates attend college. In 1994 the Administration proposed and Congress authorized a program of direct college loans that will reduce bureaucracy and make financial assistance more accessible to students of all ages. It will offer a range of repayment options including a "pay-as-you-earn" plan that will enable every American to invest in learning new skills. In addition, the Administration's AmeriCorps national service initiative enables young people to earn money towards a college education by volunteering in such critical community-based institutions as schools, hospitals, neighborhood centers, and parks. For example, Americorps volunteers will work in inner-city schools, mentoring, tutoring, and helping youngsters from poor neighborhoods take advantage of School-to-Work opportunities. In 1995, approximately 20,000 young people are participating in Americorps, and President Clinton has proposed to more than double this number in 1996.
Even after Americans finish school, they must continue to adapt and learn if they are to succeed in today's rapidly changing global economy. Today, job changes are far more common than in the past, and it is normal for workers to hold several jobs in the course of a career. Skill requirements change rapidly, even for workers who stay in the same jobs. Thus, fewer and fewer workers can prosper for twenty or thirty years on the same set of skills they started out with. Today's patchwork of federal job training and placement programs grew up over the course of more than 60 years. Although each element was designed in response to a specific need, the resulting system does not respond effectively to today's challenges. Therefore, President Clinton has proposed to consolidate 70 federal job training programs into a flexible program of grants to individuals and simultaneously to increase total funding levels by $1 billion. The President's proposal would provide individual grants to unemployed, low- and moderate-income workers and job seekers, empowering them to choose the training and education programs that best meet their needs.
Expanding Access to Metropolitan Opportunities
As discussed in Chapter 2, urban Americans today are more likely to find employment in the suburbs of our great metropolises than in the central cities. Many employers may be attracted back to central cities by the availability of investment capital, by the redevelopment of brownfields, and by progress in combatting crime and violence (all discussed further below). But in conjunction with rebuilding employment opportunities in the central cities, federal policy must help establish functional linkages between the people who live in the inner city and expanding opportunities to be found throughout the metropolitan region. Choice is the keynote of this Administration's policy. President Clinton is committed to ensuring that people are not trapped and isolated in predominantly poor neighborhoods for lack of options.
Currently, federal job training programs (funded under the Job Training Partnership Act) are implemented by individual jurisdictions, with strong incentives for placing participants in jobs within the jurisdiction from which they applied for assistance. This limits the ability of central city residents to train for and find jobs in areas where employment opportunities are expanding fastest. As a part of the President's proposed G.I. Bill for America's Workers, a network of One-Stop Career Centers will be created to serve the entire labor market within each local region. These Centers will strengthen connections between employers, schools and colleges, and workers and students throughout the metropolitan area. Good information on what skills are being rewarded with what jobs, what job openings and career opportunities are available, and how effectively schools and colleges deliver education, training and skills will be provided. These One-Stop Career Centers will offer the essential connection to link inner-city residents to available jobs and learning opportunities throughout the entire region.
The Bridges-to-Work initiative, which is scheduled to be implemented as a demonstration beginning in 1996, will test the feasibility and impacts of helping inner-city residents who are unemployed find jobs in suburban areas where employment opportunities are expanding. One component of Bridges-to-Work focuses on the job placement link. In addition, however, workers commuting from the central city to the suburbs face other barriers, especially if -- like almost 60 percent of black residents in high-poverty urban areas -- they do not have access to cars. The Bridges-to-Work initiative will address each of these barriers explicitly, tailoring a program for each participant that forges an effective and lasting linkage to suburban employment. Participating workers will receive assistance with transportation to their suburban jobs and overcoming other impediments, particularly child care.
This initiative, and others like it that are being implemented by individual communities, have the potential not only to link individuals to suburban jobs, enabling them to start the climb out of poverty, but also to revitalize distressed neighborhoods. As participants find jobs and begin to earn higher incomes, they will spend some of it in neighborhood shops and restaurants; they will provide role models for their neighbors; and they will acquire information on suburban employment centers that may enable their neighbors to find jobs as well. Thus, individual linkages between unemployed central city residents and suburban employers have the potential to replenish the resources of inner-city neighborhoods and to forge more extensive connections between distressed neighborhoods and the metropolitan labor market as a whole. Moreover, the organizations that provide these bridges to suburban employment opportunities must be firmly grounded in the inner-city communities that they serve.
For some poor families, the most promising path toward self-sufficiency is to move from distressed, high-poverty neighborhoods to areas that offer better educational and employment opportunities. "In the United States, residential location helps define opportunity... School quality, personal safety, and job access all tend to increase as neighborhood income rises, at least from poverty levels to the middle-income range." Evidence has shown that -- with proper assistance -- the opportunity to move to a lower poverty neighborhood can lead to economic independence for poor families. For example, young people whose families moved to the suburbs were more likely than their central city counterparts to stay in high school, choose college track courses, attend college, find jobs, and earn more than the minimum wage.
The first step in ensuring all Americans free and fair choice about where to live is to aggressively attack housing discrimination. As discussed in Chapter 2, the persistence of discrimination in urban housing markets discourages many minority families from moving to neighborhoods of their choice. The Clinton Administration is vigorously attacking discrimination against minority families by aggressively enforcing federal fair housing laws. Support for non-profit organizations and state and local agencies that help enforce fair housing laws has increased three-fold, and HUD offices across the country have been reorganized to accept and investigate fair housing complaints more effectively.
The federal government has a special responsibility to ensure that free and fair housing choice is a reality for families who receive subsidized housing. Historically, federal housing assistance for the poor has provided subsidies for the construction of housing projects -- including both public housing and privately owned subsidized projects. Most of these projects provide high quality, affordable housing and are an asset to their communities. But in too many cases, subsidized housing has been inappropriately sited, badly constructed, and poorly managed. Large projects in poor neighborhoods have often exacerbated racial segregation, contributed to the concentration of poverty, and blighted their surroundings. Nevertheless, housing needs among poor renters are so severe that the waiting lists for these projects are often several years long.
In its Reinvention Blueprint, HUD proposes to transform its low-rent housing programs so that they provide subsidies to people rather than to projects. The current system of project-based subsidies provides public housing agencies and private housing providers with guaranteed capital and operating subsidies, and relies on complex rules and regulations to manage their performance. Under the new system, families will be empowered to decide for themselves whether the projects in which they currently live offer the opportunities they need.
Existing projects for which there is little or no demand will be demolished if they cannot be modernized cost-effectively. But most of today's public and assisted housing projects will remain in use, providing low- and moderate-income families with modest housing at affordable rents. As current residents -- almost all of whom have very low incomes -- exercise their option to move, affordable housing will become available for moderate-income families, who are not eligible for federal subsidies but nevertheless need modestly priced housing. The ultimate result will be greater income diversity in projects that are currently occupied almost exclusively by the poor. Thus, by opening up opportunities for very low-income families to move away from high-poverty developments, HUD's reinvention also promises to bring working families back to distressed urban neighborhoods.
HUD's proposed Housing Certificate Fund (HCF), which builds upon the existing Section 8 Certificate and Voucher programs, will empower assisted families to choose moderately priced housing in the locations that offer them opportunities for upward social and economic mobility. Tenant-based assistance of this kind is less likely than project-based programs to concentrate needy households in high-poverty neighborhoods. Data collected by the General Accounting Office (GAO) for four metropolitan areas indicate that fewer than 10 percent of Section 8 recipients live in high poverty neighborhoods (where more than 30 percent of residents are poor), compared with 44 percent of public housing residents. Moreover, recent experience indicates that tenant-based housing assistance can be effectively supplemented by landlord outreach and housing search assistance to expand opportunities for choice and mobility.
The Housing Certificate Fund will not require assisted families to move and will not limit their neighborhood choices. However, public housing agencies (PHAs) will have an affirmative obligation to reach out to property owners and to assist families in searching for rental housing throughout their market area. And HCF will create strong incentives for PHAs throughout a metropolitan housing market to collaborate in making the widest possible range of opportunities available to certificate holders. In addition, HCF will eliminate burdensome requirements that have discouraged some landlords from participating in the existing Section 8 program. Specifically, HCF does away with the "take one, take all" rule and the prohibition against lease terminations for other than good cause. Moreover, HCF families who are evicted for serious lease violations will lose their eligibility for assistance, creating a strong incentive for responsible behavior by program beneficiaries.
HUD's reinvention of federal housing programs is already changing the landscape of distressed central city neighborhoods. Over the past two years, HUD has been working to transform some of the nation's most severely distressed public housing projects. In recent months, projects in New Orleans, Philadelphia, and other cities that were blighting neighborhoods and the lives of children have been demolished. Other projects are undergoing comprehensive revitalization through the HOPE VI program, which provides both flexibility and funding for local strategies that combine "bricks and mortar" improvements with community-based employment training and job creation, as well as social and community investments. The goal of these revitalization strategies is to transform public housing projects into communities of opportunity, where residents receive the shelter and support they need to move forward with their lives.
In Charlotte, North Carolina, the local housing authority is undertaking the comprehensive transformation of the 409-unit Earle Village project, where only one-quarter of the households have any earned income, the average family income is under $6,000, and more than half the population is under 18 years of age. The plan for Earle Village includes a significant reduction in density; a total of 164 units will be demolished, to be replaced with new construction elsewhere in the city, including scattered site developments. Seventy-five units will be made available for purchase by first-time homebuyers, drawing working-class families into the community and encouraging existing residents to strive toward homeownership. Thus, the Earle Village transformation will convert a blighted public housing project into an asset to its community even as it expands residents' opportunities for mobility and choice.
Ensuring Access to Financial Capital
Central cities throughout the United States need to create conditions conducive to private sector business development and job creation. And central city residents need more job opportunities in order to rejoin the world of work and responsibility. As discussed in Chapter 2, the high density of central city business districts can offer important competitive advantages for the knowledge-based businesses that will fuel the future economic health of whole metropolitan regions. Moreover, inner cities can capitalize on their regions' unique clusters of inter-related companies that compete nationally and even globally. These competitive clusters create opportunities for the formation of new businesses that deliver specialized supplies, components, and support services. Finally, inner-city consumers -- who are woefully underserved -- represent an immediate market for entrepreneurs and new businesses. Public policies must help create conditions that enable and encourage private businesses to take advantage of the unique opportunities cities offer, and to bring investment and jobs back to central city neighborhoods.
One of the most critical impediments to business creation and job growth in central city areas is the lack of private investment capital. The federal government can help cities realize their competitive advantage by improving their access to capital. Therefore, the Clinton Administration has placed high priority on initiatives that attract private capital back to our central cities, where it can fuel the expansion of economic opportunities that directly benefit distressed communities and their residents.
The Administration's Community Development Banks and Financial Institutions Act, which Congress enacted in 1994, will create a network of community development banks whose primary mission is to lend, invest, and provide basic banking services in low- and moderate-income communities. This initiative will encourage the private sector to extend capital to neighborhoods that have long been underserved. The President's 1996 budget proposes $144 million in funding for these community-based institutions. By catalyzing matching investments from local community development agencies and the private financial sector, this new funding can leverage several billion dollars in capital per year to build a nation-wide network of self-sustaining local community development financial institutions. These intermediaries will, in turn, issue more than ten times this amount in loans to entrepreneurs, growing businesses, homebuyers, and community redevelopment projects. Equally important, these local financial intermediaries will connect communities to mainstream financial sources and unleash the private sector to help rebuild communities that want to help themselves.
With its new implementing regulations, the Community Reinvestment Act (CRA) will further expand access to private credit in distressed urban communities. The purpose of CRA is simple -- to extend credit where credit is due, by encouraging lending institutions to serve the needs of credit-worthy borrowers in the communities where they are located. Federal regulators have rewritten the regulations that implement CRA to reduce regulatory burden, increase access to credit, and advance economic development. Under the new regulations, banks will be judged on performance -- actual lending, investments and basic banking services -- rather than paperwork. This reform is expected to unleash billions in new credit to distressed urban communities.
In many cities, abandoned, environmentally contaminated industrial sites called "brownfields" represent another severe impediment to private sector investment and economic revitalization. These sites, which cannot be redeveloped without significant environmental cleanup, often pose so much financial risk and uncertainty that they remain unused, blighting the surrounding community. The Comprehensive Environmental Response, Compensation, and Liability Act -- known as CERCLA or the Superfund law -- holds all current and past owners of contaminated sites, as well as governments and lenders who hold liens on the property, potentially liable for the cost of cleaning up environmental hazards. Many financial institutions are no longer willing to assume the potential liability that comes with financing a project on a previously contaminated site. As a result, older industrial sites often stand vacant, robbing cities of potential jobs and tax revenues, and blighting the surrounding neighborhoods.
Increasingly, federal, state, and local agencies are recognizing this as a serious economic development issue, as well as an environmental health issue. The General Accounting Office estimates that between 130,000 and 425,000 sites throughout the nation contain some contamination. For example:
The state of Illinois has estimated that it has 5,000 abandoned or inactive sites within its boundaries, with as much as 18 percent of Chicago's potential industrial acreage unused.
A study of Union County, New Jersey, identified 185 contaminated sites amounting to 2,500 acres.
Pennsylvania's Monongahela Valley contains hundreds of acres of land filled with vacant steel mills and other manufacturing facilities.
The Environmental Protection Agency (EPA) recently launched a Brownfields Redevelopment Program that will demonstrate ways to return unproductive and abandoned urban sites to productive use. As part of this initiative, 25,000 sites that no longer pose environmental hazards have been removed from the Superfund inventory. In addition, EPA is working actively with local governments and the private sector -- clarifying liability issues, streamlining review and decision procedures, and developing cleanup methods -- to address barriers to private sector reinvestment in and redevelopment of contaminated sites. And finally, EPA is providing up to $200,000 for each of 50 local brownfields redevelopment projects. With this money, cities will be able to conduct the extensive planning and analysis necessary to develop economic development strategies that will work locally. They will also receive direct assistance from the federal government in overcoming regulatory barriers to investment and risk-taking.
In conjunction with its efforts to return private financial capital to distressed central city communities, the Clinton Administration is targeting federal resources to place-based initiatives that will catalyze private investment. These economic development efforts leverage private capital and create conditions that foster private-sector job creation and business formation:
o The Economic Development Administration (EDA) works in partnership with states, local governments, and private and public nonprofit organizations to promote long-term recovery in economically distressed communities. EDA helps fund community initiatives and infrastructure investments that generate jobs and support commercial and industrial growth. Many urban communities use EDA grants and loans to stimulate community-based revitalization. For example, Los Angeles County is now implementing a defense adjustment strategy -- developed with grant funds from EDA and the Department of Defense -- which brings together the resources of the private sector, the academic and research communities, and the public sector to plan for job retention and job growth. Increasingly, EDA is reforming its programs to take advantage of local public and private intermediaries and to capitalize revolving loan funds, which leverage private resources and subject economic development investments to the discipline of the marketplace. EDA's Competitive Communities Initiative will support local strategies for bringing high-growth, globally competitive businesses to distressed inner-city communities.
o The Federal Transit Administration's Liveable Communities Initiative strengthens the link between transit and the communities it serves. It recognizes that transit programs can be instrumental in shaping the nature of community development and are important tools for enhancing the vitality of urban neighborhoods. This initiative provides cities with the flexibility to use FTA Capital funds for transit-oriented initiatives that have not traditionally been considered eligible, such as day-care centers adjacent to transit facilities.
o Low-income communities often lack the depth of entrepreneurial experience and financial expertise needed for small businesses to grow and flourish. The Small Business Administration (SBA) is addressing this problem by establishing One-Stop Capital Shops that provide business and technical support, as well as assistance in obtaining capital for new and existing businesses.
The Community Opportunity Fund, which is budgeted to receive $4.8 billion in 1996, is further evidence of the Clinton Administration's commitment to providing flexible federal resources for community development investments that benefit low- and moderate-income people. It consolidates a wide range of existing program activities and initiatives into two basic components: the Community Development Block Grant (CDBG) component and a new performance bonus pool for job creation initiatives. This consolidation builds upon the successes of the existing CDBG program, with a heightened emphasis on economic empowerment, job creation and brownfields redevelopment. The $250 million performance bonus pool will be used to award competitive grants for job creation and brownfields reuse projects too large to be funded from the community's regular formula allocation.
President Clinton recognizes that the greatest potential for economic growth in this country lies in the underdeveloped economies of disadvantaged communities -- communities where the free enterprise system too often does not now reach. In an effort to tap the human and economic potential of these areas, and build upon other initiatives to revitalize inner city credit markets and stimulate job creation, the President has asked Vice President Gore "to develop a proposal to use the federal contracting system to support businesses that locate themselves in these distressed areas or hire a large percentage of their workers from these areas." This initiative will ultimately make the federal government's procurement system a source of jobs and economic opportunity for distressed, inner city communities.
Expanding Homeownership Opportunity
Families who save and are prepared to invest in their communities should be able to achieve the American dream of homeownership. For most Americans, homeownership provides a pathway to wealth accumulation and long-term economic security. In fact, home equity accounts for more than half of the average American homeowner's net wealth. Thus, access to homeownership represents an important link to longer term economic opportunity. Homeowners also have both a financial and emotional stake in the future of their communities, which encourages them to maintain their housing, collaborate with their neighbors, participate in community organizations, and promote the security and vitality of their neighborhoods.
Today, however, the dream of homeownership is out of reach for many American families, especially minorities and those who are self-employed, have modest incomes, or live in inner cities. For example, among married couples aged 35 to 44 who have children, only 52 percent of those with incomes under $20,000 are homeowners, compared to 94 percent of those whose incomes exceed $80,000. And at every income level, minorities have significantly lower rates of homeownership than whites. During the 1980s, the national homeownership rate fell from a historic high of 65.6 percent in 1980 to 64.2 percent in the first quarter of 1995. Although this decline may appear modest in percentage terms, it represents 1.4 million renters who otherwise would have become homeowners. Moreover, the drop in the rate of homeownership was even more precipitous for young families, lower income people, and minorities.
To reverse this trend, President Clinton directed HUD Secretary Henry G. Cisneros to work with leaders in the housing industry, representatives of nonprofit organizations, and officials at all levels of government to develop a National Homeownership Strategy that combines private and public sector resources and commitments to expand homeownership opportunities for populations and communities too often excluded from the American Dream. The strategy -- which was announced by the President in June, 1995 -- includes initiatives to cut the costs of homeownership, including financing, production, and transactions costs. It will increase choice and remove barriers to homeownership for all Americans. And it will raise public awareness and knowledge about available homeownership opportunities. The goal of the National Homeownership Strategy is to raise the national homeownership rate to an all-time high of 67.5 percent by the year 2000, creating as many as 8 million additional homeowners.
The commitment to expanded homeownership opportunity has revitalized the Federal Housing Administration (FHA). Today, FHA is back in business as a major supporter of homeownership for working families. In 1993 and 1994, FHA insured nearly 2.3 million single-family home loans, a half million more than in any previous year in its 60-year history -- and 36 percent of those loans were for first-time buyers. FHA's 203(k) rehabilitation mortgage loan insurance program, recently simplified by the Clinton Administration, has the potential to be a particularly valuable tool for bringing homeownership back to older urban neighborhoods. Under this program, a family can roll the costs of buying and fixing up an existing home into a single first mortgage. The 203(k) program was created 34 years ago, but it was so complicated that very few lenders or borrowers used it. Today, investors and homebuyers -- including many first-time buyers -- are using 203(k) loans to rehabilitate older homes and revitalize neighborhoods.
FHA is working substantially better today than it has in the recent past. Nevertheless, after 61 years, it needs a major overhaul. FHA is a Fortune 100-size insurance company with a $380 billion portfolio. But instead of operating like the insurance company it is, it works like a lumbering bureaucracy. Its procedures are cumbersome and its ability to adjust to changing market conditions is severely constrained by statutes, rules and regulations. HUD's Reinvention Blueprint proposes to transform FHA into a government corporation that would adopt the best practices of private mortgage insurance companies and work more effectively with localities, states, and the private market to expand affordable housing and homeownership. This new corporation will work more closely with communities and the private sector to increase the flow of mortgage capital to low- and moderate-income families in underserved communities.
The federal government also has a vital role to play in ensuring that qualified families are not excluded from homeownership opportunities by illegal discrimination. Recent data on mortgage lending patterns indicate that blacks are twice as likely to be denied a mortgage loan as whites at the same income levels, and that loan officers more readily assist white applicants in correcting flaws in their credit reports. The Clinton Administration has formed an Interagency Task Force on Fair Lending to combat discrimination in home mortgage lending. The ten federal agencies with responsibilities for fair lending have agreed upon a consistent set of policies that will apply to all private lenders. This agreement brings the full weight of the federal government to bear to ensure fair lending for all Americans.
In conjunction with its enhanced fair lending enforcement efforts, HUD is reaching out to the real estate and mortgage lending industry to adopt voluntary "best practices" accords and compliance agreements. Through these agreements, HUD seeks to develop a "best efforts" standard with individual companies. The accords spell out practices that affirmatively promote access to housing opportunities for low-income and minority renters and would-be homebuyers. An historic best practices agreement has been signed with the Mortgage Bankers Association of America, and this umbrella agreement has led to individual accords with several of the nation's largest mortgage companies.
Historically, housing finance markets have failed to adequately serve lower income and minority neighborhoods. Lack of capital for home purchases and renovations can contribute to a downward spiral of neighborhood disinvestment and distress. Aggressive enforcement of federal laws prohibiting lending discrimination constitutes a critical first step in reversing neighborhood disinvestment. But fair lending enforcement alone is not enough. Lower income whites, as well as minorities, need better access to housing finance. The Clinton Administration is committed to expanding the flow of mortgage financing to qualified borrowers in underserved neighborhoods. In accordance with oversight authority granted under the Federal Housing Enterprises Financial Safety and Soundness Act, HUD has established performance goals for 1993 and 1994 for Fannie Mae and Freddie Mac, the two Government-sponsored enterprises (GSEs) that provide secondary market resources to the private housing finance sector. In 1994 the GSEs increased their purchases of mortgages on homes for low- and moderate income families by 489,000 loans over 1992. Significant improvements were also shown in GSE mortgage purchasing performance with regard to very low-income families, low-income families in low-income areas, and properties located in central cities.
Finally, in order to extend homeownership opportunity to families who could not otherwise afford it, HUD's proposed new Affordable Housing Fund establishes a loan guarantee authority that would give states and localities an additional source of financing for large-scale development of affordable homes. Moreover, HUD will allow very-low income families to use tenant-based housing assistance to make the transition from renting to first-time homeownership. This empowers families already receiving rental assistance to "graduate" to assisted homeownership as their incomes rise, creating a powerful incentive for responsible behavior and progress toward economic self-sufficiency. It reflects the Clinton Administration's fundamental reorientation of social welfare policy toward initiatives that help people gain access to upward mobility opportunities, rather than requiring them to remain poor in order to get help.
Freedom from Fear
Crime and violence are terrorizing many of America's urban neighborhoods and commercial districts, destroying the lives of families and young people and robbing their communities of any chance for reinvestment and revitalization. Businesses and homeowners cannot be expected to risk their capital or their futures in neighborhoods where drug dealers are doing business on street corners, gangs control community spaces, and random gunshots keep residents living in fear. Moreover, in neighborhoods where few other opportunities are evident, drugs and gangs may appear to young people to offer the best route to economic advancement, luring them into criminal activities that further isolate them from mainstream opportunities.
To address the crisis of violent crime in America, President Clinton introduced, and Congress passed, the Violent Crime Control and Enforcement Act of 1994. This legislation -- along with the Brady Bill -- launched an aggressive strategy for combatting violent crime and drug dealing and for restoring hope to urban neighborhoods. The 1994 Crime Act imposes tougher penalties for violent crime and provides funding to build more prison space so that violent, career criminals can be incarcerated. A critical element of the Clinton Administration strategy is to keep guns out of the hands of criminals. In 1993 Congress passed the Brady Bill to require a 5-day waiting period and background check for prospective handgun buyers. The 1994 legislation adds a ban on the 19 deadliest assault weapons, the weapons of choice for drug dealers and gangs.
Under the guidance of the Attorney General, the Department of Justice is undertaking a National Anti-Violent Crime Initiative to establish partnerships with state and local law enforcement authorities in order to target the most severe local violent crime problems. Each United States Attorney has organized and met with coordinating groups of local law enforcement officials to plan violent crime enforcement efforts on a community-by-community basis. The U.S. Attorneys work with local officials, police departments, and prosecutors to determine which areas of enforcement should be federal priorities and which should be attacked primarily by local law enforcement. This initiative recognizes that local authorities not only play the lead role in confronting violent crime, but that they deserve the support and assistance of federal law enforcement in this difficult task.
Putting 100,000 community police on the streets is a cornerstone of the Clinton Administration's fight against crime and violence. Community policing recognizes the importance of communication and cooperation between citizens and police in efforts to control crime, maintain order, and improve the quality of life in urban communities. Police officers build crime fighting partnerships with neighborhood residents, schools, churches, and members of the business community to jointly solve crime problems, prevent crime and social disorder, and restore safety and stability to distressed communities. When community policing is practiced effectively, the community becomes an active partner with law enforcement in defining problems to be addressed, tactics to be used, and indicators of success. By addressing underlying conditions which contribute to crime, community policing can significantly reduce crime and maintain public safety. Community policing has important implications for other public and private agencies as well. The philosophy and implementation of community policing extends into the economic revitalization of communities, fostering a partnership between citizens, businesses, and public officials. Community policing creates linkages among governmental resources, empowering communities to enhance not only their safety and security, but their economic vitality as well.
The Office of Community Oriented Policing Services (COPS) was created by the Attorney General to implement community policing strategies. COPS has already provided funding for over 20,000 community police offers in more than 8,000 cities. In addition, COPS has encouraged urban police departments to reexamine their operational strategies and rethink the deployment of crime fighting resources to effectively improve the delivery of services to the urban communities that are most affected by crime.
Unfortunately, many of the individuals involved in urban crime and violence are young people. Although overall crime rates have been dropping, the incidence of youth crime -- including violent crime -- has risen. Therefore, the 1994 Crime Act sends a strong message to young criminals: it bans handguns for juveniles, imposes stiff penalties for gang members who commit crimes, and establishes Boot Camps and Drug Courts to discipline first-time offenders. At the same time, it invests in prevention programs that target at-risk youth (especially in distressed neighborhoods), offering them positive alternatives to criminal activities.
The Clinton Administration's efforts to combat violent crime and drug dealing combine law enforcement with prevention and community revitalization efforts. For example, the Safe and Drug Free Schools and Communities Act responds to the continuing crisis of drugs and violence in our schools by supporting comprehensive school- and community-based drug abuse and violence prevention programs. And the Administration has expanded interagency initiatives to combat crime and revitalize communities through the combination of enhanced law enforcement and community policing on the one hand, and prevention, treatment, and neighborhood restoration on the other. These anticrime initiatives are critical components of the Clinton Administration's overall effort to promote work and responsibility and to rebuild economic opportunities in distressed neighborhoods.
Empowerment Zones and Enterprise Communities
For the nation's most severely distressed urban communities, President Clinton's Empowerment Zones (EZ) and Enterprise Communities (EC) Program will help rebuild all of the linkages encompassed by the Community Empowerment Agenda. The EZ/EC initiative provides the tools communities need to bring private capital back to the central city, create jobs within distressed neighborhoods, invest in education and training, and link residents to economic opportunities throughout the metropolitan region.
This initiative, enacted in 1993, targets an estimated $2.5 billion in tax incentives and $1.3 billion in flexible grants to 105 severely distressed urban and rural areas over ten years. Urban Empowerment Zones (EZs) are receiving $100 million each in flexible block grant funding that can be applied to a broad range of activities, including social services and physical improvements. To encourage hiring, businesses located in these zones receive a tax credit of up to $3,000 annually per employee to offset the higher costs of wages and training for zone residents. Zone businesses also receive "expensing" tax credits for investments in qualified zone properties and access to tax exempt facility bond financing. Areas designated as urban Enterprise Communities (ECs) have been awarded $2.95 million in flexible block grant funds and tax-exempt facility bond financing. In addition to these resources, all of the EZs and ECs are receiving priority consideration for existing federal programs and special assistance from the President's Community Empowerment Board in removing bureaucratic red tape and regulatory barriers that prevent innovative uses of existing federal funds.
In order to be designated as an EZ or EC, communities developed strategic plans for revitalization with input from a wide range of partners, including community residents, state and local agencies, and the private and non-profit sectors. The public-private partnerships created by the EZ/EC planning process leveraged substantial additional investment. In Baltimore, $8 in outside resources were pledged for every $1 of federal funds, including a commitment by seven area foundations to commit 1 percent of their assets for the next five years to the EZ. In Detroit, more than $2 billion in private-sector commitments were pledged. And the Detroit EZ has already begun to spur new business activity. The Chrysler Corporation recently announced that it will invest $750 million in a new engine plant and General Motors announced plans to invest $200 million to expand and improve an existing assembly plant in the zone.
The EZ/EC planning process generated strategies for change that combine innovative economic development initiatives with essential human capital and community building investments. Most EZ/EC revitalization plans combine job creation, job training and linkages for community residents, physical redevelopment, community policing, and social services into a coherent package that promises to rebuild civic infrastructure. For example, both the Baltimore and Atlanta EZs are opening Village Centers that will serve as the distribution point for human services and as the ongoing vehicle for involvement of neighborhood residents in zone decision making.
Communities are using the EZ/EC program's targeted resources to build on their unique competitive advantages. For example, in New York City the strategic plan envisions a Harlem International Trade Center that will "expand markets for existing entrepreneurs and create new businesses capable of capitalizing on the cultural and multi-ethnic character of the EZ and its economic linkages with nations in Africa, the Caribbean, and Central and South America." New York City's strategy also exploits an excess supply of land and office space, and emphasizes job creation through expansion of existing small businesses and the creation of new community-based enterprises.
The Clinton Administration's EZ/EC initiative differs fundamentally from previous proposals for "enterprise zones," which relied almost exclusively on geographically targeted tax incentives to create jobs and business opportunities in distressed communities. The EZ/EC program combines federal tax incentives with direct funding for physical improvements and social services, and requires unprecedented levels of private sector investment as well as participation by community organizations and residents. This collaborative strategic planning and co-investment exemplifies the federal government's emerging role as a catalyst for local change, and exemplifies the larger principles of President Clinton's Community Empowerment Agenda:
We need to do more to help disadvantaged people and distressed communities... There are places in our country where the free enterprise system simply doesn't reach. It simply isn't working to provide jobs and opportunity... I believe the government must become a better partner for people in places ... that are caught in a cycle of poverty. And I believe we have to find ways to get the private sector to assume their rightful role as a driver of economic growth.
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