[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]





                      REVIEW OF THE CURRENT STATUS

                        OF EMPOWERMENT ZONES AND

                          RENEWAL COMMUNITIES

=======================================================================

                                HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON
                   HOUSING AND COMMUNITY OPPORTUNITY

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                      ONE HUNDRED SEVENTH CONGRESS

                             SECOND SESSION

                               __________

                             APRIL 10, 2002

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 107-65


79-318              U.S. GOVERNMENT PRINTING OFFICE
                            WASHINGTON : 2002
____________________________________________________________________________
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                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                    MICHAEL G. OXLEY, Ohio, Chairman

JAMES A. LEACH, Iowa                 JOHN J. LaFALCE, New York
MARGE ROUKEMA, New Jersey, Vice      BARNEY FRANK, Massachusetts
    Chair                            PAUL E. KANJORSKI, Pennsylvania
DOUG BEREUTER, Nebraska              MAXINE WATERS, California
RICHARD H. BAKER, Louisiana          CAROLYN B. MALONEY, New York
SPENCER BACHUS, Alabama              LUIS V. GUTIERREZ, Illinois
MICHAEL N. CASTLE, Delaware          NYDIA M. VELAZQUEZ, New York
PETER T. KING, New York              MELVIN L. WATT, North Carolina
EDWARD R. ROYCE, California          GARY L. ACKERMAN, New York
FRANK D. LUCAS, Oklahoma             KEN BENTSEN, Texas
ROBERT W. NEY, Ohio                  JAMES H. MALONEY, Connecticut
BOB BARR, Georgia                    DARLENE HOOLEY, Oregon
SUE W. KELLY, New York               JULIA CARSON, Indiana
RON PAUL, Texas                      BRAD SHERMAN, California
PAUL E. GILLMOR, Ohio                MAX SANDLIN, Texas
CHRISTOPHER COX, California          GREGORY W. MEEKS, New York
DAVE WELDON, Florida                 BARBARA LEE, California
JIM RYUN, Kansas                     FRANK MASCARA, Pennsylvania
BOB RILEY, Alabama                   JAY INSLEE, Washington
STEVEN C. LaTOURETTE, Ohio           JANICE D. SCHAKOWSKY, Illinois
DONALD A. MANZULLO, Illinois         DENNIS MOORE, Kansas
WALTER B. JONES, North Carolina      CHARLES A. GONZALEZ, Texas
DOUG OSE, California                 STEPHANIE TUBBS JONES, Ohio
JUDY BIGGERT, Illinois               MICHAEL E. CAPUANO, Massachusetts
MARK GREEN, Wisconsin                HAROLD E. FORD Jr., Tennessee
PATRICK J. TOOMEY, Pennsylvania      RUBEN HINOJOSA, Texas
CHRISTOPHER SHAYS, Connecticut       KEN LUCAS, Kentucky
JOHN B. SHADEGG, Arizona             RONNIE SHOWS, Mississippi
VITO FOSSELLA, New York              JOSEPH CROWLEY, New York
GARY G. MILLER, California           WILLIAM LACY CLAY, Missouri
ERIC CANTOR, Virginia                STEVE ISRAEL, New York
FELIX J. GRUCCI, Jr., New York       MIKE ROSS, Arizona
MELISSA A. HART, Pennsylvania         
SHELLEY MOORE CAPITO, West Virginia  BERNARD SANDERS, Vermont
MIKE FERGUSON, New Jersey
MIKE ROGERS, Michigan
PATRICK J. TIBERI, Ohio

             Terry Haines, Chief Counsel and Staff Director

           Subcommittee on Housing and Community Opportunity

                    MARGE ROUKEMA, New Jersey, Chair

MARK GREEN, Wisconsin, Vice          BARNEY FRANK, Massachusetts
    Chairman                         NYDIA M. VELAZQUEZ, New York
DOUG BEREUTER, Nebraska              JULIA CARSON, Indiana
SPENCER BACHUS, Alabama              BARBARA LEE, California
PETER T. KING, New York              JANICE D. SCHAKOWSKY, Illinois
ROBERT W. NEY, Ohio                  STEPHANIE TUBBS JONES, Ohio
BOB BARR, Georgia                    MICHAEL E. CAPUANO, Massachusetts
SUE W. KELLY, New York               MAXINE WATERS, California
BOB RILEY, Alabama                   BERNARD SANDERS, Vermont
GARY G. MILLER, California           MELVIN L. WATT, North Carolina
ERIC CANTOR, Virginia                WILLIAM LACY CLAY, Missouri
FELIX J. GRUCCI, Jr, New York        STEVE ISRAEL, New York
MIKE ROGERS, Michigan
PATRICK J. TIBERI, Ohio


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    April 10, 2002...............................................     1
Appendix:
    April 10, 2002...............................................    35

                               WITNESSES
                       Wednesday, April 10, 2002

Capito, Hon. Shelley Moore, U.S. Representative from the State of 
  West Virginia..................................................     3
LoBiondo, Hon. Frank, U.S. Representative from the State of New 
  Jersey.........................................................     4
Strickland, Hon. Ted, U.S. Representative from the State of Ohio.     6
Bernardi, Hon. Roy, Assistant Secretary, Office of Community 
  Planning and Development, U.S. Department of Housing and Urban 
  Development....................................................    12
Bradshaw, Damron, Chairman, Upper Kanawha Valley Enterprose 
  Community, West Virginia.......................................    30
Burns, Cathy, Executive Director, Huntington, West Virginia/
  Ironton, Ohio Empowerment Zone.................................    32
Carper, Hon. W. Kent, Kanawha County Commissioner, West Virginia.    31
Sauro, Hon. James, Freeholder Director, Cumberland County, New 
  Jersey.........................................................    26
Velazquez, Hon. Gerard, III, Executive Director, Cumberland 
  County 
  Empowerment Zone...............................................    28

                                APPENDIX

Prepared statements:
    Roukema, Hon. Marge..........................................    36
    Oxley, Hon. Michael G........................................    38
    Capito, Hon. Shelley Moore...................................    40
    Carson, Hon. Julia...........................................    42
    Israel, Hon. Steve...........................................    44
    LaFalce, Hon. John J.........................................    45
    LoBiondo, Hon. Frank A.......................................    48
    Rahall, Hon. Nick J. II......................................    55
    Strickland, Hon. Ted.........................................    57
    Bernardi, Hon. Roy...........................................    59
    Bradshaw, Damron.............................................    63
    Burns, Cathy.................................................    66
    Carper, Hon. W. Kent.........................................    72
    Sauro, Hon. James............................................    73
    Velazquez, Hon. Gerard, III..................................    77

              Additional Material Submitted for the Record

Miller, Hon. Gary G.:
    Hon. Amo Houghton, Hon. Jack Quinn, Hon. Thomas Reynolds, 
      joint statement............................................    81
Columbus Compact Corporation President and CEO Jonathan C. Beard, 
  prepared statement.............................................    87

 
                      REVIEW OF THE CURRENT STATUS

                        OF EMPOWERMENT ZONES AND

                          RENEWAL COMMUNITIES

                              ----------                              


                       WEDNESDAY, APRIL 10, 2002

             U.S. House of Representatives,
                       Subcommittee on Housing and 
                              Community Opportunity
                           Committee on Financial Services,
                                                   Washington, D.C.
    The subcommittee met, pursuant to call, at 2:10 p.m. in 
room 2128, Rayburn House Office Building, Hon. Gary G. Miller, 
of the subcommittee, presiding.
    Present: Acting Chairman Miller; Representatives Kelly, 
Capito, Grucci, Tiberi, Jones, Capuano, Clay, and Israel.
    Mr. Miller. Without objection, we'll go ahead and start the 
hearing today. Today the Subcommittee on Housing and Community 
Opportunity meets to review the Empowerment Zone/Enterprise 
Community program.
    In 1993, the 103rd Congress set in motion a major economic 
development initiative designed to revitalize deteriorating 
urban and rural communities by enacting the Omnibus Budget 
Reconciliation Act of 1993, OBRA 1993, which established the 
Empowerment Zone/Enterprise Communities (EZ/EC) program. The 
EZ/EC program targets Federal grants for social services and 
community redevelopment and provides tax and regulatory relief 
intended to attract and retain businesses in designated areas.
    Federal funding for EZs and ECs is made available through 
the Title XX Social Service Block Grant (SSBG) program. As with 
other SSBG funds, those allotted for the EZ/EC program are 
granted by the Department of Health and Human Services (HHS) to 
the States that are fiscally responsible for these funds. The 
authorizing legislation provides for a one-time appropriation 
of $1 billion for HHS to be made available to SSBG funds over a 
10-year life of the program, thus ensuring the Round I 
designated areas would not be dependent on annual 
appropriations, as is typically the case.
    The program originally consisted of six urban and three 
rural areas designated as empowerment zones (EZs). An 
additional 60 urban and 30 rural areas were designated 
Enterprise Communities (ECs) which receive a smaller package of 
Federal incentives.
    Each urban EZ was allocated $100 million and each rural EZ 
was allocated $40 million in SSBG funds over use for a 10-year 
period. All of the urban and rural ECs were allocated just 
under $3 million in SSBG funds. In 1997, Congress added 
Cleveland and Los Angeles as empowerment zones and designated 
them for purposes of funding as part of the Round I EZ.
    In 1997, Congress created Round II of the EZ/EC program 
authorizing the designation of 20 additional EZs, 15 urban and 
5 rural. Round II EZs were given a different mix of tax 
incentives, and unlike the Round I EZs, the enabling 
legislation for Round II zones did not include SSBG funding. 
Businesses in the Round II EZs are eligible for more generous 
tax-exempt financing benefits than those in Round I EZs. Round 
II EZs are also eligible to designate up to 2,000 acres of 
underutilized developable property outside the normal zone area 
which it can receive zone benefits and can be used for job 
creation for zone residents. For example, Indian tribes with 
poverty areas also qualify to apply for and receive 
designation.
    The TRA of 1997 did not appropriate SSBG funds as had been 
available in Round I EZs and ECs. For fiscal year 1999 through 
fiscal year 2002, Congress approved a total of $22 million in 
funding for each of these zones. The HUD VA appropriation bill 
for fiscal year 2001 provided each zone EZ with $5 million in 
SSBG funding. It also provided a total of $15 million SSBG 
funding for Round II, rural EZs and ECs. A total of $10 million 
was for the five rural EZs, $2 million for each, and $5 million 
for the rural Enterprise Zones, $250,000 each. The 15 urban 
Round II EZs received a total of 330 over 10 years.
    The 106th Congress passed the Community Renewal Tax Relief 
Act of 2000 as part of the Consolidated Appropriation Act of 
2001 which authorizes the Secretary of HUD and Agriculture to 
designate nine additional Empowerment Zones, 7 urban and 2 
rural. And also included provisions that impacted Round I and 
II EZs. For example, the designation of EZ status for Round I 
and II zones, other than the District of Columbia, was extended 
through December 31, 2009, and the 20 percent wage credit was 
made available in all Round I and II zones for qualifying wages 
paid or incurred after December 31, 2001.
    Further, $35,000 rather than $20,000 of additional Section 
179 expensing was available for qualified zone properties 
placed in service after December 31, 2001.
    This hearing will examine the EZ/EC program generally and 
then focus on the discrepancies in funding between the Round I, 
II and III zones. Witnesses have been asked to comment on the 
process of EZs in their respective States. In addition, witness 
have also been asked to comment on H.R. 2637, the Round II EZ/
EC Flexibility Act of 2001, which authorizes specific urban and 
rural Empowerment Zones and permits the use of these funds for 
zone or community strategic plan implementation.
    The legislation would also provide for the use of Federal 
funds to pay matching fund requirements to prevent the 
Empowerment Zone or Enterprise Communities from losing Federal 
funding because of reclassification as a renewal community.
    We look forward to hearing from each of our witnesses this 
morning. I will now turn the mike over to Mr. Frank if he was 
here, but I see that Mr. Frank is not here at this point in 
time, so I will reserve time for him later at this point.
    Also, because Ms. Capito is a Member of this subcommittee, 
we're going to recognize her first at this time. Ms. Capito.
    Ms. Capito. Thank you very much, Mr. Miller, Mr. Chair. At 
this time I would like to begin by thanking you and the 
Chairwoman for holding this all important hearing on the 
current issues of Empowerment Zone and Enterprise Community 
program.
    I would also like to take this opportunity to acknowledge 
the support and thank my colleague, Mr. Rahall, also from West 
Virginia, and his staff for their efforts on behalf of the EZ/
EC program in our home State of West Virginia.
    In 1997 while serving as a State delegate in the West 
Virginia Legislature, a portion of my district known as the 
Upper Kanawha Valley in Kanawha County, along with portions of 
Fayette County in Mr. Rahall's Congressional District, competed 
with numerous other community development groups from around 
the country for selection to receive Federal grant funding as a 
designated Round II Enterprise Community.
    My fellow Members, it gives me great pleasure to sit here 
before you today--some 5 years later--to give you evidence and 
report on the remarkable progress and achievements that have 
been realized by that same determined and highly successful 
economic development group now known as the Upper Kanawha 
Valley Enterprise Community. Coincidentally, I think it's 
important to note that the Upper Kanawha Valley in West 
Virginia has some of the highest poverty and highest 
unemployment rates in our State.
    It is worth noting that in the last 4 years alone, the 
Upper Kanawha Valley Enterprise Community has been recognized 
as a top five Enterprise Community nationally, and they have 
skillfully--and I emphasize skillfully--leveraged an astounding 
$84 million in private sector investment and State and local 
matching funds for the $1 million in Federal grant funding that 
the Upper Kanawha Valley Enterprise Community has received over 
the past 4 years.
    As you will soon hear today, the hard work carried by those 
associated with the Upper Kanawha Valley Enterprise Community 
has been demonstrated in countless acts of volunteerism and 
community development. From a new small business incubator to 
health clinics and community centers, the local residents, 
business owners, elected officials and UKVEC staff have all 
truly made the Upper Kanawha Valley Enterprise Community an 
indispensable tool for economic development as one of the 
Nation's more successful ECs.
    In closing, I would like to state for the record my sincere 
appreciation and full support for Representative LoBiondo's 
hard work and dedication in introducing H.R. 2637, the Round II 
EZ/EC Flexibility Act of 2001. If we truly value all the 
progress and economic development resulting from the EZ/EC 
program, then we must enact a measure that both secures 
continued funding and maintains flexibility. H.R. 2637 would 
restore and safeguard adequate funding levels while allowing 
each individual EZ/EC to continue implementing their own 
economic development plans within a framework that works best 
for that particular region and the character of that region.
    I know just how successful these programs have been, 
because I have seen their potential firsthand. And if we have 
to hold these funding deliberations again each year, next year 
and the next year, I will gladly come before this subcommittee 
to voice my full support for the Empowerment Zones and 
Enterprise Community program.
    [The prepared statement of Hon. Shelley Moore Capito can be 
found on page xx in the appendix.]
    Thank you, Mr. Chair.
    Mr. Miller. Thank you.
    We have a vote on the floor right now. I think if we recess 
for a moment to do that, when you come back, Mr. LoBiondo, 
you'd have a better audience here probably. So we will recess 
for approximately 10 minutes.
    [Recess.]
    Mr. Miller. We're going to reconvene the hearing. The first 
witness will be the Honorable Frank LoBiondo. You have 5 
minutes, sir.
    Mr. LoBiondo. Thank you very much, Mr. Chairman. I would 
like to thank Chairwoman Roukema for helping to arrange this 
very important hearing, and I'm very pleased today that on 
panel three there will be included Jim Sauro, who is the 
Freeholder Director in my home county of Cumberland County, New 
Jersey, and Jerry Velazquez, the Executive Director of our 
Empowerment Zone.
    Congressman Mike Capuano and I co-chair the Enterprise 
Communities Caucus. It's a bipartisan group of Members who have 
Round II Empowerment Zones and Enterprise Communities.
    The EZ/EC initiative provides critical Federal support for 
the comprehensive revitalization of designated urban and rural 
communities across the country. It is a 10-year program that 
targets Federal grants to distressed urban and rural 
communities for social services and community redevelopment and 
provides tax and regulatory relief to attract and retain 
businesses. This Federal investment generates funding at the 
State and local level as well as significant investment from 
the private sector.
    As you pointed out, Mr. Chairman, the original Empowerment 
Zones received full funding. They don't have to come back hat-
in-hand every year. The Round IIs are not so fortunate. The 
benefits promised for the Round IIs as you identified is 
flexible funding grants of $100 million for each of the urban 
zones and $40 million for each rural zone, $3 million for each 
Enterprise Community.
    Round II zone designations were required to prepare 
strategic plans for comprehensive revitalization based on the 
availability of $100 million in Federal grant funding over the 
10-year period. That's how our Round IIs prepared to make 
application. Unlike the Round I, as I said, the Round IIs have 
only received a small fraction of the funding.
    The zones lack the certain and predictable funding stream 
to implement their strategic plans and must seek an annual 
appropriation to secure the promised Federal grant award. This 
is causing a huge problem. The success of this plan is based on 
private sector involvement. The private sector is very nervous 
and shaky abut the Federal commitment being so swayed from one 
year to the next. It is difficult for us to continue to attract 
the private funding that's so necessary for this being a 
success.
    Cumberland is the second fastest spending zone in the 
Nation, having committed 100 percent of the nearly $19 million 
that has been made available by HUD so far. Three hundred jobs 
have been created so far, and an additional 1,100 jobs will be 
created over the net 18 months if the Federal funding source 
continues.
    Over 100 housing units have been renovated, rehabilitated 
and constructed or purchased in EZ neighborhoods, and a $4 
million loan pool is available to be reinvested back into the 
targeted communities.
    The Cumberland Count initiative has funded over 60 programs 
through the EZ, utilizing more than $11 million in funding. 
These projects are estimated to leverage a total of more than 
$123 million in private, public and tax exempt bond financing.
    And to put it very plainly, Mr. Chairman, in just 2 short 
years, the Cumberland Empowerment Zone has leveraged nearly $10 
in private investment for every $1 in public funding, a 
remarkable achievement that shows the success of the zone.
    I don't know how many, if any, Federal programs can point 
to the fact that they are leveraging $10 for every dollar 
invested. I think this is what the program is supposed to be 
about--to give communities a helping hand and allow them the 
tools necessary to be able to move forward. We have been very 
successful in being able to do that with the private sector, 
not to utilize public dollars. But unless we can somehow 
generate a regular stream of dollars into these communities for 
these programs, we're going to have everything that will be in 
serious jeopardy.
    The existing Round II Empowerment Zones must receive multi-
year funding to continue the success and implement the zones' 
long-term strategy plan.
    The EZ partners in the private sector will continue to be 
reluctant to commit their own resources without a demonstration 
of the Federal Government's commitment that EZ funding will be 
available to complete these projects.
    Last year I introduced, along with Mr. Capuano and several 
other Members, H.R. 2637, which would authorize funding and 
correct certain inconsistencies with the Round II Empowerment 
Zone/Enterprise Community program. When the Round IIs were 
originally designated, we believed that they would be supported 
with mandatory funding from social service block grants. 
However, because of the constraints in these fundings, these 
zones have instead been funded through annual discretionary 
appropriations. My bill would address the issue by establishing 
a formal funding authorization for urban and rural Empowerment 
Zones and Enterprise Communities through the Financial Services 
and Agriculture Committees. H.R. 2637 also includes language to 
allow specific authorization for grants to be used as matching 
funds for other relevant Federal grant programs, all in an 
effort to offer the EZ/EC program maximum flexibility at the 
local level.
    Mr. Miller. Are you wrapping up at this point I hope?
    Mr. LoBiondo. I'm wrapping up. I just want to thank you 
once again for the opportunity and stress how critical it is to 
these communities that the Federal dollars that we've already 
put in will basically almost be wasted if we don't consider 
continuing in some way, shape or form.
    [The prepared statement of Hon. Frank A. LoBiondo can be 
found on page xx in the appendix.]
    Mr. Miller. Thank you very much, Mr. LoBiondo.
    The next witness will be the Honorable Ted Strickland. You 
have 5 minutes, sir.
    Mr. Strickland. Thank you, Mr. Chairman, and Members of the 
Subcommittee. Empowerment Zones across the Nation are similar 
in the positive economic impact they have on communities, but 
they differ greatly depending on whether they were designated 
in the first round or the second.
    Empowerment Zones in both rounds received various tax 
incentives, but only Round I Empowerment Zones receive 
mandatory appropriations in the form of cash grants. On the 
other hand, the 20 Round II Empowerment Zones are forced to 
depend on the vagaries of annual discretionary appropriations 
for their funding.
    The Round II Empowerment Zone in Ironton, Ohio, and 
Huntington, West Virginia, is one of only two EZs that straddle 
a State line, and I am pleased to voice my support for this 
critical economic development initiative. In addition, I am 
honored to welcome Cathy Burns, who is the Administrator of the 
Ironton/Huntington Empowerment Zone, who will testify before 
you later today.
    As I'm sure Cathy Burns will tell you better than I can, 
tax incentives alone simply cannot get the job done. Although 
tax incentives are an important component of each Empowerment 
Zone's mission, the projects that many of these communities 
pursue would be impossible without the ability to offer cash 
grants. When the Round II communities applied for EZ status 
several years ago, their applications were judged on the 
strength of their economic impact over a 10-year period. The 
goals that they hoped to accomplish by 2009 are predicated on 
the delivery of the funding they were promised. For this 
reason, I find it troubling that the President in his budget 
for fiscal year 2003 has not provided any money for Round II 
Empowerment Zones. If our goal is to revitalize distressed 
communities, we must recognize that it cannot happen without an 
infusion of cold hard cash.
    I recently received this letter from the Director of the 
Office of Management and Budget, Mr. Mitch Daniels. In his 
letter, Mr. Daniels writes that, quote: ``tax benefits are the 
driving force'' behind the EZ program, and that most grant 
money for Round II EZs has not been spent. I have met with many 
leaders in the Huntington/Ironton area and I can say that tax 
benefits are not the driving force behind the initiative. The 
driving force is undeniably the cash grants. In the most 
technical sense, Mr. Daniels is correct in saying that all of 
the money has not been quote/unquote ``spent''. But it has been 
obligated, allocated, budgeted and otherwise committed to 
secure private investment in the community.
    In fact, as Cathy Burns will tell you later, the 
Empowerment Zone in my district has taken the $18 million in 
Federal grants that it has received and it has used that to 
leverage more than $120 million in private funds. It would be 
hard if not impossible to find another Federal program whose 
return on investment is so great. If an Empowerment Zone can be 
so successful after just 3 years, imagine if it were allowed to 
develop unfettered for the full 10 years.
    I'm pleased to say I'm not alone in this opinion. The 
conferees to the fiscal year 2002 VA/HUD Appropriations bill 
reported that they believe the EZ program, quote: ``should be 
funded as a mandatory program.'' Similarly, the House Budget 
Committee in its report to the fiscal year 2003 Budget 
Resolution states that it, quote: ``strongly supports the 
continued funding of Empowerment Zone . . . initiatives . . . 
at least at the level pledged by the Round II designation of 
1999.''
    The Administration in its budget proposal for fiscal year 
2002 recommended that $185 million be appropriated for EZs in 
the current fiscal year and foresaw a request of $150 million 
for fiscal year 2003. I was puzzled to read that the President 
had zeroed out the initiative in his request for fiscal year 
2003. My strong hope is that we in Congress will push for 
mandatory funding for Round II Empowerment Zones but that we 
not settle for less than the continued funding of a commitment 
that we've made to these communities. Cutting short an 
initiative that's already seen so much success and whose 
potential is even greater would be a tragedy for the many 
communities that prosper under this program.
    That's my statement, Mr. Chairman, and I thank you for this 
opportunity to share it with you and the subcommittee.
    [The prepared statement of Hon. Ted Strickland can be found 
on page xx in the appendix.]
    Mr. Miller. Thank you very much. It can be very difficult 
trying to turn a community around and dealing with the issues 
they have to deal with. And I guess one question I have, do you 
think that tax incentives are a more effective tool than grants 
in revitalizing zones? Any one of you?
    Mr. LoBiondo. No, I don't think they're a more effective 
tool. I think that it's a combination of the two that provides 
the incentive for the private sector. We've, I think, clearly 
proven that both in Huntington and New Jersey, in West Virginia 
and New Jersey, that it's a combination of the two. And if you 
take away the grant part of this, you're going to absolutely 
scare away the private sector investment. The tax incentives 
alone won't do it. They're not big enough.
    Mr. Miller. And do you feel that Round II zones are making 
measurable, tangible progress in their revitalization efforts 
at this point?
    Mr. LoBiondo. I believe so. You heard Mr. Strickland's 
testimony, which is similar to New Jersey's experience with the 
private sector leverage that they had been able to accomplish. 
We have in the next little more than 12 months 1,200 jobs we'll 
be creating. That's a very successful program with tangible 
results that can be measured by any yardstick that anyone wants 
to use.
    Mr. Miller. Is there one tool that you'd consider to be 
most important for an economic developer that we could help 
them with in revitalizing these zones? Or have you pretty much 
covered that in your legislation?
    Mr. LoBiondo. I covered it in the legislation, but let me 
answer that for all of us.
    Mr. Miller. Why I'm saying that is because we talk about 
housing issues in many areas and too often in my opinion we 
just look at putting a band-aid over the problem and trying to 
deal outside of that to make things work rather than really 
addressing the real issue. And that's why I wonder if there's a 
tool that you think would be most important that we could 
provide.
    Mr. LoBiondo. The tool is the combination of the grants and 
tax incentives put together that gives the private sector the 
incentive to keep jobs and create new jobs. There's not magic 
to it, but that's what does it.
    Mr. Miller. Great.
    Ms. Capito. I think if I could interject here at least in 
the Enterprise Community in Upper Kanawha Valley, which, I 
think, I mentioned has very high unemployment rates and a high 
level of poverty, the first dollars in are always the most 
difficult to jumpstart any kind of project.
    Mr. Miller. Yes.
    Ms. Capito. And, you know, the sense of desperation that 
some of these areas have because they can't go to a traditional 
banking route, they don't have the credit history or whatever 
to initiate these projects on their own, that's where, I think, 
the value of having something that has a multiplier effect as 
this one does and we've all demonstrated in our areas we've 
used very well. We actually have it in Montgomery, West 
Virginia are going to have a technology park. It's going to 
have as many as 300 jobs. And that's very significant.
    Mr. Miller. Absolutely. Mr. Clay, I'm sorry.
    Mr. Strickland. Could I just speak to your question?
    Mr. Miller. Absolutely.
    Mr. Strickland. I think it's a good question and it's a 
very fair question. And one of the things that I think is so 
unique about this approach is that it requires communities to 
take a comprehensive, integrated look and to pull together 
various aspects of the communities and to come up with long-
term planning. And that may be as valuable as the tax 
incentives or even the cash grants, I think, in the long run.
    But it's the combination of the integrated planning that 
looks forward and considers a community's overall needs and 
sets goals and then to provide the tax incentives and the cash 
grants. I think all those factors in combination really are 
necessary for these kinds of programs to be successful. But I 
think your question is on the mark, because we do need to, I 
think, understand why this particular program is valuable and 
has the success that we all believe it has.
    Mr. Miller. Thank you. Mr. Clay, do you have any questions?
    Mr. Clay. Thank you, Mr. Chairman.
    Mr. Miller. Five minutes, sir.
    Mr. Clay. Thank you for the opportunity to hear these 
witnesses. And let me ask the chief sponsor, Mr. LoBiondo. In 
February, Secretary Martinez in his statement before the Senate 
Banking Committee, stated that Round II Empowerment Zones do 
not need additional grant funds because we are more than 
halfway through the program and the currently appropriated 
dollars have not been utilized to the extent of 80 percent, and 
it's apparent you don't agree with that. Can I just hear how 
you feel about that?
    Mr. LoBiondo. Well, I don't agree with that, because in 
many respects, these zones had a number of different funding 
opportunities. All the dollars from the Federal portion of this 
have basically been spoken for and obligated. In some cases, 
it's because of the Federal Government's foot-dragging on its 
own that these dollars were not able to be expended because 
they were not made available from HUD. And second, in the plan 
that we were all asked to develop, the dollars are all 
accounted for.
    So, I think, with all due respect, I don't believe the 
Secretary fully understands the implications of his statement. 
And something else that's been missed, and Mr. Chairman, if I 
might, in response to Mr. Clay and also to your question, but 
of our zones in West Virginia and New Jersey have created 
revolving loan funds. This is maximizing even to a greater 
degree the ability to use Federal dollars, because these 
businesses must first qualify for the loan. So it's not a 
handout. It is not a band-aid approach. But once these 
businesses qualify for these loans, there are Federal dollars 
that are matched with private dollars to further expand the 
opportunity for the loan itself, and then these dollars come 
back into the fund and are used over and over and over again.
    I mean, it's a marvelously ingenious way to use our Federal 
dollars that our funds have been able to maximize. But if in 
fact the Secretary continues to miss the point and we don't get 
the point on our end, then these dollars will just dry up.
    Mr. Clay. Thank you. Mr. Strickland, did you have something 
to add?
    Mr. Strickland. I would just add that, although, as I said 
in my testimony, these dollars may not have been technically 
spent, they are obligated. They're in the budget. They have 
been committed in a long-range manner. That's why it would be 
so devastating because these communities have developed the 
plans. They are following through with those plans, and 
although in a technical sense the funds may not have yet been 
spent, they have been obligated in a way that would be 
absolutely devastating if they were to not materialize.
    Mr. Clay. Thank you. Let me ask one part of the bill on 
page 3 in Section (d), can you give me an example of how the 
authority to use the funds to pay non-Federal share. Could I 
get an example for a layman of how that would work?
    Mr. LoBiondo. We'll try to get that for you here in a 
second. I don't have that memorized.
    Mr. Clay. OK.
    Mr. LoBiondo. In New Jersey there was a State program that 
would allow additional dollars to be put into Empowerment 
Zones, but because we couldn't match it, we were not able to 
take advantage of that funding.
    Mr. Clay. So this would allow the State of New Jersey to 
use some of that funding as the non-Federal match?
    Mr. LoBiondo. That's right.
    Mr. Clay. To leverage the other funding.
    Mr. LoBiondo. That's right.
    Mr. Clay. That sounds like a good idea. Thank you. Thanks, 
Mr. Chairman.
    Mr. Miller. Mr. Strickland, it sounds like you're saying 
that these are unspent dollars that are basically obligated in 
the long run and should communities be forced to spend those 
dollars each year, it could be a huge waste of funds at that 
time trying to find programs that aren't necessarily high 
priority or ready to spend those dollars just to utilize 
Federal funds so you get it the next year?
    Mr. Strickland. I think you're absolutely right, Mr. 
Chairman. For example, there's an industrial park under 
development in Ironton, Ohio. We have so much confidence in the 
ultimate benefit of the development of that park, but that's 
not something that you might be able to do in a concentrated 
period of time.
    Mr. Miller. I would hate to see you be forced to spend 
money to have it next year.
    Mr. Strickland. That's right.
    Mr. Miller. Mr. Capuano, do you have any questions, sir? 
The Member has 5 minutes.
    Mr. Capuano. Thank you, Mr. Chair. Well, I just want to 
thank the panel for taking time to talk about an issue that's 
this important to all of us, and particularly Mr. LoBiondo. He 
has been one of the most aggressive pit bulls I have ever 
witnessed on this issue, and there is no one I would rather be 
on the same side as Mr. LoBiondo, and I want to congratulate 
him for that and thank him.
    I guess the only thing I wanted to add--not add, just kind 
of a different twist to it--because it has bothered me from day 
one that people who allegedly understand the business mind 
don't understand that it's difficult to find businessmen on a 
regular basis to come into partnership when you can't guarantee 
the cashflow. Well, we're not sure the money's going to be here 
next year. We can't guarantee you it's going to be here 5 years 
from now, or 2 years from now or 10 years from now, but don't 
worry. Trust us.
    Well, that's an almost impossible situation. The fact that 
we have been able to spend some of this money to me is actually 
the better story. It's also the more amazing thing, that you 
can get businessmen to come into partnership with a Government 
agency that can't guarantee anything. And particularly, the 
fact that we've been having this hearing is actually going to 
make it even more difficult to actually get the dollars that 
are currently pending out. Because no businessman in their 
right mind is going to get in bed with us. They're just not 
going to do it.
    And, I think, it's a self-fulfilling prophecy. Because 
every time the Administration comes out, or this Congress comes 
out, and says we're not going to fund or we'll fight about it, 
and well, we'll fund it a few bucks, every time we do that we 
hurt the future of this program and we make it more difficult 
to put the next dollar out in the street and to make progress 
in all the communities across America. And I just wish at some 
point people would get it.
    And the fact that the Round III Empowerment Zones are doing 
so well without direct benefit, for a very simple reason. In my 
experience, rule number one about businesspeople is you tell 
them what the rules are and how you play the game. If you don't 
change the rules, at least they can make a legitimate business 
decision as to whether they want to play or they don't want to 
play. And things work out well. It's when you change the rules 
that most businesspeople walk away, and I think wisely so. And 
we have changed the rules repeatedly in this particular game to 
the great detriment of communities across this country that we 
have given promises to. And again, I wanted to thank the panel 
for coming today and helping us out on this.
    Mr. Miller. Thank you.
    Mrs. Jones, do you have any questions?
    Mrs. Jones. Well, I come from the great city of Cleveland 
and we were an Empowerment Zone number one, and I just want to 
quickly just read two short paragraphs to talk about the 
greatness and the importance of Empowerment Zones and to go on 
record for my support of additional Empowerment Zones across 
this country.
    This is a letter from former Mayor Michael R. White, who 
was the Mayor of the city of Cleveland when Empowerment Zones 
came into Cleveland. And it says: ``Close your eyes. Dream a 
second and imagine the construction of a new $25 million 
nursing home in Huff.'' And Huff, as an editorial, was the 
location of the riots back in the 1960s in the City of 
Cleveland. ``A brand new health museum in Fairfax. A $10 
million new headquarters for vocational guidance services. The 
move from Chicago to Fairfax neighborhood by one of the world's 
leading biotech firms. The development of over 300 new homes 
around League Park, which was the original baseball stadium for 
the Cleveland Indians. The construction of 11,000 square foot 
office building in Glenville for a leading minority-owned 
construction company. The opening of a $16 million neighborhood 
services center, an eight-acre technology park in Midtown, and 
a dozen other high powered developments within a scant 18-month 
period.
    ``Imagine all this. Now open your eyes and realize that 
this picture is not a dream, but is one of the Nation's leading 
Empowerment Zones right here in the city of Cleveland.''
    Then just as an aside, the Cleveland Empowerment Zone is 
one of if not--and this is editorial--one of the most 
successful zones in the country. In addition to the $72 million 
invested through Empowerment Zone loans and grants, over $130 
million of private funds have been invested in other community 
projects.
    Our labor force program has taken strides by establishing 
free tuition and individual training accounts for zone 
residents. And we are proud of our one-stop career services 
center of Cleveland.
    And these are just backgrounds of what can happen in 
communities with the addition of dollars for the Empowerment 
Zones. And I think it would be a travesty that we do not 
provide additional dollars for Empowerment Zones across the 
country. And I know what happens sometimes is a program gets 
started under one Administration under one party, and so the 
next time around will change the name and we won't do the same 
thing because we don't want that program to be successful.
    But I think it would be terrible for us not to proceed with 
Empowerment Zones and to support the additional communities to 
have an opportunity to be supported like my own great city of 
Cleveland. And rather than ask questions, I just thought I'd 
editorialize and tell you how supportive I am of the work that 
you're all doing.
    Mr. Miller. Thank you, Mrs. Jones.
    I'd like to thank the distinguished Members for their great 
presentation today. At this time we're going to be calling 
Panel number II, which would be the Honorable Roy Bernardi, 
Assistant Secretary for Community Planning and Development, 
Department of Housing and Urban Development. Mr. Bernardi, 
welcome. It's good to have you here today. At your leisure, you 
have 5 minutes, sir.

STATEMENT OF HON. ROY BERNARDI, ASSISTANT SECRETARY, OFFICE OF 
COMMUNITY PLANNING AND DEVELOPMENT, U.S. DEPARTMENT OF HOUSING 
                     AND URBAN DEVELOPMENT

    Mr. Bernardi. Good afternoon. Thank you, Congressman and 
distinguished members of the panel. I'm Roy Bernardi, Assistant 
Secretary for Community Planning and Development at the 
Department of Housing and Urban Development, and I'm here on 
behalf of Secretary Martinez, and I want to extend our 
commitment, the Secretary's and mine, to work with you to 
improve the effectiveness of the Empowerment Zones.
    Just very briefly, and I know you did this Congressman, 
I'll review the funding for Rounds I, II and III of the 
Empowerment Zones. The Omnibus Budget Reconciliation Act of 
1993 authorized HUD to designate six urban EZs by December of 
1994. And each EZ, as you mentioned, received $100 million in 
mandatory social services block grant funding.
    The Taxpayer Relief Act of 1997 authorized HUD to designate 
15 urban Round II EZs by January of 1999. Only tax benefits 
were authorized. However, the 1999 and 2000 budgets proposed 10 
years of mandatory grants totaling $1.5 billion. Instead, 
Congress appropriated discretionary funding for Round II EZs 
from 1999 through 2002 for a total of $330 million or 
approximately $22 million for each zone.
    Most recently, HUD designated eight Round III urban EZs, 
and 28 urban and 12 rural Renewal Communities on December 31st, 
2001, and that was authorized by the Community Renewal Tax 
Relief Act of 2000. That Act provides a valuable array of tax 
incentives, which brings the total to more than $22 billion and 
applies to all EZs and RCs until December 31st, 2009.
    The Administration did not request grants from the Round 
III Empowerment Zones, because we believe tax incentives are 
the driving force behind economic revitalization and job 
creation in Empowerment Zones. The Round III EZs and RC 
competition reflected this emphasis and generated, as you 
probably know, a great deal of enthusiasm. The Administration 
believes that economic revitalization can be better served by 
utilizing the $22 billion in tax incentives, or on the average, 
approximately $300 million per Empowerment Zone and Renewal 
Community.
    To improve the effectiveness of Empowerment Zones, HUD 
plans to focus on two major areas. First, implementing an 
aggressive and comprehensive plan to market the existing tax 
incentives to businesses and individuals in the 30 zones and 
the 40 RCs. The perceived complexity of tax incentives creates 
numerous challenges for local governments, and I think we've 
heard that today.
    Second, Secretary Martinez made it a priority to improve 
HUD's monitoring system to better track the performance and the 
financial compliance of the grantees. Special attention is 
being paid to obligations and the timely expenditure of funds. 
Collectively, Round II EZs have drawn $66 million as of April 
the 9th, 2002, or 23 percent. We know, as one of the 
Congressman indicated, that they have other obligations, and we 
will track committed funds as well, since they have not been 
tracked for the previous 9 years.
    Still, with a total of $330 million awarded, it allows the 
communities to move forward with their plans with tax 
incentives and Federal competitive grants. There's also $100 
million more in our Office of Economic Development and Rural 
Housing Offices for further competition.
    The subcommittee has expressed a concern about the use of 
existing appropriations. Traditionally, HUD tracks progress 
toward milestones and outputs through an annual reporting 
process, and the Department shares the subcommittee's concern 
about performance. HUD's interim assessment of the Empowerment 
Zones and Enterprise Community program looks at a sample of 
Round I EZs to attempt to determine the impact of the program.
    The research found a modest but significant impact in the 
economic well being of the Round I EZs, particularly as 
concerning unemployment. Because the impact is modest and there 
are competing inputs for the program, for example, strategic 
planning, grants, several tax incentives, there is no 
convincing evidence that the grant program in and of itself 
increases the program's effectiveness. The report concludes 
that businesses have insufficient knowledge of the tax 
incentives.
    Our goal at HUD is for Empowerment Zones and Renewal 
Communities to make a dynamic shift to self-sufficiency and 
sustainable development. For example, rather than planning 
another custom made round for temporary grant programs, our 
most recently designated Round III Empowerment Zones brought 
over 100 commitment letters from the private sector, non-
profits and other public entities. A great deal of interest by 
the business community.
    The subcommittee asked HUD to explain the merits of tax 
incentives versus grants. The Round I EZs initiative was based 
on the approach that included both grants and tax incentives. 
The Department believes tax incentives should be at the center 
of its job creation efforts by helping small businesses grow, 
creating an entrepreneurial environment, and showing to large 
corporations that these economically challenged areas represent 
opportunities with great hope.
    The variety of tax incentives such as the wage credits, the 
reduced capital gains----
    Mr. Miller. Are you summing up, sir?
    Mr. Bernardi. Yes I will. Another minute. The increased 
Section 179 deduction, zero percent capital gains, all of that 
will go an awful long way in making sure that the business 
community takes full advantage of the incentives that are being 
offered.
    And we invited all of the EZs and the RCs to an 
implementation conference that we'll be holding here in 
Washington on May 20, 21st and 22nd. And our information 
indicates to us that this will be very well attended and we'll 
have the opportunity to showcase what this $22 billion in 
incentives can do for these communities. And after that 
conference we'll have regional conferences. We'll do updates, 
weekly faxes. We want to make sure, along with everyone else, 
members of the panel, that we use every possible advantage to 
utilize these tax incentives so that these zones can prosper.
    Thank you.
    [The prepared statement of Hon. Roy Bernardi can be found 
on page xx in the appendix.]
    Mr. Miller. Thank you very much. Just to kind of correct 
the record, there's been a few things said today. When Round I 
was initiated, they were given $1 billion in funding. Round II 
basically they said, well, we'll see what we can do.
    Mr. Bernardi. That's true.
    Mr. Miller. When Round III was started, they said you'll 
get tax incentives only.
    Mr. Bernardi. That's correct.
    Mr. Miller. That's just to correct the history. That's how 
it was processed, and now some believe that is not a reasonable 
approach, and that's why we're here discussing this bill.
    The first question I have is, can you please explain 
whether HUD has evaluated the effectiveness of the EZ/EC 
programs? And if so, what have you learned?
    Mr. Bernardi. Well, the evaluation of it has not been 
everything that we wanted. The system that we have in place 
now, which is called the PERM system, performance management 
system, we've made some initiatives there as opposed to just 
looking at the drawing down of funds, we want to look at the 
funds that are obligated and at the same time be able to take a 
look at the financing in each individual project or program in 
all of the EZs.
    That system is in place, and we should have some reports on 
that I believe in May of this year and we'll be able to 
indicate to all of the EZs by July with this new financial 
system that we're putting into place exactly where they all 
stand. So we're not really pleased with the inability to track 
the failures and successes of the EZ program.
    Mr. Miller. And are you familiar with the HUD-funded 
external evaluator, Apt Associates, who prepared the interim 
assessment on Round I zones, noting that limitations of tax 
incentives and value of grants that appears to be contradictory 
to HUD's assertions at this point?
    Mr. Bernardi. Well, they indicated that they were not 
utilized. The university I believe was also part of that study, 
that they were not utilized to the extent that they could be. 
You know, first and foremost, as a former mayor, and I look at 
economic development, your businessperson is always going to be 
looking for a grant.
    However, if you look at the 15 Round II EZ zones and the 
people you had represented here today, Congressmen Strickland 
and LoBiondo, they talked about their areas, and those areas 
are working extremely well. But if the 15 EZs, five of them 
have not created a single job since the program took place in 
1999. That's not being critical of them. There's been an awful 
lot of difficulty in implementing some of these programs.
    The tax incentives gives the business community, the people 
that are out there, the opportunity--and no one knows better, 
Congressman Caputo, I believe he left, he talked about letting 
the rules be known what the game is going to be. Well, in the 
Empowerment Zones in Round III and in the RCs, when you talk 
about tax credits, that's something a businessperson can 
understand. Whether it's a wage credit, welfare-to-work credit, 
a work opportunity credit, and the amount of monies each year 
that they will be able to deduct those credits from their taxes 
by being able to establish a business in an area that really 
needs it.
    As I looked around my city and I looked around other cities 
as I travel this country, and I see the Brownfield remediation 
that needs to take place, some of these are wastelands. They're 
fertile lands now because of these tax incentive programs. And 
we feel very strongly that utilization of these $22 billion in 
credits by not just the newly announced eight EZs and 40 RCs, 
but the remaining 30 EZs and the ECs will give tremendous value 
to all of the areas in this country to continue to improve. Has 
there been progress made by some of the EZs? Yes there has.
    Mr. Miller. Is it possible to capsulize the 
Administration's position on Round II and Round III zones then? 
What's their position to date on this?
    Mr. Bernardi. Well, the position is to utilize the tax 
credits that are available to the business community that's out 
there. We've had some people indicate to us, some of the EZs 
that we've just designated, that they're pleased to be able to 
deal with tax credits as opposed to grants. I think the 
statement was made, well, if the grants were there, people feel 
comfortable, the businesspeople feel comfortable that they'll 
always be there. But the tax credits give an opportunity to the 
community, to the businessperson to make a sound investment and 
realize what's going to happen on a year-to-year basis.
    Mr. Miller. Thank you very much.
    Mrs. Kelly.
    Mrs. Kelly. Thank you, Mr. Chairman.
    Mr. Bernardi, can you tell us a little bit about the 
economic conditions of the Enterprise Zones before the Federal 
designations? Were there any in Syracuse?
    Mr. Bernardi. Well, Syracuse just received an Empowerment 
Zone designation in the latest round. Of course, with every 
urban area, there are pockets of poverty. The census tracts 
high unemployment, high poverty. And these tax incentives, the 
eight that we announced in the past few months, obviously the 
condition warrants a designation. The application process 
that's put forth. In the RCs it was basically on need. The EZs, 
obviously a performance plan had to be put in place as well.
    But as I look at Syracuse, Congresswoman Kelly, we have 
right now they're expanding a mall in Syracuse. It's a 1.5 
million square foot operation right now. They're going to add 4 
million square feet to that. That is now in the Empowerment 
Zone. And hearing from that developer and the people associated 
with that, they're really looking forward to the tax credits 
that they will be able to provide to the businesses that are 
going to be there.
    So it does what we'd like it to do. It's going to give 
opportunity to businesspeople to go into areas where they would 
traditionally not go, create jobs, better quality of life.
    Mrs. Kelly. I have a little concern, because if you say in 
Syracuse they're using the money to develop a mall, the people 
living in and around an area need to be able to partake, I 
think, of these Empowerment Zones. And if you build a mall, 
will those folks be able to shop there at the mall? Will they 
be able to get into the mall? My concern is that tax incentives 
may not be enough to do this.
    I haven't talked to the other Members of the subcommittee, 
so I don't know how they feel about this. But I feel that there 
is a concern in two things. The way that you get a business in 
there, you have to have somebody who's got a viable business 
plan. I was under the impression that the Empowerment Zones 
were to help people in that community develop and build a 
business. Some of those folks may not have enough equity to 
even get a loan in some respects. And I'm concerned that they 
be able to participate rather than use it for something like a 
mall.
    I don't know what the conditions were in Syracuse, so I 
can't answer that, but you could and maybe you can help me 
understand. I'm just searching for some information.
    Mr. Bernardi. Well, many of the employees, to take 
advantage of the wage credit for example, in the Empowerment 
Zone, that businessperson would have to hire someone that lives 
in that zone. And obviously people living in those zones are 
designated as zones that really need an awful lot of 
assistance.
    Mrs. Kelly. Excuse me, sir, but is that a mandate? That 
they have to, if they use that?
    Mr. Bernardi. Yes. The wage credit----
    Mrs. Kelly. It is a mandate that they hire people who live 
in that zone?
    Mr. Bernardi. Have to live in that zone, yes.
    Mrs. Kelly. Thank you.
    Mr. Bernardi. And if they live in that zone, obviously they 
have a better opportunity for employment.
    Mrs. Kelly. Well, from what you said, it implied that they 
have to hire someone who lives there. If they cannot find an 
appropriate person, then they're allowed to reach out?
    Mr. Bernardi. Yes.
    Mrs. Kelly. To hire someone from outside the EZ?
    Mr. Bernardi. If they do that, though, they don't have the 
$3,000 wage credit that comes with that employee who resides in 
that zone. And it's not just that zone. It's any of the census 
tracts that are within the entire zone of course. But those 
census tracts, for the most part, it's high unemployment, high 
poverty. In the designation process, that's what it was 
tailored to do was to help people, especially low and moderate 
income people.
    Mrs. Kelly. How does it work, then, if the people are 
living there--suppose I'm Jane Q. Housewife but I've got an 
absolutely terrific cookie recipe and my name is Mrs. Fields 
and I live in poverty, but I've got this really neat cookie 
recipe. I can't do it with tax credit because I've got nothing 
but my recipe. How do you help me?
    Mr. Bernardi. Well, talking for a community, they all have 
the community development block grants. There are other 
programs that can be utilized to assist people startup 
business. And in fact, a good percentage of monies that are 
utilized by each community can be utilized for economic 
development to provide assistance to people who want to be 
entrepreneurs, who want to start their own business.
    Mrs. Kelly. I just want to pursue this just one more step 
and that is, I'm sorry. I just need to get it so I understand. 
When you say you can get CDBG money, do you help people get 
that? Is there an integration from what you are doing with an 
EZ to something like reaching into CDBG so if somebody comes 
and says I'm in the EZ, I want the money, you will turn to them 
and say you can get the money out of CDBG?
    Mr. Bernardi. The community itself establishes how they're 
going to expend their CDBG dollars. But there are other 
programs and dollars that are available. Obviously each 
community I would believe would spend those dollars to 
encourage people to create businesses, to become entrepreneurs. 
But the real purpose of this is to provide businesses the 
opportunity. I understand what you're saying about the 
individual person who perhaps wants to start a business. But, 
you know, that person needs employment. And this is going to be 
geared to small businesses, large businesses, taking advantage 
of those opportunities. And I think the program, there will be 
approximately $300 million for each EZ as opposed there was 
only $500 million total in the Round II EZ designation.
    It's taking at the other end. It's giving people and 
opportunity to create their business, to make their way of life 
and to save money. I mean, this money is not going to come into 
the U.S. Treasury if all of the $22 billion is utilized. So on 
the one hand, obviously,the Government is not giving money, but 
the money is not going to be there because these businesspeople 
are taking advantage of it. And I think in this country you 
give businesspeople an opportunity if they can look at their 
bottom line and see that something good is going to happen, 
they're going to go ahead and make those kind of investments.
    And we have provided to everyone the Tax Incentive Guide 
for Businesses, and there will be a followup to this which just 
lists, there's a myriad of opportunities here when it comes to 
capital gains and deductions and bond financing. It's a great 
program. And we have an awful lot of enthusiasm for it. And we 
know that we need to market it and that we need to make sure 
that when we have this conference that we just don't let the 
conference end there, that we get out in the communities both 
from headquarters and from our field offices.
    Mr. Miller. You're going to have conclude this question. We 
are a little bit over. Thank you, Mrs. Kelly.
    Mrs. Kelly. I'm sorry.
    Mr. Miller. Those were good questions.
    Mrs. Kelly. Thank you.
    Mr. Miller. Mr. Clay.
    Mr. Clay. Mr. Bernardi, can you tell me when does HUD plan 
to award the fiscal year 2002 funds?
    Mr. Bernardi. They will be awarded within the next month.
    Mr. Clay. HUD also claims that Round II EZs are not 
spending their money when 65 percent of the funds were only 
awarded last year. What is HUD's policy on awarding these non-
competitive grants? What is your policy?
    Mr. Bernardi. Obviously the policy is to have the 
expenditure rate be in a timely way. I think as was already 
indicated here, I think 23 percent of the funds have been 
expended. Other people have testified that there's a 
significant amount of money that's been obligated of that $330 
million. But until a contract is in hand. I mean, arrangements 
are obviously made between an EZ and the people that they're 
doing business with, but once the contract is completed and the 
process goes back to HUD, then HUD obviously releases that 
funding.
    And with the $3 million approximately that each EZ will 
receive for 2002 in the next month or so, I mean we feel that 
there's no jeopardy to any of the programs or any of the 
engagements that these EZ communities have made with 
prospective businesspeople.
    Mr. Clay. Now you also----
    Mr. Bernardi. The utilization hasn't been there for the tax 
incentives. Obviously we want to concentrate on that. We really 
want to market that. We want to make sure that everyone uses it 
to the utmost advantage. It hasn't been done. Probably a lot 
easier to just have a grant and provide a certain amount of 
dollars to a businessperson as opposed to having that 
businessperson sit down and understand through the tax system 
exactly how much money can be saved and how they can start a 
business and take it to their advantage.
    Mr. Clay. But keeping in mind that the EZs were 10-year 
programs that started from the ground up from community-based 
planning, you do keep that in mind as a Department?
    Mr. Bernardi. Sure. And the tax incentives are going to be 
for all of the EZs, not just the Round III EZs and RCs. And 
those tax incentives will go through December 31st of 2009. So 
they'll have an opportunity to really utilize this over the 
next 7 or 8 years.
    Mr. Clay. You have also urged the use of CDBG and home 
funds. When you being a former city mayor and you pretty much 
or are aware that those funds are obligated long before those 
communities even receive them.
    Mr. Bernardi. Well, they may be promised.
    Mr. Clay. I mean, so isn't it kind of unfair to those 
communities to dilute those CDBG funds and then say OK, try to 
do three things now with these funds?
    Mr. Bernardi. Well, there's other programs. There's the 
Brownfield initiative competitive program. There's the 108 loan 
guarantees off of the CDBG. I mean, obviously communities right 
now utilize their CDBG programs, their 108 loan guarantees, 
their Brownfield initiatives, economic development initiatives, 
to create business opportunities. You can leverage that as well 
into other areas.
    Mr. Clay. Let me, on a more local level, let me make you 
aware of St. Louis's unique situation. We are the other EZ that 
crosses State lines and several county lines. It requires a 
coordination of several county and State governments. And I 
just want to make you aware of that, that that is not always an 
easy task. And I'm sure you've looked at the situation there. 
Are you aware of what's going on in the St. Louis community as 
far as what we have obligated and what we are trying to 
accomplish in that EZ?
    Mr. Bernardi. Not the particular numbers of how much you've 
expended and how much you've obligated, no.
    Mr. Clay. Well, we're trying to fund a $100 million plan 
with $22 million. And I don't know. We are pleased to report 
that the St. Louis regional EZ is preparing to approve another 
$6 million in grant requests, $1 million which will be in May, 
which will put us at a 55 percent spendout rate.
    Mr. Miller. Is the Member summing up?
    Mr. Clay. Moreover, the leveraging of $285 million in non-
EZ funds on a 30 percent rate is second only to Miami-Date, 
which is $410 million at 70 percent. I just wanted to make you 
aware of some of the obstacles in our State.
    Mr. Miller. The Member's time has expired.
    Mr. Clay. I'm sorry. I didn't hear you.
    Mr. Miller. That's OK. The Member's time has expired.
    Mr. Clay. I was trying to put in a local pitch there.
    Mr. Miller. You made a good comment about CDBG funds and 
the BEDI program and 108s. We're marking my bill up tomorrow on 
Brownfields that decouples BEDI from 108 and CDBG, so I'm sure 
you'll be excited to attend that hearing tomorrow.
    Ms. Capito.
    Ms. Capito. Thank you. I'd like to make a comment about the 
Enterprise Community that is in my district that I testified 
to, that if the funding, the $250,000 that we get, is 
discontinued in the next round, in the next year, our efforts 
will absolutely not only be diminished but will probably fold.
    We've played by the rules. We've built step by step. We're 
in a high poverty, high unemployment area in rural West 
Virginia, formerly coal fields, still coal fields in some 
instances, but abandoned buildings and people leaving this 
area. The ray of hope that the Upper Kanawha Valley has lies in 
the good hard work of the people who are trying to put together 
this Enterprise Community and maximize the dollars. What can I 
tell them when they know that private industry and private 
business is not going to be able to fill this gap?
    Mr. Bernardi. Well, private business and private industry 
can take advantage of the tax incentives that are going to be 
offered with this authorization. I mean, $22 billion, $6 
billion of which will be used for the Round II EZs, that's 
about $300 million for your area.
    Ms. Capito. We're an EC. So that's, I think, less.
    Mr. Bernardi. It would be less. You're right. Well, the 
opportunity to utilize those tax incentives.
    Ms. Capito. My other question is, when we began to 
investigate the discontinuation of this, I think it was--I'm 
not sure exactly who the conversation was--it goes to the fact 
that all the money hasn't been drawn down and there's still 
money left in the accounts.
    And in your comments, you say that's an indicator that 
those funds are not necessarily needed or an indication that 
they can go on without additional Federal resources, but there 
have got to be other places like Mr. LoBiondo's EZ and I know 
the EC in my area where this is absolutely not the case. So 
while in some in that may be the case, you know, you're 
absolutely zero funding out everybody and you're catching the 
ones that absolutely are relying on this like the Upper Kanawha 
Valley.
    What I would like to see is flexibility so that you can 
look at each one specifically and see where these needs are. If 
there's some that no longer need to access these funds, then 
OK, zero them out. But there are still a lot of good, viable 
projects ongoing that are relying on this and need those extra 
years ongoing to be able to build.
    Mr. Bernardi. You're right. A good part of the expended 
funds have not been expended. What has been expended is 
approximately 23 percent overall. I don't know yours in 
particular. And there's obligated monies that are out there. 
The fact of the matter remains is that every year, Congress 
appropriated additional money, starting with $45 million I 
believe in 1999, $55 million, $185 million and $45 million in 
2002. There's still money that's remaining to be expended. 
It'll be obviously up to the wisdom of this group and the 
Congress to make the final determination as to whether 
additional monies are going to be forthcoming.
    Ms. Capito. Thank you.
    Mr. Miller. Mr. Capuano, you have 5 minutes, sir.
    Mr. Capuano. Thank you, Mr. Chairman.
    Mr. Bernardi, I want to make it real clear. I haven't heard 
anybody say that tax credits are not a useful way to entice 
businesspeople. It's just many of us feel that it's not the 
only way to do it.
    I guess I'd like to ask just a basic question. Even on the 
tax credits, if you're a true believer in tax credits and that 
they work miracles and that's a great way to go, I guess I'd 
ask you how much would they be worth to most of the 
businesspeople you dealt with when you were mayor if Congress 
were to pass a law tomorrow that says from now on, instead of 
that tax credit being effective until 2009, that each year from 
now on, it has to be passed by two-thirds majority of both 
branches of the Congress? Do you think many businessmen would 
want to jump into bed and start throwing millions of dollars 
around in investment based on that kind of a lack of certainty?
    Mr. Bernardi. Well, the certainty in what we're proposing 
now is these tax incentives would be put into place in January 
of this year and go through December of 2009.
    Mr. Capuano. No. Do you know businessmen that would want to 
just jump around and say, great, we'll trust--that's great? We 
don't know what the rules are going to be, but we're going to 
do it.
    Mr. Bernardi. Well, Congressman, with all due respect, I 
mean, you make the rules and the Empowerment Zones for Round 
II, the money was indicated that it would be there. Maybe it 
was promised, but then it wasn't there, and that's how you 
ended up with an earmark for the last 4 or 5 years to put the 
money in the budget.
    Mr. Capuano. That's kind of what we've done to veterans as 
well. We kind of told them don't worry about it. Trust us. 
We'll take care of it. And I personally an am embarrassed 
Member of Congress for what we've done to veterans and breaking 
our promises to them. I just don't think that you tell people--
--
    Mr. Bernardi. No, of course not. Making promises is not why 
I'm here. I'm here talking about tax incentives that we feel 
would be a great tool----
    Mr. Capuano. And no one is arguing that. No one is 
suggesting that they're not. I totally agree with you. But I 
also think that we need more than tax incentives, especially 
when we as a Government have raised the bar and raised 
expectations.
    I was the mayor of my community as well. And I presume and 
some point during your tenure as mayor that you made some 
either tax agreements or assessing agreements with various 
businesspeople or interpreted zoning laws. Did you change the 
rules in the second year or the third year in, the fifth year 
in?
    Mr. Bernardi. No. Obviously you don't change the rules. But 
the rules have been changed year-to-year here, depending on 
what the Congress would like to do. I mean, the fact of the 
matter is----
    Mr. Capuano. Excuse me. It's not based on what the Congress 
wants to do. We're in partnership with the Administration. And 
if the Administration had come in and said they wanted half, 
we'd probably say OK. And therefore, we could have governments 
all across this country, city and county and municipal 
governments, making decisions based on that. But right now I 
can't look at my people at home and say, don't worry. Make 
commitments based on we're going to get you some money this 
year. Why? I have the Administration zeroing it out. And it's 
not a matter of compromise, it's a matter of the Administration 
has clearly said now 2 years in a row, they don't like this 
program. I respect that. I understand that. That's why I had no 
problems voting for bills last year on the Renewal Communities. 
I don't have any problems with new things or changing rules 
prospectively. That doesn't bother me.
    What bothers me is, how do you expect any municipal 
official, having been one yourself, to make progress or to sit 
down with a businessperson when they can't have the slightest 
idea what the rules are going to be?
    Mr. Bernardi. Well, the rules as we're putting them forth, 
there are going to be tax incentives. We feel strongly that the 
tax incentives utilized the way they can be would provide 
tremendous advantages to the EZs and the RCs.
    Mr. Capuano. That's fair enough, but then you can't 
criticize them for not having spent money when you've changed 
the rules. Here's the money. Go spend it, because you're going 
to have some more. No, no. No, you're not. We changed our mind. 
We're not going to do that anymore.
    Mr. Bernardi. Not a criticism with the spending. The fact 
of the matter is that HUD over the past few years hasn't done 
its due diligence in monitoring the expenditure of those funds.
    Mr. Capuano. I won't even argue that point. I'll accept 
that point.
    Mr. Bernardi. What we're proposing is that we feel strongly 
that these tax incentives, utilized as they can be, utilized by 
each one of the EZs and the RCs, can provide tremendous 
advantages, more so than a grant could. Obviously----
    Mr. Capuano. I will repeat myself for the third time in 
this 5-minute period.
    Mr. Bernardi. Grants, obliviously everybody likes grants. 
We utilized grants when I was mayor of the city of Syracuse. 
But we feel at this particular point in time with the money 
that's in the pipeline for the EZs, especially Round II----
    Mr. Miller. Another 20 seconds, sir.
    Mr. Bernardi. That there's enough funding there that we 
take a look at give us 12 to 24 months to see how we can go 
ahead with the tax incentives.
    Mr. Capuano. No one. Again, I guess--I don't know where the 
communication failure is. No one here has said anything bad 
about tax incentives.
    Mr. Bernardi. And we're not saying anything bad about 
grants.
    Mr. Capuano. Well, but you are. You're saying we're not 
going to give them anymore. They don't work.
    Mr. Miller. Your time is concluded, Mr. Capuano.
    Mrs. Jones, you'd have to yield him time.
    Mrs. Jones. I'll yield him 2 minutes.
    Mr. Miller. I yield 5 minutes to Mrs. Jones who yields 2 
minutes to Mr. Capuano of her time.
    Mr. Capuano. Thank you, Mr. Chairman. But you have. By 
saying you don't support them, that is something bad. And 
again, I understand and I actually would support a comment that 
says, henceforth for new, for Round III, Round IV, Round V, 
whatever we're going to do--or there won't be anymore. Just 
last year we did the Renewal Communities different, a little 
different twist. I voted for that. Why? Because there's no one 
way that works and just because a program is not necessarily 
working the best way it can doesn't mean that you keep going.
    Same thing with public housing. My same arguments there. No 
one in their right mind would build public housing in the way 
half of the public housing across America has been built, yet 
what do you do? Walk away from it? No. Over time you change the 
rules for future public housing. Mixed housing, different 
grants, different awards to builders. You try different things 
that work. And the same is true here. I just think it's dead 
wrong to turn to communities and to turn to businesspeople 
trying to work with these communities and simply say we don't 
think it works any longer, so therefore, for those of you who 
were already working together, forget it.
    To say to them prospectively, that's not a problem to me. 
But to say it retroactively, which is effectively what this is 
doing, to me it's about as unfair, and by doing that, you 
invite the lack of expenditures because you invite 
businesspeople to walk away from the table.
    Mr. Bernardi. It was just pointed out to me that our 
position is to postpone it until fiscal year 2005 to give the 
opportunity to implement the plans for the tax incentives for 
the EZs and the RCs. I know that's not going to satisfy you, 
but that's----
    Mr. Capuano. I respect that. But again, I don't have any 
problem with the prospective part of it. For new communities 
coming in. But postponing it says the same thing. We have no 
faith in this, and so therefore if we postpone it this year, 
there's no guarantee. As a matter of fact we're telling you, 
we're probably going to come back next year and say we don't 
like it again for the third time. There's nothing here to give 
anybody any hope whatsoever except Congress imposing its will 
against a reluctant Administration that says you may not feel 
committed to this, but we do, and we're going to live up to 
this commitment, which I think is a bad message to send. We 
should be in this together, particularly as a former mayor.
    Mr. Bernardi. We are. We're committed to it. But the tax 
incentives in the past have not been utilized, and they were 
much less than they are now. And I think part of that is based 
on the fact, Congressman, that the grants have been the 
bloodline, if you will, of the economic opportunities in these 
zones.
    Mr. Miller. Time has expired.
    Mr. Bernardi. I think it's time to utilize the other end, 
the other tool.
    Mr. Miller. Thank you. In all fairness to the Assistant 
Secretary, we in Congress are the ones who established Round II 
and Round III and didn't implement language that would have 
created the programs you wanted.
    Mrs. Jones, you have 3 minutes, ma'am.
    Mrs. Jones. Thank you, Mr. Chairman.
    Good afternoon, Mr. Secretary, how are you?
    Mr. Bernardi. Good. How are you today?
    Mrs. Jones. I'm doing great, thanks. Explain to me what you 
are going to zero out. What funding you are going to zero out 
and why for these programs. And do they only affect Round II 
and III or do they affect I as well?
    Mr. Bernardi. There's no funding for Round III.
    Mrs. Jones. OK. Round II.
    Mr. Bernardi. Round II, the money, $330 million, there's 
another, the remaining $45 million in 2002 will be dispersed to 
the communities within the next month.
    Mrs. Jones. But there was some discussion--I'm sorry. Go 
ahead.
    Mr. Bernardi. We're not going to be taking money away, if 
that was your question.
    Mrs. Jones. Well, I don't know. I was trying to kind of 
clarify what my colleague, Mr. Capuano, was saying. What I do 
know is that in some instances in other sections of HUD, not 
the empowerment necessarily, but some of the housing areas, 
particularly with public housing, there was some discussion in 
fact in this most recent legislation that we were dealing with 
that if they had not used funds that those funds would be 
zeroed out and no additional funds would be allocated for a 
particular program. That is something that the Department plans 
to do because there is a statement that those funds are not 
being appropriately used. I wish I could be a little more 
specific for you, Mr. Secretary.
    Mr. Bernardi. There are programs obviously in HUD where if 
the money isn't expended over a certain period of time, it goes 
back to the Treasury. But in the Empowerment Zones, the Round 
II that you're speaking of, that money has been appropriated 
and it will be utilized.
    Mrs. Jones. And the issue that I thought he was raising 
about it being funded out is not really an issue. Is that what 
you're saying to me?
    Mr. Bernardi. The money that's been appropriated, the $330 
million, the last installment is $45 million, which will be 
given to the 15 communities within the next 30 days.
    Mrs. Jones. OK. What's the best thing about Empowerment 
Zones from your perspective as Assistant Secretary, sir?
    Mr. Bernardi. Well, when we made the designations for Round 
III and I traveled to some of the areas to make those 
announcements, what it really does is it energizes the 
opportunity knowing full well that they can bring their total 
business community to the table.
    You look at the Empowerment Zones that have been successful 
in Round II, if I may----
    Mrs. Jones. Well you only can may for about 30 seconds, 
then I'm out of time. But go ahead.
    Mr. Bernardi. OK. Then let me just say that the benefits 
are is that the areas, the census areas that have been 
designated where the poor people reside, areas that have been 
neglected. And what we really want to do is to retain 
businesspeople there, bring them into that area, have them 
create jobs and opportunities, especially for the residents of 
those areas.
    Mrs. Jones. Let me just real quickly, I think I might have 
30 seconds left. One of the issues that was raised early on 
about Empowerment Zones in the city of Cleveland was similar to 
what my colleague, Mrs. Kelly, was saying about the fact that 
there are businesses, startup businesses that would want to 
take advantage of the Empowerment Zones who are not eligible to 
do so. That was one of the issues raised in Cleveland. And I 
guess I'm out of time. The only thing I want to say is, if 
there are some issues about the Empowerment Zones in the city 
of Cleveland, I would surely like to be given any information 
that would assist me in helping them or continuing our work. 
Thank you very much.
    Mr. Bernardi. And you're very welcome.
    Mrs. Jones. And I yield the balance of my time.
    Mr. Bernardi. And if I may, Cleveland----
    Mr. Miller. Sometimes being gracious comes with a price.
    Mrs. Jones. He's complimenting Cleveland. Hold on a second.
    Mr. Bernardi. Cleveland has done an excellent job with its 
Empowerment Zone designation.
    Mrs. Jones. Thank you very much. I'll take that back.
    Mr. Miller. Well, sometimes being gracious does come with a 
price. But nevertheless. Mr. Assistant Secretary, thank you 
very much for your testimony today. Are there any concluding 
remarks you'd like to make?
    Mr. Bernardi. Just that we want to continue working with 
the subcommittee and the Congress. Obviously there's always a 
difference of opinion. The fact of the matter remains that when 
grants are utilized and they're utilized effectively, like you 
heard from some of the speakers here, that's wonderful. But at 
the same time--and I'm not here to say grants are not 
effective. I'm here to say that we really need to do more with 
incentives for the businesspeople in this country. This country 
is a great country. There's always business opportunities, and 
if we can give people a tax break, that's really what they're 
looking for at that end when they start putting their business 
in place, I think it would be beneficial for all of us. Thank 
you, sir.
    Mr. Miller. Well, thank you for your excellent testimony. 
We're now going to call up Panel III. Mr. Rahall I believe has 
an introduction. I'd like to notice the gentleman for an 
introduction.
    Mr. Rahall. Thank you, Mr. Chairman. I appreciate first the 
opportunity that you, Chairwoman Roukema and Ranking Member 
Frank have extended to me to allow me to join you here this 
afternoon to introduce a constituent of mine. Where is she?
    Mr. Miller. Would the panelists take their seats, please?
    Mr. Rahall. There she is.
    Mr. Miller. So we know who we're introducing here.
    Mr. Rahall. She is Cathy Burns, the Executive Director of 
the Huntington, West Virginia/Ironton, Ohio Empowerment Zone, 
which of course is on the border of West Virginia and Ohio, 
that part of Ohio being represented by our colleague, Ted 
Strickland. And if he were here--maybe he's already been here--
I'm sure he would join me in accounting for the tremendous 
benefits that Empowerment Zone has given our constituents.
    Cathy Burns is a native of West Virginia, a graduate of 
Marshall University in Huntington, West Virginia. She worked 
for the mayor of Huntington as a grant writer and then moved to 
the Department of Development and Planning. Under her 
leadership the Department earned national recognition as a top 
performing Enterprise Community and a model of excellent 
community and economic development.
    Ms. Burns played a role, a key role, in getting the 
Huntington/Ironton area designated as a Round II Empowerment 
Zone and in September of 1999, she was hired as its executive 
director. Through her diligent work and the diligent work of 
her staff, the Huntington/Ironton Empowerment Zone has created 
620 jobs in Huntington. It has renovated buildings, developed 
sites for future industrial use, created new housing and 
childcare facilities and created school-based training and 
services.
    In addition, the Huntington/Ironton Empowerment Zone has 
created another 715 jobs in the surrounding region. As this 
subcommittee is acutely aware, the fiscal year 2003 budget 
includes no new funding for Empowerment Zones. And I joined 
other Members of the Empowerment Communities Caucus in urging 
President Bush and the appropriators to fund Empowerment Zones 
at least at the fiscal year 2002 levels. I received a letter 
back from Mr. Daniels, Director of the OMB, saying the 
Administration did not request additional funds because, quote: 
``most EZs have been slow to spend their grants.'' Daniels also 
said, and I quote: ``The Administration believes that tax 
benefits are the driving force behind these programs and that 
additional grants will not increase their effectiveness.''
    Members of this subcommittee, I'm sure you're aware of 
these quotes. Nothing is new. I do thank you for giving me this 
platform to rebut these charges and certainly to allowing the 
witnesses today to do such as well. First the Empowerment Zones 
are not slow to spend their grants. They draw down the funds as 
necessary. Under the able hand of people like Cathy Burns, the 
Huntington/Ironton Zone has committed 100 percent of its funds, 
but has actually drawn down 43 percent of the funds to pay for 
projects as they progress while leveraging over $120 million in 
the process.
    So that shows that just because, and the point is, just 
because the money hasn't been spent doesn't mean the money 
hasn't been put to work.
    And second, tax benefits are not the only driving force 
behind the Empowerment Zones. I've heard statements from the 
directors of many Empowerment Zones discuss their projects.
    Mr. Miller. May I ask you to conclude your introduction?
    Mr. Rahall. Yes, sir, I will. And they each say that tax 
credits are just one tool in a package. Empowerment Zones need 
cash to work with tax credits.
    So finally, Mr. Chairman, I do thank you for indulging me. 
We're all working to overcome the recession, stimulate the 
economy, and it is a mistake for the Administration to zero out 
this vital program.
    So I again thank you for allowing me to be here, and I 
introduce Cathy Burns from Huntington. I know we have another 
member from Huntington, West Virginia on the panel as well that 
will be introduced by his Congresswoman. Thank you.
    Mr. Miller. Thank you, Mr. Rahall. Appreciate that.
    Mrs. Capito, you have two introductions.
    Mrs. Capito. Yes I do. I would like to introduce two 
members of the panel and recognize a third gentleman who is 
with them. They're all three associated with the Upper Kanawha 
Valley Enterprise Community.
    First I would like to recognize Ben Newhouse, who is in the 
audience. He's the Executive Director of the Upper Kanawha 
Valley Enterprise Community. Thank you for being here with us, 
Ben, and thank you for your dedicated service.
    I also would like to introduce two who will testify. First 
is Mayor Damron Bradshaw, who is Chairman of the Upper Kanawha 
Valley Enterprise Community. He's a United Methodist Church 
pastor, mayor of the town of Chesapeake, and he's a wonderful 
community support for that town and for the area that he 
represents.
    Second, and last but not least, I would like to introduce 
the Honorable W. Kent Carper, who is Kanawha County 
Commissioner for over 6 years. I have known Kent for a very 
long time, and he's been very active in all aspects of economic 
development in the Kanawha County. Welcome to Washington.
    Mr. Miller. Thank you. The first witness will be the 
Honorable Jim Sauro, Freeholder Director, Cumberland County, 
New Jersey. You have 5 minutes, sir.

STATEMENT OF HON. JAMES SAURO, FREEHOLDER DIRECTOR, CUMBERLAND 
                       COUNTY, NEW JERSEY

    Mr. Sauro. Thank you very much. First I'd like to thank the 
subcommittee for allowing me to testify on how important the 
Empowerment Zone is to Cumberland County.
    As the Cumberland County Freehold Director, I dream of 
creating a program that would benefit the citizens of 
Cumberland County. You have created such a program, a program 
that I would love to say was my idea.
    In Cumberland County we have one of the highest 
unemployment rates, the lowest per capita income, and I'm sorry 
to say, one of the highest tax rates in the State of New 
Jersey. Over the years, businesses have been slowly leaving our 
area, but along came a fantastic opportunity named the 
Cumberland County Empowerment Zone, a program you created, a 
program that provided the flexibility and the foresight to meet 
the needs of our community and a program that has already had a 
significant and long-lasting impact on our county.
    Cumberland County is finally moving forward with the 
assistance of the Empowerment Zone. By having the Empowerment 
Zone and the Urban Enterprise Zone work hand-in-hand, we are 
able to offer and entice businesses to come to our community. 
In just a short time we have created over 300 jobs, expanded 
existing businesses and helped a number of non-profit 
organizations that serve the citizens of Cumberland County.
    Now I want you to imagine having a great idea that you 
would like to implement and start on your own. But after 
completing a business plan, you realize that you just can't 
quit making the payments to the bank. Now you find out about a 
program that allows you to have access to capital at a low 
interest rate; that gives you tax incentives for being in that 
area and that gives you incentives for hiring people from that 
area. Now you get all of those savings and you put them into 
the business plan and you realize that you can open the 
business because you can now make the payments. You are not 
only able to open your new business, but now you are 
revitalizing the area and hiring individuals from that area, 
again making people and yourself self-sufficient.
    I'm going to deviate a little bit from this testimony. 
Being a small businessperson myself, being involved with the 
Chamber of Commerce in Vineland, you cannot operate a business 
only on tax incentives because they don't last the whole amount 
of time. When you're able to get a low interest loan that lasts 
the whole 10 or 15 years, you can actually figure that into 
your business. This is what helps a businessperson. Big 
businesses might benefit with tax incentives and capital gains. 
A small businessperson is not going to benefit that much from 
these programs. It's called hard earned cash.
    Now with the Cumberland County Empowerment Zone, they're 
not just giving you the money. You have to qualify. You have to 
sit there and do a business plan. You have to prove to them 
that your plan is going to work. And then when you create that 
business and put that business in that area, you are making 
that area better, and people are working in that business from 
that area. So what happens? We turn around and revitalize it 
and you're making a person be self-sufficient.
    Cumberland County is moving in the right direction. If 
funding were not to continue, all the good that has been done 
and the initiatives that have been started would be in vain. We 
have a number of projects that we wish to implement, and 
businesspeople are waiting for answers that would lead to 
additional jobs and ratables. But we can't give them answers, 
because we need the answers from you.
    It is easy to think of this program s just job creation. 
But it is not. It is creating a quality way of life, allowing 
people to have confidence in themselves by making them able to 
take care of their families on their own. It also brings pride 
back to the community and changes people's attitude from maybe 
it can be done to how can we make it happen? When people's 
attitudes change, positive things happen.
    I will now allow the Executive Director of Cumberland 
County Empowerment Zone to give exact details and figures of 
the program and its successes. Hopefully after hearing his and 
the other testimonies, you will understand how important this 
program is to our community. Please continue to keep the 
American Dream going by giving people a chance to own their own 
business and to become self-sufficient. You are doing that 
right now with the Empowerment Zone. Thank you.
    [The prepared statement of Hon. James Sauro can be found on 
page xx in the appendix.]
    Mr. Miller. Thank you, Mr. Sauro.
    The next speaker will be Mr. Gerard Velazquez III, 
Executive Director, Cumberland Empowerment Zone, New Jersey. 
You have 5 minutes, sir.

    STATEMENT OF GERARD VELAZQUEZ III, EXECUTIVE DIRECTOR, 
                  CUMBERLAND EMPOWERMENT ZONE

    Mr. Velazquez. Thank you, sir. I would also like to thank 
you for the opportunity to speak before you today. And at the 
risk of taking all my time by regurgitating information you 
already have in front of you, I want to focus on a couple of 
major points.
    I think one of the things that's been lost throughout the 
testimony today is that the Empowerment Zone program was 
created as a 10-year strategic plan, a strategic plan that made 
local communities come together, think about how they could 
revitalize their entire community, and then implement that 
strategy over the long term. When we talk about businesses and 
their strategic plans, we actually give accolades to the 
businesses that create a business plan, implement that plan and 
then change that plan as change is needed to meet the 
requirements of each community.
    The beauty of the Empowerment Zone program was that it did 
just that. It made us work together as a community. In 
Cumberland County we have four different cities that are 
involved in our Zone, and those communities had to come 
together to create a plan that made sense, that created 
revitalization over the long term.
    We just completed a local business survey in our community, 
and we asked the businesses to indicate to us what the top five 
priorities were for the community for business development in a 
community. Number one was workforce. Number two was 
neighborhood revitalization. Number three were working with 
Government in overcoming regulations. Number four was crime and 
vandalism, and number five was the need for access to capital.
    When we had discussions today in testimony, what was 
definitely lost throughout the conversation was that the 
Empowerment Zone program is a business program and also a 
neighborhood revitalization program; a program that allows us 
to take the opportunity to step back and implement.
    We've talked about obligation of funds. In Cumberland 
County, we've obligated 100 percent of funds to particular 
projects that we're going to invest in over the course of the 
next 18 months. We are quite frankly proud of the fact that 
we've not spent our money. We're proud of the fact that we have 
money that's still sitting in the treasury, because that means 
that we are monitoring our programs. That means that we are 
taking careful consideration to make sure that each program 
that we fund meets its milestones either for a business 
starting up, for a program that's serving the community, or for 
a project that's under construction. We only fund based upon 
each project meeting its milestone. So for us, the idea that we 
haven't spent our money is exactly what we thought we were 
supposed to do.
    Now we're being penalized because the consistent 
terminology or the consistent issues that continue to come from 
HUD are you haven't spent your money. Well, quite frankly, we 
have spent our money. We will continue to spend our money. And 
if we rush to spend, in essence we're total disregarding the 
strategic plan that was set up initially, the strategic plan 
that tells us exactly how we should move forward over the 
course of 10 years. Keep in mind, there's some testimony that 
said this is a 5-year program. This program was funded in June 
of 1999. That means from June of 1999 to now, we have received 
$19 million. Three million dollars was approved in November. 
We're still waiting for the final contract.
    So again, from 1999, June of 1999 until today, that should 
be the time that's being looked as far as how the Empowerment 
Zone has been around.
    The other key thing I want to talk about are tax incentives 
versus grants. Tax incentives are very important tools for 
attracting and retaining businesses in our Empowerment Zone. We 
quite frankly have been called from Empowerment Zones and 
Enterprise Communities throughout the country asking us how we 
utilize our tax incentives. And everybody wants to know, how do 
you use the money, how do you get businesses in a process. And 
we've used the tax incentives in our community. However, one of 
the things I want to point out is we have a tax incentive 
program in our community called the Urban Enterprise Zone, 
which is a State program similar to the Empowerment Zones. One 
of our communities received 75 percent of all the new 
businesses that come into the community.
    Mr. Miller. You have 30 seconds, sir.
    Mr. Velazquez. The reason for that is because they have 
cash. They have money that's lent to the businesses that want 
to locate into that community that assist them with the tax 
incentives. So tax incentives are equal across the board in 
each of our communities. However, one of our communities, 
because they have cash available to lend to these businesses 
who want to locate in our county, is receiving 75 percent of 
all the new business. Thank you.
    [The prepared statement of Gerard Velazquez III can be 
found on page xx in the appendix.]
    Mr. Miller. Thank you very much. I want to say that it's 
important that you know that you're here to have your words put 
in the record so we understand the situations you face in your 
communities. And don't let the lack of attendance today bother 
you. This is very common, especially when we're in recess for 
the day. So don't take it personal. Don't take it that nobody's 
paying attention because the record is being kept, and that's 
what's important.
    Thank you very much for your testimony. Next will be Mr. 
Damron Bradshaw, Chairman Upper Kanawha Valley Enterprise 
Community, West Virginia. You have 5 minutes, sir.

 STATEMENT OF DAMRON BRADSHAW, CHAIRMAN, UPPER KANAWHA VALLEY 
              ENTERPRISE COMMUNITY, WEST VIRGINIA

    Mr. Bradshaw. Thank you, Mr. Chair. We appreciate the 
opportunity to be here today. Our 3-year-old community lies 
within three census tracts over 20,000 residents. This area has 
a population of 25 percent of the residents being below the 
poverty guidelines and 19.8 percent unemployment. This area 
includes parts of Kanawha and Fayette Counties in rural 
Appalachia.
    We have two county commissions, five municipalities and the 
remainder are residents that live up at the creeks and hollows 
and along the Great Kanawha River, having mostly two-lane 
roads. We have one hospital, a college, three watersheds, two 
clinics, several secondary schools and small businesses. Today 
we still have coal mining, which for the time being is a major 
positive economic factor in our communities. However, we and 
other economic development entities feel that new vibrant 
businesses and technology must be attracted to our area.
    Demolition and cleanup will provide some sites, but the 
methods of attracting development are critical and complex, but 
we have proved we're up to the task. We're an organization 
helping to structure our community as an attractive place to 
live and do business. Our Enterprise Community, just 3 years 
old, is helping to utilize ideas and knowledge moving us to the 
place that Congress intended when the zones and the communities 
were established.
    The effect has been very beneficial to the economic and 
community development of our area. It has allowed new 
businesses to enter the area due to tax credits that come along 
with the designation of Enterprise Community. It also allows 
funding availability to clean up some of the Brownfield sites 
that before would never have been addressed.
    Our Enterprise Community is neither self-sustaining nor 
self-reliant. If our Enterprise Community goes unfunded or even 
partially funded, it cannot leverage enough other monies into 
the area to allow economic and community development. 
Enterprise Communities, as opposed to Empowerment Zones, are 
not fully funded and only receive abut $250,000 per year. 
Therefore, we're in a constant struggle for alternative funding 
to bring infrastructure and housing and economic and community 
development and rural renewal to our areas.
    House bill H.R. 2637, if passed, will improve the ability 
of our Enterprise Community to provide essential development 
activities that tax incentives alone cannot do. With a 
continued Enterprise Community, the ability to leverage other 
monies, we can help provide investment capital and begin 
revolving loan funds as well as site preparation and small 
business incubators and shell buildings.
    We have other agencies in the area with which we 
collaborate to provide customized workforce training and 
placement and supportive services that allow job creation and 
placement. In the 3 years of guaranteed funding that we have 
received, we have parlayed our seed money of $750,000 into a 
leveraged $84 million for this community. We would hate to see 
that cease in the future if the expected Federal commitment is 
not continued.
    We've been most effective in soliciting new businesses by 
providing a business incubator through leveraged money that our 
county commission and then-Congressman Bob Wise solicited for 
us, which allows new small businesses to start and to grow.
    The business incubators allowed space for education and 
training. In our satellite locations, which are actually 
offices of our collaborative entities, we have provided 
computer training for youth and seniors alike. If the expected 
Federal commitment is continued, and by networking with other 
entities we can be an integral part of providing training for 
the disadvantaged residents that we have and see that 
unemployed and underemployed residents have another opportunity 
to be part of the workforce.
    We have used the funding that we have received very 
prudently. It has gone for administrative costs as well as 
infrastructure, helping to upgrade water facilities for a 
financially strapped municipality. The money has been used to 
help a senior nutrition center be able to start a hot food 
program. We have spent the money to help at least three 
watershed organizations and other nature and ecological 
programs. We have kept our staff at the proper level so that 
more money can actually go into the community.
    Mr. Miller. You have 15 seconds, sir.
    Mr. Bradshaw. The tax incentives have helped where 
infrastructure is in place, but infrastructure is needed 
besides. The people will not come to the area with their 
businesses if infrastructure is not in place. We appreciate the 
difficulty that you have, but we do appreciate the thoughts 
that you have and we urge you to continue the funding. Thank 
you.
    [The prepared statement of Damron Bradshaw can be found on 
page xx in the appendix.]
    Mr. Miller. Thank you, sir.
    The next speaker will be the Honorable W. Kent Carper, 
Kanawha County Commissioner, West Virginia.

STATEMENT OF HON. W. KENT CARPER, KANAWHA COUNTY COMMISSIONER, 
                         WEST VIRGINIA

    Mr. Carper. Good afternoon, Mr. Chairman. Your comment a 
little bit ago about us not being dissuaded by the empty chairs 
is why we're here. I'm a County Commissioner from one of the 
poorest States in our country. We've lost tens of thousands of 
people in our county. That impact is incredible. In the last 
several years we have lost thousands of jobs, coal mining jobs, 
chemical jobs, jobs that are irreplaceable in today's economy.
    Two years ago, Congress got it right when they funded this 
program. I defined it at that time as the turning point for our 
county. Today the loss of this program to us would revisit a 
tragedy that we don't think we can take.
    I've listened to the comments of those who have testified 
here earlier. They're correct. Business has to have 
predictability. And this program no longer has predictability, 
as it may be funded, it might be funded, it might be this and 
it might be that. That's doing damage to the program almost to 
the point as if the program was not funded at all.
    Perhaps I just don't understand or appreciate the way the 
program is being judged by the Administration. The percentage 
of spending equals whether or not a Government program is a 
success or a failure. I guess if the program wasn't so 
important to us I would just say send us the money and I will 
guarantee you we'll spend 100 percent of it quickly. The fact 
that the ECs and the EZs have been responsible and careful and 
diligent have proven the success of the program.
    What we're basically asking Congress to do is to do what 
our congressional representative, Congresswoman Shelley Moore 
Capito has done, that is, recognize how important this program 
is, how vital it is. The area that I represent has been 
determined by you, the Federal Government, as being an area of 
pervasive poverty with high unemployment. Well, we have about a 
20 percent unemployment rate in this area, which is why we have 
this program to try to turn it around. And the truth of the 
matter is, we would have greater than 20 percent if the 10, 20 
or 30 thousand people who have left our county because they 
can't find a job were still there.
    I know that we have limited time to speak. We are honored 
to participate with you. We urge you to revisit the decision 
made by the Administration. We really don't think we can take 
another hit in an area that has been hit time after time 
economically. Thank you so very much.
    [The prepared statement of W. Kent Carper can be found on 
page xx in the appendix.]
    Mr. Miller. Thank you, sir, for your testimony.
    The next witness will be Mrs. Cathy Burns, Executive 
Director, Huntington, West Virginia/Ironton, Ohio Empowerment 
Zone. You have 5 minutes, ma'am.

STATEMENT OF CATHY BURNS, EXECUTIVE DIRECTOR, HUNTINGTON, WEST 
            VIRGINIA/IRONTON, OHIO EMPOWERMENT ZONE

    Ms. Burns. Thank you. I just want to say that when we 
received the designation, Huntington, West Virginia/Ironton, 
Ohio, we had the economic tools, the cash grants and the tax 
incentives, and we made a 10-year commitment to improve the 
economic opportunity for our zone residents. That partnership, 
as you know, is at risk for two reasons. The Administration 
claims that the expenditure rate is slow. HUD's data, though, 
is only based on the withdrawals from the Federal treasury. My 
zone has one of the highest expenditure rates. But more 
importantly, 100 percent of our funds are committed. But even 
more important than that, of the 12 Round II zones self-
reporting, over 80 percent of the funds are committed.
    So a policy decision has been made based on not enough 
data, and that's unfortunate. But good economic policy is more 
than just how quickly you spend your money. We should be 
evaluated based on the projects that we invest in, projects 
that should drive our economy for leveraging other funds and 
for measurable jobs above the average local wage, and that's 
exactly what we've done in our community. We've invested in 
premier projects that fill the gap.
    We've invested in Kinetic Park, a technology business. 
Technology parks are not a new thing, but it's the fact that 
we've attracted Amazon.com East Coast Customer Service Center 
and the American Foundation for the Blind to be tenants in this 
park makes it unique. That would not have been possible just 
relying on the tax credits, because there was a significant 
amount of earthwork needed to do this project. The same thing 
applied in South Point, Ohio at the industrial site that 
Congressman Strickland mentioned. That project also would have 
never gotten off the planning shelf had we only had the tax 
incentives to use. We had to have those cash grants in order to 
get those projects from the planning shelf to the 
implementation.
    We've created over 690 jobs just within our Zone. And 
Assistant Secretary Bernardi has said that he wants to spend 
the next 2 years with HUD to develop a plan to market the 
credits. Well, in all due respect, I've been marketing these 
very tax credits that Congress passed since 1994, and they have 
limitations. I'm not saying that they don't work, but they are 
limited--there's an assumption made that if they are marketed 
more fully, they will be used more fully, and that is not true, 
because we've been doing it since 1994.
    These tax credits were never adopted to be a stand-alone 
credit. They always had in mind to have the grants to go along 
with it. And let me just tell you real quickly what the Amazon 
deal. They didn't qualify for the 179 deduction because they 
were not separately incorporated. They didn't qualify for the 
wage credit because at that time we didn't receive it. They 
made a $1.5 million investment, which is a pretty tremendous 
investment, but it was not large enough to qualify for the tax 
exempt bonding. This is just an example of how these credits 
have limitations. Sometimes they work and sometimes they don't, 
and that is why you need these cash grants to fill the gap.
    Another thing that we know is, Wal-Mart is who is using 
these credits. But Wal-Mart can locate 10 miles outside of your 
zone. Wal-Marts typically don't want to locate in your inner 
cities where there's higher poverty and higher crime. That's 
why we had the zone designation to begin with. Wal-Mart can 
claim the majority of these tax credits just as easily as a 
business in my zone. So what's the benefit for them locating in 
my zone? They can claim the work opportunity tax credit. They 
can claim the welfare-to-work tax credit without ever stepping 
foot in my zone.
    So therefore, that's another limitation of these tax 
credits, sometimes they work and sometimes they don't. But our 
goal is to get businesses to locate in our zone where we 
already know historically we have higher poverty and we have a 
larger number of people on unemployment who need training. And 
that is why the cash grants have to work in cooperation with 
the tax credits.
    In conclusion, I would just say that by taking away the 
cash grants, you're seriously impeding our progress. As I 
mentioned before, I have no problem utilizing the credits, but 
they don't always work. They're not the answer to economic 
development. Any economic development professional will tell 
you that cash is really what drives an economic deal. The 
credits are a little bonus at the end, but it's the cash grants 
that truly make the deal work. Thank you.
    [The prepared statement of Cathy Burns can be found on page 
xx in the appendix.]
    Mr. Miller. I thank you for your time. The testimony was 
excellent. I hope you're enjoying Washington, DC. Visit your 
local congressman. That's what you're here for. I ask unanimous 
consent to submit for the record a joint statement by 
Congressman Amo Houghton, Thomas M. Reynolds and Jack Quinn. 
Without objection, so ordered. And I ask unanimous consent to 
submit for the record a statement by John LaFalce. Without 
objection, so ordered.
    The Chair notes that some Members may have additional 
questions for the panel which they may wish to submit in 
writing. Without objection, the hearing record will remain open 
for 30 days for Members to submit written questions to these 
witnesses and place their response on the record.
    Without objection, so ordered. This hearing is adjourned. 
Thank you.
    [Whereupon, at 4:07 p.m., the hearing was adjourned.]


                            A P P E N D I X



                             April 10, 2002

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