[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]
COMMUNITY DEVELOPMENT BLOCK
GRANTS (CDBG)--THE IMPACT
OF CDBG ON OUR COMMUNITIES
=======================================================================
FIELD HEARING
BEFORE THE
SUBCOMMITTEE ON
HOUSING AND COMMUNITY OPPORTUNITY
OF THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED EIGHTH CONGRESS
FIRST SESSION
__________
JUNE 30, 2003
__________
Printed for the use of the Committee on Financial Services
Serial No. 108-46
91-774 U.S. GOVERNMENT PRINTING OFFICE
WASHINGTON : 2003
____________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
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HOUSE COMMITTEE ON FINANCIAL SERVICES
MICHAEL G. OXLEY, Ohio, Chairman
JAMES A. LEACH, Iowa BARNEY FRANK, Massachusetts
DOUG BEREUTER, Nebraska PAUL E. KANJORSKI, Pennsylvania
RICHARD H. BAKER, Louisiana MAXINE WATERS, California
SPENCER BACHUS, Alabama CAROLYN B. MALONEY, New York
MICHAEL N. CASTLE, Delaware LUIS V. GUTIERREZ, Illinois
PETER T. KING, New York NYDIA M. VELAZQUEZ, New York
EDWARD R. ROYCE, California MELVIN L. WATT, North Carolina
FRANK D. LUCAS, Oklahoma GARY L. ACKERMAN, New York
ROBERT W. NEY, Ohio DARLENE HOOLEY, Oregon
SUE W. KELLY, New York, Vice Chair JULIA CARSON, Indiana
RON PAUL, Texas BRAD SHERMAN, California
PAUL E. GILLMOR, Ohio GREGORY W. MEEKS, New York
JIM RYUN, Kansas BARBARA LEE, California
STEVEN C. LaTOURETTE, Ohio JAY INSLEE, Washington
DONALD A. MANZULLO, Illinois DENNIS MOORE, Kansas
WALTER B. JONES, Jr., North CHARLES A. GONZALEZ, Texas
Carolina MICHAEL E. CAPUANO, Massachusetts
DOUG OSE, California HAROLD E. FORD, Jr., Tennessee
JUDY BIGGERT, Illinois RUBEN HINOJOSA, Texas
MARK GREEN, Wisconsin KEN LUCAS, Kentucky
PATRICK J. TOOMEY, Pennsylvania JOSEPH CROWLEY, New York
CHRISTOPHER SHAYS, Connecticut WM. LACY CLAY, Missouri
JOHN B. SHADEGG, Arizona STEVE ISRAEL, New York
VITO FOSSELLA, New York MIKE ROSS, Arkansas
GARY G. MILLER, California CAROLYN McCARTHY, New York
MELISSA A. HART, Pennsylvania JOE BACA, California
SHELLEY MOORE CAPITO, West Virginia JIM MATHESON, Utah
PATRICK J. TIBERI, Ohio STEPHEN F. LYNCH, Massachusetts
MARK R. KENNEDY, Minnesota ARTUR DAVIS, Alabama
TOM FEENEY, Florida RAHM EMANUEL, Illinois
JEB HENSARLING, Texas BRAD MILLER, North Carolina
SCOTT GARRETT, New Jersey DAVID SCOTT, Georgia
TIM MURPHY, Pennsylvania
GINNY BROWN-WAITE, Florida BERNARD SANDERS, Vermont
J. GRESHAM BARRETT, South Carolina
KATHERINE HARRIS, Florida
RICK RENZI, Arizona
Robert U. Foster, III, Staff Director
Subcommittee on Housing and Community Opportunity
ROBERT W. NEY, Ohio, Chairman
MARK GREEN, Wisconsin, Vice MAXINE WATERS, California
Chairman NYDIA M. VELAZQUEZ, New York
DOUG BEREUTER, Nebraska JULIA CARSON, Indiana
RICHARD H. BAKER, Louisiana BARBARA LEE, California
PETER T. KING, New York MICHAEL E. CAPUANO, Massachusetts
WALTER B. JONES, Jr., North BERNARD SANDERS, Vermont
Carolina MELVIN L. WATT, North Carolina
DOUG OSE, California WILLIAM LACY CLAY, Missouri
PATRICK J. TOOMEY, Pennsylvania STEPHEN F. LYNCH, Massachusetts
CHRISTOPHER SHAYS, Connecticut BRAD MILLER, North Carolina
GARY G. MILLER, California DAVID SCOTT, Georgia
MELISSA A. HART, Pennsylvania ARTUR DAVIS, Alabama
PATRICK J. TIBERI, Ohio
KATHERINE HARRIS, Florida
RICK RENZI, Arizona
C O N T E N T S
----------
Page
Hearing held on:
June 30, 2003................................................ 1
Appendix:
June 30, 2003................................................ 75
WITNESSES
Monday, June 30, 2003
Braithwaite-Burke, Hon. Yvonne, Chair, County Board of
Supervisors, Los Angeles County, CA............................ 21
Branch, Cheryl, Associate Director, Los Angeles Metropolitan
Churches, Los Angeles, CA, Chair, Empowerment Zone Oversight
Committee...................................................... 70
Bregon, Hon. Nelson, General Deputy Assistant Secretary (acting),
U.S. Department of Housing and Urban Development, Washington,
DC............................................................. 4
Garcetti, Hon. Eric, Member, District 13, Los Angeles City
Council, Los Angeles, CA....................................... 24
Gay, Lori, President, Los Angeles Neighborhood Housing Service,
Los Angeles, CA................................................ 59
Graves, Clifford, General Manager, Community Development
Department, City of Los Angeles, CA............................ 27
Jackson, Carlos, Executive Director, Community Development
Commission, Los Angeles County, CA............................. 30
Merino, Felipe, Executive Director, Molina Gardens Improvement... 66
Mistrano, Sam, Acting Executive Director, Southern CA Association
of Non-Profit Housing, Los Angeles, CA......................... 62
Sausedo, Robert, Chairman of the Board, Los Angeles Community
Development Bank, Los Angeles, CA.............................. 33
Ybarra, Arturo, Executive Director, Watt Century Latino
Organization................................................... 69
APPENDIX
Prepared statements:
Braithwaite-Burke, Hon. Yvonne............................... 85
Branch, Cheryl............................................... 76
Bregon, Hon. Nelson.......................................... 80
Garcetti, Hon. Eric.......................................... 88
Gay, Lori.................................................... 91
Graves, Clifford............................................. 91
Jackson, Carlos.............................................. 114
Merino, Felipe............................................... 131
Mistrano, Sam................................................ 121
Sausedo, Robert.............................................. 124
FIELD HEARING
COMMUNITY DEVELOPMENT BLOCK
GRANTS (CDBG)--THE IMPACT
OF CDBG ON OUR COMMUNITIES
----------
Monday, June 30, 2003
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 10:01 a.m., 700
State Drive, Los Angeles, California, Hon. Robert W. Ney
[chairman of the subcommittee] presiding.
Present: Representatives Ney and Waters.
Chairman Ney. Welcome. Today the subcommittee will hold its
first field hearing of the 108th Congress to discuss the
effects of the community relative to block rent or the CDBG
program. And this is the Subcommittee on Housing Community
Opportunity which is within the Financial Services Committee.
CDBG is generally recognized as the mainstay for target of
community development of cities, counties and rural areas to be
principally dependent as well as moderate income persons. The
program attempts to strike an appropriate balance between local
flexibility and national targeting to low and moderate-income
persons.
It has developed this reputation for the past 28 years, and
local officials constantly use CDBG funds to take on new
challenges in the areas of housing, neighborhood development,
public facilities in the division of Social Services.
The CDBG program emphasizes HUD's division of partnerships
with State and local governments. Due to the flexibility and
uses of CDBG funds, the program is in conjunction with many
other HUD programs to target specific populations.
Notwithstanding the flexibility of the program, rehabilitating
and producing housing is the largest singular use of
approximately 31 percent of the funds by entitlement
communities.
Housing activities include rehabilitation of ownership and
rental units assisting new construction, transitional,
temporary housing as well as necessary site improvements and
administrative assistance. The second largest use of the funds
is approximately 25.6 percent of public facilities and prudent,
and, I think, in that area as a more generalized area where we
could find out the answers to questions where does it is
actually go, and how does--how are those decisions actually
determined?
Every year HUD provides block raised eligible communities
to, one, central cities of metropolitans, MSAs; two, other
population cities for the population of at least 50,000; three,
qualified urban counties with populations of at least 200,000,
excluding the population of entitlement cities; and four, State
distributed funds to small communities that are not otherwise
eligible.
HUD determines the amount of each entitlement rent by
statutory dual formula uses several measures of community
needs, including the extent of poverty, population, housing,
overcrowding, age of housing and population growth in
relationship to other metropolitan areas. I also want to at
this time applaud the leadership of my colleague, our ranking
member, Maxine Waters. She asked for this hearing, and the
Congresswoman has invited me out to California here, and I want
to preapologize to my relatives in El Monte, South El Monte,
Fontana when they find out I'm here, I'm not able to get to
their house. So it will cause a--I am going to make a phone
call to them. I want to assure myself of that.
But I want to again thank Maxine Waters. She's played an
active role in helping her property maximize their use of CDBG.
We also support funds coming from the Federal government, but
frankly loan members that have urban or rural settings, where
are the funds going, where do they go, what type of input is
out there from the Federal representatives of members of
Congress themselves and how can they play a part in this
process?
I'm from a very rural area of Appalachia in Eastern Ohio,
and I just really want to thank the cooperation and spirit of
cooperation that my colleague, our ranking member, Maxine
Waters has shown in the U.S. Capital.
But I also would like to share that I appreciate the
working relationship that we have developed. We have both
discovered that working together, we can deal with the problems
of rural America as well as the problem of urban America, and
we are attempting to forge an alliance wherever we can to make
sure that resources are directed both to rural and to urban. So
my--my work on this committee has been extremely enjoyable
because we have found that we can, indeed, have bipartisan
efforts to deal with the problems that we're charged to take
care of.
The Community Development Block Grants are important, too,
in the economic development care to revitalizing neighborhoods
and providing social services. CDBG funds may be used for a
wide range of activities, including acquisition of real
property, relocation and demolition, public services and
assistance to profit-motivated businesses to carry out economic
development and job creation, retention programs.
The City and County of Los Angeles received 92 and $38
million to deliver services. Section 108, the loan guarantee
provision of the Community Development Block Grant program is
one of the most potent and important public investments
materials that HUD offers to local governments. It allows them
to transfer a small portion of the CDBG funds into federally
guaranteed loans large enough to pursue fiscal and economic
revitalization projects that can renew entire neighbors. Such
public support is often needed to inspire private and economic
activity providing the initial resources or simply the
confidence that private firms and individuals may need to
invest in distressed areas.
Section 108 loan guarantee funds are extremely important to
me. One of my early accomplishments, when I went to Congress,
was to discover Section 108 funds that were underutilized, and
at that time, they were being scored in the budget. And they
were not as attractive because they were being scored, and we
went to work. And we helped move the Congress to not score the
CDBG, and that year, I was able to pass legislation to identify
$10 billion in CDBG--I mean, in Section 108 to be used 2
billion per year for five years to get into the cities to get
involved with economic development. I understand some things
have changed now in the way that Section 108 is looked at, but
I think still, it's a very important tool that is either
underutilized, misutilized or just misunderstood. And so we
want to find out today what's happening with Section 108 here
in Los Angeles.
Ms. Waters. Thank you, Mr. Chairman.
It's eight years later, and LACDB will be dissolved at the
year 2003. The City of Los Angeles will have access to $190
million of Section 108 guarantee authority available to the
LACDB, and I would like to hear what their plans are for the
reallocation of this money.
Earlier this year, the city requested that $50 million of
the 196 million go to the city's community development
division. I and the affected community specifically would like
to know which projects or proposals does the city plan to fund
with this funding? Also, I'd like to hear how does the city and
the county plan to address their affordable housing needs? We
understand that the mayor has organized $100 billion housing
trust fund, and hopefully, we can learn some more about that
today.
The primary purpose of the Community Development Bank
programs were designed to create and to retain jobs in the
empowerment zone, and I hope that our witnesses today can talk
about jobs in relationship to the Community Development Bank
programs. Because of the problems that we had here in Los
Angeles, we were hopeful--we were supportive of the city and
the county receiving exemption of the CDBG cap, and we
increased the social services from 15 to 25 percent.
Some of the conditions that were identified when we had our
problems here, certainly still exist and remain, and we need to
examine the possibility of--as we have been requested to do, to
look at permanent exemption for the 25 percent public services
cap. I don't know where we are with that at this time.
Again, I'd like to thank the Chairman for holding this
field hearing here in Los Angeles. I look forward to hearing
from the witnesses today.
Chairman Ney. Thank you. Gentlelady, ranking member of the
committee. And our first panel and the first witness.
By the way, this is in the 108th Congress the first time we
have ventured outside the capital for a public hearing, so
you'll be our first witness on this.
Nelson Bregon is the Deputy Assistant Secretary for the
grant programs in the office of Community Planning and
Development of HUD. And he's responsible for the management
oversight of the CDBG program the Section 108 loan guarantee
problem and the home investment partnership program. He has a
Bachelor of Arts from the InterAmerican University of Puerto
Rico in 1976, and although he didn't attend the Ohio State
University, he got close with Kent State University in Ohio in
1978. Prior to accepting his appointment at HUD, he was the
Senior Vice President for the officer of community based
securities of Ginny Mae, the Government National Mortgage
Association, and we appreciate you and your staff for traveling
to California. We'll begin.
STATEMENT OF NELSON BREGON, GENERAL DEPUTY ASSISTANT SECRETARY,
COMMUNITY PLANNING AND DEVELOPMENT OF HUD
Mr. Bregon. Good morning, Chairman Ney, ranking member
Waters, Mr. Clinton Jones and other members of the
subcommittee. Thank you for giving me the opportunity to be
here this morning as part of the subcommittee's examination of
community and economic development activities for the City of
Los Angeles.
As Chairman Ney indicated, my name is Nelson R. Bregon. I
am the General Deputy Assistant Secretary for the Office of
Community Planning and Development with the U.S. Department of
Housing and Urban Development. I am a career employee with the
department. I started with the department some 22 years ago,
and I've been in and out of the private sector and the public
sector on numerous occasions, and here I'm back with the public
sector.
I'm here today on behalf of Secretary Martinez and
Assistant Secretary Bernardi to discuss one of HUD most
important tools for community housing and economic development.
That is the Community Development Block Grant program which
most of us refer to as ``CDBG.'' As you are aware, State and
local governments depend on HUD and a system of grants to
support community economic development projects that revive
troubled neighborhoods and spark urban revitalization.
This year, HUD has requested nearly $4.5 billion for the
CDBG program to meet local community housing and economic
development needs in more than a thousand eligible cities,
urban counties, the 50 States, the Commonwealth of Puerto Rico,
the U.S. Virgin Islands and in the Insular Areas.
For fiscal year 2003, which is the fiscal year we're in,
the City of Los Angeles received approximately $89 million in
CDBG funding, and by the same token the County of Los Angeles
received about $37 million in CDBG funding. We are all aware
that one of the most important reasons for the success of the
HUD-sponsored Community Development Block Grant program is its
great flexibility and its reliance on local elected officials
and community leaders to identify key revitalization projects
and activities.
CDBG activities are initiated at the local level, based on
a communities identified local needs, priorities and benefits
to the communities. As identified in that community's
Consolidated Plan, which is a document that is submitted to HUD
in conjunction with the CDBG, the home and other formula grant
programs.
Entitlement communities such as the City of Los Angeles may
use CDBG funds for a variety of community, housing and economic
development activities which focus on neighborhood
revitalization, economic development and the provision of
improved community facilities and services to lower moderate
income residents. Those communities receiving a grant are free
to determine what activities to fund as long as certain
requirements are met, including that the activity is eligible
and, in addition, meets one of the three following national
objectives: The first one is benefit to low and moderate income
persons. The second national objective would be: Aid in the
prevention or elimination of slums or blight; and the third is
an activity that meets urgent community needs for which that
community cannot find the financial resources to fund itself.
In addition to this requirement, 70 percent of an
entitlement grantees CDBG funds--and this includes the Section
108 loan guarantee, it includes the economic development
initiative grants, as well as the Brownfield economic
development initiative grants, must primarily benefit low and
moderate income residents. 70 percent of all these monies must
primarily benefit low and moderate income residents. And this
is calculated by HUD on either a one- or two- or three-year
basis, depending on the period of time that the consolidated
plan that is submitted by that grantee covers.
In most instances, we see that most communities have a
three-year consolidated plan. Now, the responsibility for
ensuring that local Community Development Block Grant funds
meet Federal requirements rests initially and primarily with
the executive authority and the mayor or the County
Commissioner of each CDBG grantee, subject to schedule
monitoring by representative of HUD in the case of Los Angeles,
the county and the city, it is our Los Angeles field office
representative that had the responsibility to monitor on a
scheduled basis our grantees.
And by the same token, it's also conditioned on audits by
HUD office of Inspector General. As we all know, working with
local governments and nonprofit, mostly 501(c)(3)
organizations, are an important conduit for neighborhood-based
program delivery. Nonprofit organizations such as community
development corporations or local development corporations are
often asked to undertake projects that are inherently risky
because of factors such as locations, which many have high
crime, high vacancy rate, high poverty and a lot of this
investment.
CDBG grantees utilize nonprofit organizations because they
have specialized skills and neighborhood acceptance. It is
important to note, however, that the primary responsibility for
insuring that Community Development Block Grant funds are used
to revitalize low and moderate income neighborhoods and that
the projects and activities undertaken meet all programs,
statutory and regulatory requirements, belongs to the CDBG
grantee.
In this particular case, we're talking about the City of
Los Angeles and the county of Los Angeles. The Community
Development Block Grant program statute and regulations
requires that grantees identify eligible activities that will
provide benefits to communities, especially low and moderate
income distress communities.
The flexibility of the CDBG program allows grantees to
implement community development activities based on local
decisions. Communities may choose to provide assistance to
nonprofit organizations for neighborhood development
initiatives as they deem necessary. The success of any
community development initiative must include accountability
for use of program funds to create tangible results for the
neighborhoods for which it serves.
Working together with local leaders, special officials and
members of Congress, we at HUD have forged a partnership which
has made CDBG a shining example of how government can work.
CDBG provides funding for grantees to develop strategies
revitalize neighborhoods, promote economic development and
provide much needed social services.
Grantees have great latitude in the type of projects and
activities that they may fund. As you mentioned, Mrs. Waters,
and I agree, a grantee can undertake myriad of activities
whether acquisition, disposition, housing rehabilitation,
public facilities, social services, economic development, all
within the realm of the CDBG program.
For instance, we have some statistics here that shows that
in fiscal year 2002, entitlement grantees expended
approximately $275 million for economic development activities,
about $955 million for public facilities, about $518 million
for social services and about $1 billion, the preponderance of
the use of these funds for housing-related activities, either
housing rehabilitation or down payment assistance or any type
of housing assistance.
For the program year, Los Angeles expended about $15
million for economic development activities, about $44 million
for public facilities and improvements, about 45 million for
social services and approximately about $28 million for
housing-related activities.
By the same token, the County of Los Angeles expended
approximately $6 million for economic development, $12 million
for public facilities and improvements, $9 million for social
services and about $15 million for housing-related activities.
As part of the CDBG program, each formula's grantee's
responsible for developing its own consolidated plan that
encompassed funding for the CDBG program, the home program, the
housing opportunities for persons with AIDS and the emergency
shelter grant program.
So each community prepares a consolidated plan for these
four formula grants. They must hold a public hearing, and they
must receive the input from the community as to which
activities they would like to see funded in their particular
neighborhood. HUD's CDBG program currently provides funds
directly to entitle units of general local government, cities,
town and urban counties, based on the statutory formula that
Chairman Ney pretty much gave us what those parameters are,
poverty, pre-1940 housing, growth lag and a number of statutory
requirements that dictates how we distribute the money to our
grantee clients.
The current method of funding appears to be satisfactory. A
grant may not be disbursed. A grantee may not disburse CDBG
funds until there is a legal obligation to pay. Generally when
contracted goods and services have been delivered or provided.
A grantee has full responsibility to assure that his
contractors have conformed to all applicable program
requirements and that invoices or other type of documentation
are proper and represent goods and services provided consistent
with the contract.
So the rule is that grantees can draw down the money, when
they're ready to use. We have a three-day rule, as you all
know, that once they draw down the money from Treasury, they
have to disburse that money within three days. So hopefully,
they have all the documentation that is required for them to
make that payment to a contractor or subrecipient, as the case
may be.
I know that this subcommittee has some questions on Los
Angeles Community Development Bank, and let me just mention
some facts: In December, 1994, the City and County of Los
Angeles received designation from HUD for a Supplemental
Empowerment Zone in the area covered by the unsuccessful joint
City, County and empowerment zone application.
So in 1994, there was an empowerment zone designation
competition and, the City and the county applied. They were not
successful in obtaining the Empowerment Zone designation, but
the previous administration felt that it was a good thing to
give a supplemental empowerment zone designation; and that's
what this did. The purpose of the Supplemental Empowerment Zone
designation was to provide a special name for the award to the
City's hundred million dollars in economic development
initiative which was a grant and $25 million to the County.
Now, once this grant money was received, one of the
conditions was that this money must be matched with Section 108
loan guarantee funds, and both the City and the county did
that. The EDI awards to Los Angeles City and County took place
pursuant to a notice of funding availability published in the
Federal register on December 7th, 1994. And the supplemental
empowerment zone designation and the economic development
initiative grant were awarded on December 21st, 1994.
Now, there are a number of different levels of
accountability. The Los Angeles Community Development Bank, as
an operating entity, is accountable to its Board of Directors,
and as a subrecipient of the City and the county, it's also
accountable to the City and the county. Concurrently, the City
and the county, as CDBG grantees, are accountable to HUD for
the expenditure of the Section 108 and the EDI funds by the Los
Angeles Community Development Bank in compliance with
applicable Federal statutes and regulations.
HUD does not have a direct contractual relationship with
the bank. The contractual relationship is between the City, the
County and the bank. And the City and the county are
accountable to HUD for the uses of the EDI grant and the
Section 108 loan guarantee funds. The original intent of the
Los Angeles Community Development Bank was to fund economic
development activities in some of the most economically
disadvantaged areas of the City and the county, primarily the
area of the supplemental empowerment zone.
The Los Angeles Community Development Bank has, in fact,
utilized approximately $190 million from the combined City and
County Section 108 and EDI awards to undertake economic
development activities in the designated area.
Thank you very much, and this statement concludes my
opening remarks. At this point, I will be more than happy to
answer any questions that you may have.
I have next to me Mr. Stanley Gimont who is the Deputy
Director for the Financial Management Division, and he's really
the expert when it comes to the nuances of the 108 and the EDI
grant program. By the same token, we have some of our Los
Angeles field office staff members, Mr. Robert Ilymin who is
our CBD director and he has a lot information as to the
activities that are undertaken by the county and the city
utilizing CDBG funds, 108 funds, EDI funds, BEDI funds or any
other HUD funds.
So at this point, I'd like to turn it over to you if you
have any questions. Thank you.
[The prepared statement of Nelson Bregon can be found on
page 80 in the appendix.]
Chairman Ney. Thank you for your testimony. The question I
have is: When was the last time that the formula was reviewed,
and do you think it's balanced between the east and the west?
Mr. Bregon. That's a very good question. In 1980 was when
we came up with the dual formula that gave a community a grant,
based on two formulas. We give that community the benefit of
the doubt; and we give them the amount of the greatest formula.
Now, what has happened lately, Chairman Ney, is that with
the 2000 data on population, on poverty, on growth lag, we've
seen some major dislocations, if you will, from one community
to another. We've seen that some communities are loosing maybe
up to 20 percent of the CDBG formula grant, and other
communities gaining 15 percent of CDBG funds.
So right now, the Department, the Community Planning and
Development office in conjunction with the Office of Policy
Development and Research at HUD, are looking at the formula,
and we're looking at different ways that the formula perhaps
could be either tweaked or changed altogether. And we will be
making recommendations to Assistant Secretary Bernardi and to
Secretary Martinez who will, in turn, make a proposal to you as
to whether, in fact, the formula should need some sort of
changes or not.
Chairman Ney. That was 22 years ago that formula was
established, and that's why you, know, the question should be
changed by you're saying that you're looking into it.
Mr. Bregon. That is correct.
Chairman Ney. Do you have an idea of a time frame when you
will complete preliminary look at it, it will be given to
Secretary Martinez, when he will come to us?
Mr. Bregon. Our Office of Policy Development and Research
is telling us that by the end of the fall, they should have
concluded their studies. As you know, we work very closely with
the Office of Management and Budget. They make sure that
they're always looking over our shoulder. Maybe there's someone
here from OMB. So we'll be working closely with them. I would
say early next year we will have--we'll be meeting with
Secretary Martinez and start discussing what the effects and
the impacts of the formula is.
Chairman Ney. In the fall?
Mr. Bregon. I would say late fall, that the report will
come out, early next year. I would say February we'll be
meeting with Secretary Martinez and giving him different
options, if you will.
Chairman Ney. And if you could post us on the progress of
that, we'd appreciate it.
Mr. Bregon. We will.
Chairman Ney. Los Angeles has a special exemption to allow
25 percent of the CDBG funds for public services use is the
category. So what--what uses can be utilized under that
category of public service?
Mr. Bregon. Public service. You are correct. The
regulations stipulate that a community may not use more than 15
percent of their grant for public services. The City of Los
Angeles was given an exemption, and they can use up to 25
percent as Congresswoman Waters indicated before. The monies
can be used for mostly soft cost. It could be for meal for the
elderly, it could be operating expenses for day care centers,
it could be Meals on Wheels for handicap people. So it is
pretty wide how this money can be utilized by--by a grantee.
Chairman Ney. How about--how about oversight between HUD,
City, County? How would that work?
Mr. Bregon. Oversight?
Chairman Ney. Uh-huh.
Mr. Bregon. Well, as I indicated before, we do regular
monitoring visits of our grantees. Because of our limited
resources, we're doing about 40 percent of all grantees in
monitoring on a yearly basis. So when we monitor the City, we
also try to do the County because a lot of the activities are
interrelated. A lot of funding is interrelated. So we do
monitor the City and the county on a regular basis.
Chairman Ney. One other thing. My final question: Dealing
as you would with urban and rural, do you--do you see any
differences? For example, CDBG in towns of, you know, 4,000,
2,000 also went from what we call 5,000 a city--that would be a
large City--we have a lot of places 2-, 300 people, and
everybody knows about these funds, trust me. I mean, they're in
the paper. They're in meetings. They're small towns.
Now, in--that's why I'm here to learn--and larger urban
settings, I know there are people who care about these, but I
would assume there would be--or let me ask this: Would there be
a difference in communication on where these monies are going
or could they go between the urbans and rurals, and is there a
difference of how you look oversight between urban and rural?
Mr. Bregon. Yes, sir. As you mentioned on the entitlement
grantees, we have central cities. We have cities with the
population of 50,000 or more. We have urban counties with
population of 200,000 or more. On the other hand, then we have
the States. About 30 percent of the funding goes to--I'm sorry,
25 percent--25 percent of funding goes to states.
Chairman Ney. So the $4.5 billion gets divided. 75 percent
goes to entitlement communities; 25 percent goes to the States.
Now, how the States divvy up that money among the smaller
designations is up to the States. Some States might say,
``We're just going to divvy up the money by per capita,''
looking at how many low income residents a community has, and
we're going to give them $80 per each low income resident.
Some other State says, ``No, we don't want to do it that
way. We going to do priorities,'' and perhaps our first
priority is infrastructure. Our second priority is housing
rehabilitation. Our third priority is public facilities. And
then they would have all the smaller communities come in and
compete for the money at the state level.
The State must do a consolidated plan just like an
entitlement community. They must go around the entire state and
receive input from the smaller communities to be part of that
consolidated plan that is submitted to HUD on a regular basis.
So the entity that is accountable to HUD for the small
cities program is the state. It's not each individual community
that receives its monies, but it's the state that entity that
is responsible for the management and oversight of the State
CDBG program.
Chairman Ney. Gentlelady? Counsel?
Ms. Waters. Thank you very much.
I certainly appreciate your very well-organized
presentation to explain the mission, the national mission for
CDBG. I think I'm going to ask some questions that are directly
related to this area. I want to know about the Community
Development Bank first. I want to understand what happened.
We're going to have some more people here testifying today.
The reason I'm so concerned about it at this point is because
there are dollars that are now--that could be made available
from that Community Development Bank to be used for other
purposes or like purposes or purposes that are inconsistent
with the intent of Section 108.
As I understand it, the Community Development Bank is no
longer the Community Development Bank that, based on a decision
by the city of Los Angeles with some maybe encouragement from
the Inspector General based on a report, that there is no
longer the Community Development Bank as we knew it. And that
there's several things going on: Requests for some of that
money again to be used for other purposes or for like purposes
in different ways. And there's another part of this discussion
that I'm recently just getting information about that talks
about or discusses the venture capital firm that had a
management contract of some sort with the Community Development
Bank that placed or invested funds in some businesses.
Some of them went belly up, I suppose--but it's still in
that portfolio--we still have some businesses who owe us money
who are operating or they may be out of business, and there's
further talk about selling off that portfolio in some way that
may help us to recapture some of the debt--can I get some
discussion on that?
Mr. Bregon. Sure. As I indicated originally, when the
supplemental empowerment zone designation was given to the City
and the county of Los Angeles, there was an EDI grant of $100
million to the City and $25 million to the County.
As a minimum requirement, Miss Chairman----
Ms. Waters, the City had to match the hundred million
dollars of EDI grant with a hundred million dollars of Section
108 loan guarantees. The City opted to request a higher
authority on the 108. So even though the minimum amount of 108
that the City had to apply for was a hundred million dollars,
they indicated to HUD that they really wanted to do $300
million.
So the minimum requirement was a hundred million; so there
was an additional $200 million in one-way authority for the
City. So you are correct. The City has expended the original
hundred million dollars to match the EDI, and in addition, they
had spent about $4 million of the additional $200 million, so
there's about $196 million in Section 108 authority which the
City could use in other areas outside the targeted area as long
as they meet all the other requirements of the 108 program.
Ms. Waters. Outside the target area?
Mr. Bregon. Yes.
Mr. Gimont. And just as a final point, the original
application that we considered in 1995 defined something called
the Section 108 area outside--which included not only the zone,
but other enterprise community areas designated within the City
of Los Angeles as well as other census tracts and areas of the
City which would meet certain low moderate income thresholds as
well as poverty thresholds.
So that was the 108 area as defined in the original
application, and our--our understanding at this point with
respect to the City proposal is that of the initial $15
million, they would like to carve off the remaining 196, those
funds will be expended within the area defined in the original
application back in 1995.
Chairman Ney. Generally--can we have that broken down one
more time? The whole----
Mr. Bregon. Sure. The--with the original empowerment
supplemental empowerment zone designation, the City received
$100 million of EDI grant, the economic development initiative
grant--this is free money--the County received $25 million. The
city and the county were to meet dollar for dollar the grant
with 108 monies. The County did $25 million in 108, and the
City, instead of doing the minimum, a hundred million, did 300
million. So now we're looking at a total amount of about $430
million.
Chairman Ney. 430 million?
Mr. Bregon. That is correct.
Ms. Waters. Okay. Go ahead.
Mr. Bregon. Now, Miss Waters, you indicated that it has
come to your attention that the City and the county will be
closing down the bank. It is our understanding, that there is
an agreement that the bank will cease to operate by the end of
this calendar year. There is a portfolio there that is owned by
the bank with a number of loans, many of them performing loans.
Many of them nonperforming loans as well, and there is a
venture capital fund that perhaps Mr. Gimont can give you more
details as to how that works and how that came about and what
are the nuances there with the venture capital.
Ms. Waters. Okay. Before you go into that, I want to go
back so that we can have a better understanding. The 50 million
that's been requested by the city has been requested to be used
in the same manner that it would have been used under the
Community Development Bank and meeting the requirements of
Section 108 expenditures?
Mr. Gimont. Yes.
Ms. Waters. Is that what you're saying?
Mr. Gimont. The before profit businesses. That's what we
approved in the original application in 1995, and that is how
the city would propose to use this 50 million----
Ms. Waters. No. I want to be on the same track.
Are they going to use the $50 million in the same area that
they would have had to use it under the agreement that you had
when you created the supplemental zone, or are they going to
use it in the way that you would use the original Section 108
money that could be used in--throughout the City in other ways
that's identified for economic development?
Mr. Gimont. Well, then let me back up a step. With respect
to the $200 million that was over and above the $100 million
required as to match the EDI funds, those 200 million could be
spending what the City defined as the 108 area which included
not only the zone, but the other enterprise community areas
within the City as well as other census tracts and areas
meeting certain poverty and low to moderate income thresholds.
Ms. Waters. Well, tell me how that is matching money in
order to get the money for the supplemental zone.
Mr. Gimont. That----
Ms. Waters.----the Section 108, 200 million or 300 million.
Mr. Bregon. There was a $100 million requirement, minimum.
Ms. Waters. Okay.
Mr. Bregon. And in addition, to the hundred million, the
city requested $200 million that has, let's say is less
restrictive, the use of that monies is less restrictive than
the original hundred million that was to match the EDI grant.
Ms. Waters. Okay. So the EDI grant was 100 million. All
they had to do was put up $100 million match.
Mr. Bregon. That is correct on 108.
Ms. Waters. Okay. If they had only put up $100 million
match, all of that money would have been confined to the
supplemental zone; is that correct?
Mr. Gimont. Right.
Mr. Bregon. That is correct.
Ms. Waters. However, since they decided to use more for
that match, you're saying that could be used anywhere----
Mr. Bregon. The original----
Ms. Waters.----in the other zone.
Mr. Bregon. The original $200 million----
Ms. Waters. Yeah.
Mr. Bregon.----they identified the service area larger than
the supplemental empowerment zone. As Mr. Gimont indicated, it
was the supplemental empowerment zone area other areas that
showed high incident of poverty and low income.
Ms. Waters. Well, let me----
Mr. Bregon. For instance----
Ms. Waters. Let me just interrupt you. It seems to me that
if it was--you already had Section 108 identified areas. There
was no need for you to put that additional money into the match
because you could use it any way that you wanted to.
Mr. Bregon. That is correct.
Ms. Waters. So why did you--why did you put it into the
match? Why did they put it into the match?
Mr. Bregon. The city requested at that time, they said not
only did we have--they felt that the need of the community was
so great that there was a market, there was a need in the
community for more than the $200 million or the--and they
decided that they wanted a larger authority under the 108 in
the amount of $200 million more, and that is the grantees'
prerogative. I mean, if the grantee requests that and it's
within the limits under the 108 program which is five times----
Ms. Waters. Yeah, they would have done that or could have
done that if you had no such thing as a supplemental zone----
Mr. Bregon. That is correct.
Ms. Waters.----in the way that you normally use it.
Mr. Bregon. Yes, ma'am.
Ms. Waters. What I'm trying to find out is, why was it
connected to the supplemental zone?
Mr. Gimont. That was a decision on the part of the city.
Ms. Waters. Well, evidently the city felt there was more
money needed in the supplemental zone; is that correct?
Mr. Bregon. That is correct.
Ms. Waters. Okay. Now, if that is true--if that is true,
then we have monies that are now from the Section 108
supplemental zone money, that you're telling me has more
flexibility and can be used outside the supplemental zone. Who
made that decision, and how do you make it?
Mr. Bregon. The grantee made that decision. The grantee
told us which were the areas that they want to service with the
additional $200 million.
Ms. Waters. So now that the bank is closing down and we've
got this 196 million, the City is talking about taking a
portion of that and doing whatever it is they want to do with
it. It doesn't have to be identified or confined to this
supplemental zone area, and when HUD looks at that, what does
HUD say as the oversight? Is that in compliance with the
original purpose of the use of the Section 108?
Mr. Bregon. Yes, it is. The $200 million in addition to the
already used $100 million that had to be used within the
supplemental empowerment zone. In addition, they have used $4
million more into the zone, which they didn't have to do. Now,
they have $196 million. Now, they're saying the bank is going
to close. We want to use this 196 authority to do other Section
108 funded projects----
Ms. Waters. So then----
Mr. Bregon.----in the larger area that we had identified to
you HUD before----
Ms. Waters. So when HUD worked the agreement with the city
of L.A. For the supplemental zone and the application that
included the 100 million plus, the 200 million----
Mr. Bregon. Yes, Ma'am.
Ms. Waters.----there was something in that agreement that
said you only have to use $100 million of this in the
supplemental zone.
Mr. Bregon. That is correct. As a minimum.
Ms. Waters. As a minimum.
Mr. Bregon. Yes.
Ms. Waters. And you could have the flexibility to take the
other 200 million and use it in what you have identified as
areas----
Mr. Bregon. Areas of distress.
Ms. Waters.----areas of need that would fit into whatever
we call our Section 108 loan guarantee?
Mr. Bregon. That is correct.
Ms. Waters. Okay. And you will, of course, show to the--the
Congresswoman that agreement?
Mr. Bregon. Absolutely, ma'am.
Ms. Waters. Okay. Thank you.
Mr. Bregon. Now, by the same token, all public documents,
ma'am----
Ms. Waters. Congresswoman wants to see the agreement.
Mr. Bregon. Okay.
Ms. Waters. All right.
Mr. Bregon. Now, by the same token, let's say that the city
says to us, now we have $196 million but we really want to use
it city-wide in any neighborhood, for any activity that is
eligible under 108. If they decide to do that, then they would
have to amend that agreement, and they would have to go perhaps
even amend or consolidate that plan, perhaps even hold public
hearings with the citizens of the City of Los Angeles and the
county of Los Angeles and then go through that process of
amending that agreement.
Ms. Waters. Okay. Thank you. Now back----
Mr. Gimont. Is it okay if I just put one additional point
on that?
Ms. Waters. Yeah.
Mr. Gimont. It's--the real essence here is going to
change----
Chairman Ney. Move your mike just a little bit closer.
Thank you.
Mr. Gimont.----is that no longer will the bank be
responsible for deciding, making the lending decision would
reside with the city's community development department as
opposed to the bank. We're still carrying out the same
activities. They're going to carry them out in the same areas
that they identified in the original 1995 application when
there will no longer be LACDB, making decisions as to what
community development department as to which activities to
fund.
Ms. Waters. Okay. Now, a little bit about--well, if you can
explain to me the contract between the venture capital company
and what they did for the Community Development Bank, and I'll
ask a little bit more when I get the Community Development Bank
here a little bit more detailed question, but just your
understanding--did you have to sign off on this also?
Mr. Gimont. I did not sign off on the agreement between
LACDB And Joint Ventures? No.
Ms. Waters. This was between the City and the county?
Mr. Gimont. No, this was between the LACDB And an entity
known as Zone Ventures.
Ms. Waters. And Zone Ventures.
Mr. Gimont. Yes.
Ms. Waters. So Zone Ventures was given an amount of money
to go around and invest in venture capital. Let's find some
businesses put some money into them that was going to make some
money nor the bank; is that right?
Mr. Gimont. Up to $35 million is my understanding.
Ms. Waters. So they were given 35 million?
Mr. Gimont. The agreement called for an investment in the
bank of the partnership up to a maximum of $35 million.
Ms. Waters. Now, what did they do with that $35 million?
Mr. Gimont. They operated the fund to analyze the proposals
for investment and when the--based on the applications they did
receive, they elected to invest in a number of different
businesses. I believe it was 15 or 16 business in total.
Ms. Waters. I see. So some of that was management. They had
management fees.
Mr. Gimont. Yeah.
Ms. Waters. How much, do you know what percentage of the
$35 was management fee?
Mr. Gimont. No, I do not right now.
Ms. Waters. Okay. We'll talk to the Community Development
Bank people about that.
And so what happened with that portfolio?
Mr. Gimont. Some of the businesses are still up and active;
some are in a condition that is called ``hibernation,'' where
they--they still exist on paper. There's some possibility that
they may resurrect themselves and--and get back on their feet
and a number of other businesses are totally closed and out of
business--business consistent with the types of--types of
investment that venture capitalists make which were primarily
high-tech investments in the late 90's.
Ms. Waters. I see.
And so now, you have--this portfolio some performing, some
not performing, we want to sell it off. Who are we selling it
to?
Mr. Gimont. I would not use the term ``sell'' at this
point. I would say----
Ms. Waters. Give?
Mr. Gimont.----divest. Divest their interest in the Zone
Ventures' portfolio.
My understanding of the deal that is currently on the table
is that there is a--an investment group interested in taking
the LACDB interest in Zone Ventures. They really would not pay
anything on the front end with respect to the past investments,
the capital investments that have been made on the part of the
bank.
However, they would be reimbursement for certain management
fees that the bank has paid out to Zone Ventures over the past
year or so. So the immediate return to the bank would solely be
the management fees that they've paid out in the last 6, 12
months I believe.
And then, ultimately if some of the businesses went--went
public, where you had initial public offering, and there was a
significant upside to--to the investment made in the business,
ultimately, the bank might see some return on that; but the
primary return would go to the group that takes on the
investment from here on out because they will continue to pay
the management fees that are required as well as make any
capital calls that are necessary in order to maintain the--the
bank's percentage interest in these businesses.
Ms. Waters. Okay. Let me see if I understand this: The--the
joint venture firm that was doing the management for the
Community Development Bank would substitute--who pays them
management fees we would no longer pay management fees, and
under this agreement, the group who is the recipient of the
divested portfolio would be paying the management fees.
We would not receive any money from those performing or
nonperforming businesses unless, of course, they went public,
and then there's something in an agreement for in perpetuity
that would say, ``If this happens a hundred years from now, we
want our money''?
Mr. Gimont. I don't know what the outside time limit is as
far as the return would be concerned.
Ms. Waters. All right. Fine. We'll----
Mr. Gimont. I also don't believe the agreement's been fully
negotiated at this point.
Ms. Waters. I see. Well, that's good. We'll see what we can
find out some more detail about that.
Now, we're going to be talking with--with other panelists
about this, but I also understand that if the $50 million is
transferred, the balance that's left could be used in any way
that the city would like to use it; is that right?
Mr. Bregon. Of the 196, if 50 is used for this revolving
loan fund or business fund that is called under the community
development requirement of the city, then, yes, you would have
then the balance, the 146 available.
Ms. Waters. And let me see if I understand this correctly:
The 146, would the city have to go back out and amend the plan
and hold hearings, or they could just spend it?
Mr. Bregon. If they're talking about using the same--
funding the same activities in the same areas, then they would
not have to come back to us. If they're talking about changing
either the scope or the location of the activities, then, yes.
They must come to HUD for a--with a formal amendment request,
and before they do that, they must go back to the citizens and
hold public hearings and go through the formal amendment
process that is required in a regulation.
Ms. Waters. If they were going to use it in any way
different?
Mr. Bregon. Yes, ma'am.
Ms. Waters. If they were going to use it in the same way,
could they still contract with the joint venture firm to do the
kind of work that was done for the Community Development Bank--
that was under your original agreement--could they still do
that again?
Mr. Gimont. I would say that the city--I would think it
highly unlikely that the city would go forward with a proposal
of that nature, and they would certainly question it at this
point in time.
Ms. Waters. There's nothing in the agreement that would
stop them from doing it. You're saying that HUD may not look
kindly on it, but they certainly could if they were going to
use it consistent with the way they had used the money in the
bank; is that right?
Mr. Gimont. There's nothing in the agreement right now to
prohibit.
Ms. Waters. Okay. I think that's all.
Chairman Ney. I just have a couple. It's a little bit more
complicated than the fire truck we had in the CDBG back home,
I'm sure.
I just kind of--I wanted to ask a question: What happened
to the initial 100 million, where's that?
Mr. Bregon. That has been invested. That has been invested
by the bank on a--for a number of loans to--for profit entities
within the zone.
Chairman Ney. So we know where that--where that is?
Mr. Bregon. Yeah. Some of them that are businesses that are
no longer in business that went belly up, and there's other
businesses that are still performing and doing very well and
hiring employees from within the zone, low income residents.
Chairman Ney. Do we know the percentage of the businesses
that are--are hibernating or the percentage of the working, do
we have those percentages, or can we get that?
Mr. Bregon. Yes. The City gives us a performance report on
a yearly basis, and we would have that information available
for you, sir.
Chairman Ney. And then would you rate this overall a
successful venture as it went about?
Mr. Bregon. The--the bank venture?
Chairman Ney. I can give you a one to ten scale, if you
want.
Mr. Bregon. I--well, I think one thing that we should take
into consideration, Mr. Chairman, is that this is a very
difficult area for difficult projects. I mean, HUD recognized
the difficulty to the point where we were willing to match
dollar for dollar giving them a dollar of grant money for every
dollar that they invested. I think that that indicates the
degree of--of risk that we all knew we were getting into.
Measure performance--success can be measured in a number of
ways: Has this bank had a positive impact on this particular
neighborhood because they have created jobs, they have brought
in private investment? I would say yes. Is there nonperformance
portfolio out of whack with, let's say, Bank of America? I
don't know.
Chairman Ney. Well, I understand what you're saying about
the--some difficult investment. I mean, we--our projects, for
example, in some areas are more simple. Some people may look at
the projects and say, ``What are those worth?'' The impact of a
community to actually have a fire truck to save somebody's
life. If you don't have that, you lose your insurance in a
small community, and it all starts to domino.
Some things are hard probably quantitatively to say what
helped the community or didn't? You know, who got a job and
month were able to further help their families. But there's got
to be other--are you telling me this is such a unique project,
or were there other projects in the history of CDBG that we can
look and say, ``How did we measure their success versus this
project?''.
Mr. Bregon. Well, we have--there's a couple of things:
There is another bank which is the Cleveland Bank that is
similar to this one. We have two other Community Development
Banks: We haven't done a comparison as to performance, but
perhaps we can do that and take a look at how well the other
banks have performed in relationship to the Los Angeles
Community Development Bank.
Chairman Ney. I would like to see that if you can get the
information to myself or Congresswoman Waters.
Mr. Bregon. Absolutely.
Chairman Ney. One final question that I have, and I don't
know if we answer this today or not: But if an area embarks on
a project of major significance, which at the end of the day
is, you know, a lot of money that is, you know, to go towards
helping people, but if it has certain flaws and it doesn't
then, you know, what happens to that money and how's the public
ever served again to be able to utilize that money for the
greater good of their communities?
Having said that, are you comfortable that the mechanism
that we have--I'm talking about the Fed--is in place and is
tight enough so that if a city or a county goes in one
direction, they state they're going to do ``A,'' ``B,'' ``C,''
and then all of a sudden for whatever reason, some of the
businesses don't come through or whatever, they--they again
change direction, but maybe they tell us, in fact, that they're
not changing direction. How do we step in as the--as the
Federal government to say, ``Wait a minute. You've got to lay
out your plan. Is it similar?'' I mean, I'm relating some of
the things you've said today.
Mr. Bregon. Yeah, right.
Chairman Ney. Are they going to come back with the same
thing, and is it just take your word for it; or is there some
type of set criteria that we have--they have to show?
Mr. Bregon. Absolutely, sir. And that's a very good
question. As I indicated to you, the first thing we get from
our community, our grantees is a consolidated plan. They tell
us how they're going to spend the money. What are the
activities they're going to undertake. As you heard throughout
this testimony, activities has to be eligible, and they have to
be one of the three national objectives that we talked about.
As I have indicated, we do monitoring. And by the same token,
our office of the Inspector General perform audits of our
grantees.
So let's take the example of a community that says that
they were going to do something, and when we go out, we find
that they do--they did something totally different, perhaps to
the point where that activity's not eligible or it doesn't meet
one of the three national objectives.
At that point, we will have an audit finding, we will have
a monitoring finding, if you will. If it's a matter of us going
out and monitoring the grantee, if that finding is sustained,
if the grantee cannot explain to us with satisfactory evidence,
then we will tell the grantee we have $500,000 in ineligible
uses of CDBG monies. You owe us $500,000 of general funds. Now
you must repay this to your line of credit with general funds.
So what happens now is this particular community will go
into their general fund, they will take $500,000, and they will
put it back into the line of credit for CDBG and then reuse
that money for an eligible activity.
Chairman Ney. One final question I have: Is the public
hearing process different across the U.S., meaning, you have to
notify a certain number of people, does it have to be
advertised? Does it vary? I don't know what the questions is.
Does it vary state to state community?
Mr. Bregon. It varies, sir. For instance, you can have a
community like New York City. Our experience in New York City
is that they might have five public hearings in the different
one in each of their burroughs. They might advertise it in a
Spanish-speaking newspaper. A Chinese speaking newspaper.
They might have interpreters in all these public hearings,
and that's the way they satisfy the citizens' participation
requirement. You could have another community that says,
``We're just going to hold one public hearing in City hall, and
we're going to put it in a paper of general circulation and let
everyone know that we're going to have one public hearing"; and
everybody comes to one public hearing. So it all depends on the
community.
Chairman Ney. It's open; correct? I mean, we really don't
have--HUD doesn't say, ``Here, here's the hearing process.''
This is loose or open compared to----
Mr. Bregon. Right. Each community give us a citizens'
participation plan. As part of the consolidated plan, they give
us something called a citizens' participation plan so the City
of Los Angeles would say, ``HUD, this is how we are going to
reach out to our community.'' And we will monitor that as well.
We will go out and say, ``The City of Los Angeles said that
they were going to have five public hearings, and they only had
one.'' And we will confront them with that. And if we find----
Chairman Ney. But it may vary, though; correct----
Mr. Bregon. Yes, sir.
Chairman Ney.----community to community?
Mr. Bregon. Local decisions, local--a lot of flexibility in
this program.
Chairman Ney. Do they have to contact the office holders in
all cases, members of congress?
Mr. Bregon. No, sir. It would be nice if they did, but
they--they don't have to.
Chairman Ney. Okay. That's something we should--in my case,
frankly again, we will see the notice. We get a phone call, and
I'll get a call from any Commissioners; and that's basically
how it works down home. Then we get a call from the people who,
in fact, submitted a request or the Coalition of Appalachian
Development or Housing Coalition or whatever. But I've always
kind of assumed, I guess, that that was mandated by somebody
else, and I guess it's not. It's just the way they're doing it
where I'm from.
Mr. Bregon. We give them a minimum threshold. We say, ``You
must hold a public hearing. It must be accessible to people who
speak other languages other than English.''.
Chairman Ney. Does it state the time, the day of the week?
Mr. Bregon. It does not, sir.
Ms. Waters. It doesn't say anything about public notice?
Mr. Bregon. It does say about public notice. We do tell
them that it must be published in a--in a newspaper of general
circulation, and some communities, for instance, say, ``Look,
our low income residents don't read the--the `Los Angeles
Times.' So what we going to do is we going to have fliers, and
we going to distribute fliers door to door,'' some community
might say. Some other ones say, ``We will have ads on the
radio, some of the Latino radio and the Chinese radio station,
the African-American station, and we will put ads in,'' so it
all depends.
Chairman Ney. So there's really no particular set standard?
Mr. Bregon. That's correct.
Ms. Waters. Mr. Chairman, I know that you said that was the
last question. I do have just one last question.
Chairman Ney. Go ahead.
Ms. Waters. I'm looking at the Community Development Bank's
$100 million expenditures, the companies that were loaned
money.
Am I to understand that these companies are all in the
supplemental zone?
Mr. Bregon. If it's for the hundred million----
Ms. Waters. First 100 million.
Mr. Bregon. Yes, ma'am. They should be. Whether they are or
not--for instance, the--our office of the Inspector General has
performed an audit. They are some questions as to whether, in
fact, all these companies are within the zone.
Ms. Waters. The Inspector General's report does discuss
this?
Mr. Bregon. It does, ma'am.
Mr. Gimont. It included a sample is my recollection. Not
all--not 100 percent of the portfolio, but it included a sample
is my recollection.
Ms. Waters. I see. So it was a sample. So we don't know,
based on the Inspector General's report, whether or not they
were able to capture, you know, all of them--where all of these
companies might have been operating from.
Mr. Bregon. But since there is a question, we have our
field office working with the city to identify the location of
each business, not only the ones that the IG select selected
randomly, but we're looking at a hundred percent of the
universe, if you will.
Ms. Waters. So while you are looking at it, what if you
discovered that they were not, what would you do?
Mr. Bregon. Then it would be an ineligible activity, and
perhaps they would have to pay that money back to the line of
credit.
Ms. Waters. Okay. We will get that information from you
also?
Mr. Bregon. Absolutely.
Ms. Waters. Okay.
Chairman Ney. We have had some cases down home where we
have a--the use of CDBG money created this pot of money, a
policy that would pay in and pay out, somebody came in town,
herds of people and then vanished, and by the time you found
out what they had bought and purchased, it was too late. We try
to, you know, recapture--recapture that money.
Ms. Waters. Well, my curiosity was raised by the fact that
I just happened to see something here that says the Summit
Industries of Nevada. They may be, you know, California--Los
Angeles company.
Mr. Bregon. I would hope they're not in Nevada, ma'am. That
would definitely be a red flag.
Ms. Waters. Thank you very much.
Chairman Ney. Thank you for your time. I appreciate your
traveling.
[recess.]
Ms. Waters. Thank you very much.
Mr. Chairman, we have a panel here that includes, first,
Supervisor and President of the Board Supervisors, Yvonne
Braithwaite-Burke who represents the Second district of the
County of Los Angeles. She brings to the board of Supervisors
more than 30 years of experience in public service, and at the
national and State as well as local levels.
She has focused a great deal of her energy on the needs and
education of children, especially those cared for in the county
foster child program. Supervisor Burke's Department of Science,
Department of Affirmative Action Compliance. Community
Development Commission, Department of Human Resources, Museum
of Natural History, Department of Parks and Recreation and the
county of Public Library and the Public Social Services.
Welcome, Supervisor Yvonne Burke.
We also have Mr. Clifford Graves, who is a General Manager
for the Community Development--Development Department, City of
Los Angeles. Mr. Graves is the new General Manager in the
Community Development Department for the City of Los Angeles.
He will oversee the department which creates economic, social
and employment opportunities for individuals, families and
neighborhoods in need. Prior to Mr. Graves' position as Vice
Chancellor for fiscal--physical planning at the University of
California, Merced and served as Executive Director of the City
and County of San Francisco Redevelopment Agency.
Welcome, Mr. Graves.
Mr. Carlos Jackson, Executive Director Community
Development Commission of Los Angeles County. Mr. Jackson
joined the community development commission in June of 1983. On
February 19, 1991, he was appointed as Executive Director of
the Los Angeles County Board of Supervisors. As Supervisor
director, Mr. Jackson directs the County's public housing
approximately 3,640 units, housing rehabilitation Section 108
assistance, Redevelopment Community Block Rent and the Housing
Revenue Bond programs.
Welcome, Mr. Jackson.
Also, we have here, is this--I think that we'll wait for
the introduction of Mr. Sausedo.
Mr. Sausedo, How are you doing? I didn't recognize you, and
it's been just a few months back that I'm trying to pick your
brain about everything that was going on.
Mr. Sausedo. Okay.
Ms. Waters. So I get to do a little bit more today.
Mr. Sausedo. Clean myself up.
Ms. Waters. He's Chairman of the Board of the Los Angeles
Community Development Bank. Thank you so much for coming today.
Chairman Ney. The Honorable Ms. Burke.
STATEMENT OF HON. YVONNE BRAITHWAITE-BURKE, CHAIR COUNTY BOARD
OF SUPERVISORS, LOS ANGELES COUNTY, CALIFORNIA
Ms. Burke. Thank you very much. Good morning.
And we want to welcome you, Chairman Ney, and Congresswoman
Waters. Very pleased that you're here in Los Angeles at this
Exposition Park Center which is growing and has really brought
many dimensions to this area. I also welcome you because this
is part of you're Supervisorial district that I chair and that
I represent.
In fact, and Federal programs play a great--important part,
of course, in this district. It's--in the county of Los
Angeles, and I'm really here speaking for the entire County of
Los Angeles, not just for the Second District. And there are
two programs that are certainly very important, is the CDBG as
well as the Section 8 housing voucher system that you maintain.
I do want to thank Congress, and particularly you
Congresswoman Waters, for your support of CDBG and your support
of many of the programs that are very important to Los Angeles.
And we depend upon the support of Congress obviously for the
growth and the extent to which we receive CDBG funds. Many of
those funds that we have are not just CAPA projects. And we
have some very successful CAPA projects, and I have to kind of
distinguish the County of Los Angeles. Our funds are used only
in unincorporated areas. In other words, our funds that we
receive--is about a million people who live in the
unincorporated area of Los Angeles County. There are 88 cities
in that County so those 88 cities, their funds, the City of Los
Angeles being the largest, of course, their funds go directly
to them, and the 88 cities are funded separately; but we
administer those million people and those areas that are in
unincorporated areas where they do not have a City, and we're
all the City they have, we're the mayor, the council and
everything in those cases.
And so the impact of CDBG funds in those areas are so
important, and first of all, we have been fortunate to have
that waiver; and that 25 percent waiver has made it possible
for us to do a number of things in terms of public interest
projects. I hope that will continue.
I know it's supposed to terminate in 2004, but it's--we use
those funds and we use them in a very positive way and in a
diverse County, we have to realize that this is probably one of
the most diverse counties in the world, 136 languages spoken.
So it's very important to try to address these separate
communities, each of which have their demands, their needs. I
can say to you, you know, we provide assistance in one
community where there's really a lack of ability to relate to
other communities adjacent to them. So we have to address each
one of these individual communities and try to meet their
specific needs and their resources.
I'd like to address--I know you're going to talk a lot
about the Community Development Bank. We were part of that
bank, and our portion that we are withdrawing is 15 million. It
is our intention to use that 15 million for what is called the
Los Angeles Eye Institute. It's a--an institute that is being
established at one of the major complexes that exists in the
unincorporated area that is covered by this empowerment zone
and the Martin Luther King Drew Medical complex.
Much of our money, the CDBG money, has gone into that
complex--housing, everybody open two large developments
recently in terms of housing, whether it's rental housing or
condo or home ownership, but a--surrounding that area. Major
commercial development, but what we're really planning to so is
to establish an eye institute which will provide care and also
outreach to provide specialty eye care, in an institute in that
area.
We will also probably include--some of those funds will go
to what's called the Drew Child Care Center. So a lot of the--
they're working together, so it will be child care as well as
the eye institute that will probably be the beneficiaries of
that 15 million we withdraw. So I think that we can be very
proud of the funds that we have utilized in that Community
Development Bank.
And all of it in those areas that are very in need--and I
mean, very much in need--but what you see it, you can see it,
you can look at it, you can walk, you know that those things
have been very effective. Now, I'm not--I know that I won't be
here tomorrow when you're talking about Section 8.
I just want to say a couple of things about that. The
administration of Section 8, moving to the State, we feel would
have a detrimental impact upon our Section 8 program. We have
long waited for Section 8 as it is now. There are many people
who were served after the earthquake with Section 8.
I have calls every day, people are homeless who are looking
for Section 8, and to move it, this administration, we think
would be an unnecessary labor as far as the administration and
the bureaucracy. I know that these are very difficult times.
They're difficult for us, they're difficult for the State, and
I know they're difficult for the Federal Government; and we
recognize that we have taken some cuts in CDBG, but to the
extent that this program can continue in the very vital way
that it has and continue to make impact is going to be very
important for us.
And I know through these hearings, you'll be able to see
how it's being used here, the dimensions of the problem as well
as some of the solutions that have been provided by these very
important funds. So I thank you very much for being here.
Chairman Ney. Thank you.
[The prepared statement of Yvonne Braithwaite-Burke can be
found on page 85 in the appendix.]
Ms. Burke. I won't be here during the rest of the panel. I
see that Councilman Garcetti is here. If there are questions
that you want to address to me, I'd be very happy to answer
them.
And if not, Carlos Jackson will be able to address detailed
questions about it in the bank.
Chairman Ney. Thank you for your attendance.
Ms. Burke. Thank you.
Ms. Waters. I'd like to thank you also for coming, and
Carlos is here; and we can get into a bit more detail----
Ms. Burke. Sure.
Ms. Waters.----with him about the bank and some other
things. But we do appreciate your coming making the statement
about the important of these funds, too.
Ms. Burke. And we appreciate the strong support we've
received from Congress, and particularly, I know Congresswoman
Waters has a deep interest in and has been a strong supporter.
Chairman Ney. I also appreciate having a former colleague
here.
Ms. Burke. Thank you very much.
Chairman Ney. Thank you.
Ms. Waters. Thank you. Mr. Chairman, I'd like to introduce
Councilman Garcetti representing the 13th Commercial District
as Chair of the economic development and employment committee
and vice Chair of the housing and development committee.
Councilman Garcetti has promoted affordable housing and
strengthened unit intervention programs, community and senior
centers and overseeing the expansion of after school programs.
Welcome, Councilman Garcetti.
STATEMENT OF HON. ERIC GARCETTI, MEMBER, DISTRICT 13, LOS
ANGELES CITY COUNCIL, LOS ANGELES, CALIFORNIA
Mr. Garcetti. Thank you very much, Congresswoman. It's
great to be here, and I want to thank the Chair, Mr. Ney, for
coming all the way out to Los Angeles. It's really wonderful to
have you here. We're trying to beat the June gloom. So
hopefully, we won't have it too much longer, and I hope you
enjoy your stay. And I want to praise the leadership of Maxine
Waters, too, and thank you for making this happen as well.
The testimony I'm going to give, I couldn't give two years
ago: One, because I wasn't a councilman, so that makes it
uneasy. But also, because I think the City of Los Angeles was
in a very different place in terms of block rent, in terms of
how we spent it, in terms of how we looked at it, and I have
hopefully much better news, good news to share with you and not
because I've been captured by the bureaucracy, not because I'm
simply now on this side of things; but because I've seen this
change, I've lived that change, and I've been a part of the
change.
Cliff Graves will speak next who is one of the original
authors of the block rent legislation from his work in D.C. Now
as head of our community development department. An entire
leadership team I think has really changed the way we do block
rent from the city level.
My testimony will really focus on that. When I came here
two years ago, we were almost, I think, two-and-a-half over our
yearly balance, and we were being threatened by HUD of losing
some of the block rent monies because we simply weren't
spending it out. We really--the mayor and the council took a
hard look at how they did it, the department, and we were able
to in a year period really spend that down to the proper ratio
that it should be at.
What we did in that process, too, is we changed the way
that the grant is being spend, making sure that it was really
going back to the root of the seed money that it's intended to
be and not to just sustain programs, not to just be another
place to fill in services, but something that would be
encouraging entrepreneurialism, something that would encourage
creativity and something that would plant those seeds in
communities that would hopefully blossom into true community
development.
I know that Los Angeles is a poor city and that it needs
more resources. The census count has us at 22 percent. The
official poverty line, obviously, if we go to 200 percent of
the poverty line, we have the majority of our children being
born into that essentially working poverty. And we have an
estimated undercount of about 80,000, mostly people of color,
which equals a loss of about $180 million in funding over the
ten-year shelf life of that census.
And we have an extreme housing and homelessness crisis. We
need to be building in this city about 8,000 units of
affordable housing just to keep up with population growth. Most
of that is not migration. About two thirds of that is just the
baby boom echo. So the baby boomers' kids are having kids, and
we are building about 2,000 units of affordable units.
So each year we're falling behind by about 3,000 units. As
a way of answering that, we have now--so that you don't think
we're not putting our money where our mouths are, we build the
largest affordable housing trust fund per capita in the
country, which would be $100 million every year hereafter for
the building of affordable housing. If you want to leverage
that to about half a billion dollars a year, combined with the
State funds, we've really prioritized that in a new and dynamic
way.
Phil Mangano who is the President and Director of the
Interagency Council on Homelessness recently came to our skid
row and called it Calcutta to give you an idea of what his view
and his extensive work throughout the country was. He really
was struck by what he saw on our own skid row in Hollywood,
where I represent is the second biggest population that we have
some similar areas.
I think we do need an extension on 25 percent CAPA services
where we do face a dramatic cut in-services. Now, I know it's
not going to be easy to say, ``Why are we funding services,''
and I think that block rent is intended again as seed money.
But the way that we do services is not just to sustain programs
and groups.
We really are focusing on those programs which do build
capacity, intellectual capacity, work force capacity, things
that--where it's read as services essentially as doing much
more. As much CAPA infrastructure as a building because it's a
human physical infrastructure.
If we do have the services reduced to the 15 percent level,
about $11 million in direct services will be cut in the City.
So please consider extending that waiver at the very least
phasing it out over time for us to be able to see how we can
use work force investment monies or other human infrastructure
dollars to get there.
With the Community Development Bank--this has been one of
the more fun areas to work on in the last two years, and we
certainly, even though we are aren't directly overseeing the
bank, our work in the City was--I think they're as experienced
as anybody else to see what direction the bark had gone.
And when we look not at the bank itself, but at the
problems, the civil unrest of 1992, you have essentially
increase in unemployment in South Los Angeles; you have the
problems which have manifested themselves have gotten even
worse, and I think it would be one of the worst things we could
do not to keep that Section 108 authority.
Now, what we do with it is the question: I think we can use
the same target areas, the easy, the 20 percent poverty areas.
And I would make the formal request the $1$96 million be kept
available. But I think that the leadership team that we have,
as opposed to what the bank was doing before, really has the
experience, right here on my left, the knowledge and the know-
how and the innovation to spend this in very creative ways, in
capital deprived areas that will spur the economy, spur
employment and deal with blight.
We should have the flexibility to use the section 108
funding to adjust these problems holistically. To be able to
combine--and this is what we're trying to do in the council,
too--our housing programs together with our economic
development programs, and job training programs and our
community development programs. Instead of taking these all in
silos, we're trying to mix these grains together to really see
in a community, you know, I don't think a child care is where
the school district ends and the City begins, where one
department ends and another one begins.
They want to see that mix of housing and economic
development and education and work force development go hand in
hand. I think the Section 108 authority is a critical piece of
this. As I said, I couldn't have given this testimony two years
ago, but I have a lot of confidence in this leadership team
that we have right now.
We have a committee chair for the development committee
which oversees the block rent and helped distributes it. We are
now actually focusing on having yearly priorities. So it isn't
just this big grab bag of different things, whatever we
inherited. I'm really saying that nothing is safe anymore,
that's on this table.
One of the four or five areas that we want this committee
to really impact on, not just who do we know from one
organization, depoliticize that process as much as possible,
and I should say to both Congresswoman Waters and to Chairman
Ney, that we really have a pretty apolitical process.
I know in a lot of places block rent is all about who knows
who, and I see here that there's very--a small percentage of
that really has to do with personal pet projects of any council
members. It is spent, I think, in a very neutral and fair way.
But increasing that and really focusing on certain policy
areas, again, affordable housing, work force development,
literacy is one of the areas that we're focusing on, too.
And quite literally, this is our lifeline to other
programs. Surprisingly and not political and dealing with
infrastructure issues, I think the way that I would categorize
how we're dealing with the block rent money, and the last thing
that I'll conclude with is I know that to talk about whether we
should administer this differently.
To me, you know, I think the council level, the local level
is one that is most in touch with what's happening out there,
you know. Every Saturday I meet with constituents, I have
office hours where people come up and talk to me where we get
that kind of on-the-ground intelligence, but it's difficult to
get through any departmental agency.
And certainly as you go higher up the--the food chain, I
think it's more and more removed from the people on the ground.
We have citizens' units for participation that have done some
incredible things here. They are all representatives from the
community, but they did polling for this entire city.
They took a political polster, one of the best in the
country, and they actually came in and asked me about block
rent money, where they would want to see it spent. I don't know
if that's been done by a CPA in the country, but we then broke
that down by district, and every council member has seen that.
That gives us a real jumping off point, not just to say,
``One of my priorities as an elected official, I'm the
gatekeeper, but what does my community want?'' And lastly, with
the Section 8 stuff, just goes--I know Supervisor Burke
mentioned that, too.
I did want to say with our $100 million housing trust fund
that I mentioned, a lot of what we're spending it on is the
preservation of project based Section 8, which we really have a
lot that is risking being lost, and so for us being able to
keep that in place is critical, too, as we address the housing
crisis and not falling further behind, but I will be here for
the rest of the testimony and thank you very much for coming
out here.
[The prepared statement of Hon. Eric Garcetti can be found
on page 88 in the appendix.]
STATEMENT OF CLIFFORD GRAVES, DIRECTOR, COMMUNITY DEVELOPMENT
DEPARTMENT, CITY OF LOS ANGELES, CALIFORNIA
Mr. Graves. That was great. Let me add my welcome to those
that you've already had.
As was pointed out, I'm relatively new to Los Angeles and
to this position, and I thought I'd open my testimony by
reciting some numbers that amazed me when I got here. The City
of Los Angeles is home to nearly 3.6 million people. 816,000 of
them are below the poverty line. When you use a percentage like
6 percent or 20 percent, it hides the real number, but if you
think of 816,000 people and compare those to the populations of
other major cities, it gives you an idea of the magnitude of
what we're trying to address here--147,000 families below the
poverty line.
Supervisor Burke mentioned the number of languages that are
spoken around the City. 226,000 persons are disabled. Focus on
that absolute number to understand what we're dealing with.
Beyond the census figures, think about what's happening to
the housing stock here. We grew by about 6 percent from census
to census. That translates into new households. During that
same period, only 5,400 dwelling units were added to the
housing stock. That's a very simple explanation of why housing
costs are increasing beyond the means of more and more of Los
Angeles residents
Mr. Garcetti did mention the census undercount which
concerns us deeply. The undercount (which we estimate at about
79,000) represents a large shortfall in Federal funding to
which we would otherwise be entitled.
So this is the setting for our Block grant activities. One
of the virtues of the Block grant program is the flexibility it
provides to local officials to establish priorities and
allocate resources. Los Angeles, with an allotment of
approximately $90 million a year, takes advantage of that
flexibility.
I'd like to go through the main categories of what we fund
and give you a few examples: We spend about $41 million a year
on public services. This includes the Community-Based
Development Organizations. These fund a variety of services. We
have a human services delivery system which integrates CDBG
funds with other Community Services, Block Grant and others. We
fund a number of youth and family centers, supplemental youth
recreation and youth nutrition, just to name a few.
The impact of reverting to the 15 percent public services
cap would be greatly felt. That amounts to an $11 million
reduction, a 40 percent cut in the services we have been
providing.
We also fund neighborhood improvement activities to the
tune of about $9 million. These include such things as alley
closure programs, code enforcement, nuisance property
abatement, sidewalks and tree planting, the kind of things that
increase the quality of life in our most difficult
neighborhoods.
For public facilities, we have allocated approximately $6
million this year for such things as neighborhood parks, multi-
purpose centers for seniors, and the Temple Beverly Recreation
Center. As the Deputy Assistant Secretary pointed out, the
framework for all of what we do is the multi-year consolidated
plan. Our job is to make sure that the program is well
publicized, that there's ample public participation and that we
get creative ideas.
We then test the submitted applications for eligibility and
compile them as a list which is made public. Then it's
subjected to our community review process. Councilman Garcetti
mentioned the Citizens' Unit for Participation cup, which is
our public participation arm.
Members of that organization are selected to represent the
various facets of the community. Most of the members are
appointed by the city Councilmembers from each district. We
also have a couple of at-large members. Mr. Garcetti mentioned
the polling that they do. They hold several public meetings and
hearings. They meet once a month. We go before CUP to explain
to them what we are doing, any issues that we have. CUP will be
deeply involved in our reprogramming effort, which we do to
keep our spend rate within HUD requirements.
In addition to the CUP, we also post the consolidated plan
on our Website. We work with 72 neighborhood councils. The City
Council Committees hold hearings, and finally, the City Council
reviews and adopts the consolidated plan. Once the plan is
done, we submit an annual CAPERS report. This Consolidated
Annual Performance and Evaluation Report to HUD discusses our
accomplishments and issues. Every one of our CDBG-funded
project is required to file a quarterly report with us. We
review the reports which rolls up into HUD's own information
system.
So we have a fairly good handle on where the money is going
and its effectiveness. Is it perfect? Nothing is, but I think
we're improving it every year. The monitoring that is done on
the ground, is the one area that I'd like to see us improve.
Like most City departments, we could always use more funds,
but we're trying to make our monitoring less of an audit and
more of a technical assistance review. We work with a number of
very fine agencies here in Los Angeles, but staying on the
right side of the regulations isn't always the easiest thing to
do. We're trying to shape our monitoring program to be more
assistive to these agencies.
Moving to the Community Development Bank, you'll be hearing
directly from Mr. Sausedo, but I'll give you the City's
perspective on the Community Development Bank.
Chairman Ney. I don't mean to interrupt you, but just based
on the councilman's statement, now will you be taking over the
development bank? I didn't know if that was your reference?
Mr. Graves. The activities of the bank will be undertaken
by the Community Development Department.
Chairman Ney. I didn't mean to interrupt you. I just wanted
to make sure I could follow you.
Mr. Graves. The Community Development Bank was an
experiment, and I think it was recognized as such when it was
formed. And I think there have been a lot of lessons learned as
a result of it. But as was pointed out by Mr. Bregon, when it
comes down to do the loans go to the right places, and do they
make a difference? Yes, they probably did. Was it the most
efficient way of doing it? Probably not. And were there some
things we will do better based on lessons learned? Yes, and
I'll go through those.
The contract between the City and the Community Development
Bank is in the form of a comprehensive agreement which lays out
the roles and responsibilities of the bank and the other
parties and obligates the Department to perform annual reviews
to review annual business plans.
It is not the role of the City to get involved with
individual transactions. The LACDB was set up as an independent
body, and we have respected that. The question was raised about
the Zone Ventures' aspect of the bank. That was a part of the
original business plan that the bank submitted to the city and
to HUD.
The agreement between Zone Ventures and the Bank is between
those two entities. The city is not involved in that aspect of
it. There is an issue of accountability here. I think this is
one of the weaknesses of the original business plan. The Board
of Directors of the Bank and the Bank itself are independent
and accountable only to themselves with regard to the loans
that they make, subject to the general criteria set forth in
the funding.
However, the way I look at it, the LACDB is using CDBG
money, for which the City is ultimately responsible to HUD. So
any issues that arise with regard to the Bank, we end up
holding the bag, and that has caused some concerns. I think
we're addressing that through the transition.
I'd like to go to the lessons learned. And I think these
are lessons which we will apply to the loan authority when we
receive it. One is to make sure that the requirements of the
program are really practical. For example, one of the more
difficult charges that the Bank had was that it could not loan
money to anyone except persons who had been turned down by
other banks.
It was in effect, a lender of last resort. So that the
loans that were funded for by the Bank generally were of a
poorer credit than most banks would have. In retrospect, that
probably wasn't necessary. It was more important where the
money went and how to get the best community impact.
There is a need for more adequate financial and compliance
controls. The bank had a very difficult set of requirements to
follow, and we believe that under the Department, we will be
able to apply the same type of controls that we apply to our
own programs.
The bank was originally chartered to attract private
investment as well as the HUD funds. This did not happen which
left the Federal funds further exposed than I think they should
have been.
And finally, with regard to strategic utilization of
resources, the bank, lent money to individual applicants who
met their criteria without regard to overall impact on an area,
without regard to broader priorities that the City might have.
We would like to be able to utilize them in a targeted way in
concert with other programs by our department and by the city.
To emphasize a point I think that's been made previously,
of the $196 million in loan authority which still exists from
the bank, we have asked HUD for an immediate allocation of $50
million to be used exactly as provided in the Bank's plan in
terms of the activities to be funded and the geographic area to
be supported.
We believe we can do this, Mr. Bregon said, without
amending the current plan. We would like to amend the plan for
the other $146 billion. The intent would be to continue to
invest in the geographic area that the bank was chartered to
invest in, but we would like the flexibility to use the funds
for a broader range of purposes within the domain of Section
108.
We believe that that will allow us to use the funds more
effectively and still carry out the spirit of the supplemental
empowerment zone plan.
Mr. Chairman, I'll stop my remarks at this point.
Chairman Ney. Thank you.
[The prepared statement of Clifford Graves can be found on
page 91 in the appendix.]
Chairman Ney. Mr. Jackson.
STATEMENT OF CARLOS JACKSON, EXECUTIVE DIRECTOR, COMMUNITY
DEVELOPMENT COMMISSION, LOS ANGELES COUNTY, CALIFORNIA
Mr. Jackson. Thank you.
First of all, I'd like to also welcome you to Los Angeles.
And also, this is the first major opportunity that we have had
a chance to express our support that the community block
program here on the West Coast. Typically, we have to travel
back east to express our needs, and to express, you know, what
kind of things we need here on the West Coast. So this is a
grand opportunity.
The Los Angeles County Community Development Commission is
responsible for the Urban County Block Rent Program. We have 88
cities in the county of Los Angeles, 40--53 cities have a
population of 50,000 or less. Of that 48 cities participate in
our program including the City of south El Monte. But we
represent approximately 2 million people, a million from the 48
cities, and a million in the unincorporated areas. In Los
Angeles County, historically, the only corporate areas have
been rated from all its commercial viable communities. Most of
the cities either incorporate those areas and take you know the
industry part, the manufacturing part, so we're spaced with
communities and major infrastructure needs, major housing
needs, some old housing style. So our focus is not only the
unincorporated areas, but the 48 cities. And many times when
I'm asked to describe what we do as an urban County, which
happens to the largest one in the nation, we receive about $38
million annually. The allocation between the cities and the
county is almost split down the middle. The cities get about 14
million; the unincorporated areas gets awarded about 16
million. We use the allocation formula that HUD uses for
awarding the times, their allocations, we use the same with the
county and 48 cities.
That has been in place since 1975, that policy that was
adopted by the board. And we have found it to be very effective
in terms of working with the cities. Over the years, the cities
have been responsible for developing the programs with the city
council requiring approval of such a program. I work closely
with each of the Supervisors for developing the unincorporated
area programs, and that has been intact again since 1975.
I'd like to say that recently 93 percent--I'm sorry, 94
percent of the recipients have been low income residents of the
County, both the cities and the unincorporated areas. Our focus
is predominantly to--to look at how we can best improve the
communities. Unfortunately, like the City of Los Angeles, you
know, it's--it's dealing with a variety of resources. The
County is not, and I have to focus really on the unincorporated
areas. Our tax base is lower than--in other areas. The
challenge that we have is how to leverage our resources.
Because again, when you look at $60 million published or a
million--of a million of unincorporated area, it's not a whole
lot of money. If you look at the allocations made for by the
Supervisorial district, the highest one which is in the first
Supervisorial district is about $6 million, and has tremendous
needs of money, development housing, infrastructure to the
loan, communities that have not been intended to.
One of the matters that have--you have to asked me to
address, which is more in detail than my testimony, was how our
monies--how do we involve the communities? You know, it was
mentioned that by law we're required to have one public hearing
which is before the board of Supervisors when our action plan
or consolidated plan is adopted, but we have--we have 60
communities throughout the unincorporated areas of Los Angeles.
We ask the cities, the 48 cities, to have their own
community meetings. When you tally that, that's quite a few
community meetings. We go to the community stakeholders invite
them to participate, we will go to the churches. We go to other
community organizations that will provide any input, not only
as to what is needed. We return back to the community and say,
``This is how the monies were allocated this past year'' and
ask feedback, not only up front but at the back end.
As an agency, we--I have the opportunity to look at public
housing, Section 8, administration of the home dollars, the
homeless dollars, as well as the monies for affordable housing,
the community development of block rent. The challenge that we
have is how best to leverage those dollars, because the needs
are tremendous.
It's mentioned that the homeless crisis is surfacing again.
It was interested in seeing that the--there was a plan of ten-
year plan to eliminate the homelessness. Well, since I've been
around, it's the second one. And that is really a confronting
problem that I'm not sure no one--as one agency can resolve
that problem.
It requires really a multijurisdictional agency. But
there's one funding source that we have fortunately that we
administer, and this is where I'd like to use the leveraging
factor.
And it's the housing money that we get from the City of
Industry which is for the redevelopment set aside, special
legislation was passed in early 1990 at the State level. When
we first started allocating dollars for this housing program in
1998, we have allocated $102 million from that fund, had to
leverage $600 million and produced 2,400 affordable housing
units, home ownership, special needs housing, housing for
domestic violence victims, emancipated youth, the whole gambit.
Some of them have been used in the City of Los Angeles. How we
can encourage similarly leveraging from other jurisdictions,
not just from the County of Los Angeles.
We do a five-year consolidated plan. We just completed ours
recently. Again, we go out and solicit information from the
various communities that we're involved with, and then,
finally, a formal public hearing before the board of
Supervisors. But you know, our meetings have taken place prior
to them.
Most of our funds, I would say--and I don't have the
numbers handy--but it's been owned housing, economic
development, public services and public facilities. And most of
our public facilities are--are easily fund expended by the
cities our 48 participating cities. The County unincorporated
area needs really are prioritized around housing, economic
development and public services.
Different from the City of Los Angeles, the counties have
mandated prudent health, welfare, protective children's
services, a variety of things that local jurisdictions are not
faced with. The discretionary funds that the county has are
very limited. So really the future of the Walkman program
because it's a very viable program to look at these areas of
needs that typically the County are not able to fund. And it
really is a--it's a major challenge if you look at reducing our
25 percent from 50 percent. Overall, it's a $4 million loss for
us.
I think poverty probably describes our world with the city
as the mini HUD. We're responsible for assuring that their
funds are spent properly and according to all the regulations.
We're the grantee of the funds so that we're the ones who are
responsible. For anything that doesn't occur, we have
agreements with the cities for expenditures for eligibility in
case there are disallowances, you know, we have a mechanism to
recover those funds.
Even though it may have been political before, we have that
mechanism and then we are also responsible for compliance in
the unincorporated areas. We do--we have spent a lot of time
over the years in improving our compliance systems. We have
learned through experiences that in working with participating
cities, we have to work with them a certain way with our CBOs,
we have to do a lot up-front technical assistance because many
are not equipped to deal with all the Federal regulations that
area is confronted with.
Not only eligible projects, but as well how can they
account for the expenditures which are--sometimes gets them in
trouble. But we have done an extensive rebuilding of actually
building up a system. We do desk top reviews, performances, we
check their accounting systems before they are contracted to
make sure that it can handle the funds coming in, and then we
do our field reviews at the different sites. Not only the CBOs,
but as well as the cities, as well as the county departments.
And we go through a lot of data collection to make sure that
the funds are accounted for.
The 108 loan program is a viable one for the county. Cities
have been using the 108s to help them develop economic
development packaging. For example, in the City of Santa Fe
Springs, we had a $23 million project that was to clean up old
oil tank field, and it has now become a very viable industrial
warehousing facility that creates over 600 jobs; but without
the assistance of the 108 and their EDI and their bedding, they
wouldn't have undertaken a particular project, and now it's
become a major cornerstone in the southeast Los Angeles area.
We had just resumed work with West Hollywood again to do an
economic development project. We have undertaken some in our
area, in East Rancho Dominguez, West Altadena, which is in the
5th Supervisorial District. Because of the lack of resources
that the county has, 108 is a field to us again to leverage and
to get investments locally for viable projects.
And lastly in the Community Development Bank, I don't know
if I have the pleasure or really, but I was beginning--I was
there at the beginning of the bank; and if I have to reflect
back as to what took place: One of the key--one of the key
factors that the board of Supervisors took was that any project
dollars belonging to the County required authorization by the
County prior to any expenditure or commitment.
And the reason we did that was that the bank, when it first
started, didn't have the administrative infrastructure to
undertake all the requirements, Federal requirements and local
requirements, that really would put them on the right track. We
were conservative on how we approached that, and of course, the
County took a lot of criticism being conservative; but the
Inspector General report pointed out that administrative
policies and procedures were not there.
For some reasons why some of the loans were made out of the
zone or were questionable, there was environmental issues of
clearances. So my staff spent a lot of time with the bank early
on developing manuals and administrative policies and
procedures to ensure the accountability took place, but I think
that when we have two legal entities, the county and the city
and our--we have five census tracks in the environment zone,
supplemental environment zone, which equated about 13 percent
of the area.
We were dominated, in essence, but in our agreement, we
require that they--that it get approval from us for any
expenditure or agreement. So we're protected on that. Now, we
were confronted with trying to come up with viable projects in
the five census tracks, and Supervisor Burke has identified one
of them which I think will really assist the undeserved
communities, the medical undeserved, and we're working with a
group of doctors from Drew Medical University to look at this
in terms of an eye institute.
But again, we're in a transition. We are requesting, you
know, that once the bank is closed that the money reverts back
to the County of Los Angeles and we already have anticipated
how to spend those dollars. I'd be available for any questions.
Chairman Ney. Thank you.
[The prepared statement of Carlos Jackson can be found on
page 114 in the appendix.]
Chairman Ney. Mr. Sausedo.
STATEMENT OF ROBERT SAUSEDO, CHAIRMAN OF THE BOARD, LOS ANGELES
COMMUNITY DEVELOPMENT BANK, LOS ANGELES, CALIFORNIA
Mr. Sausedo. Good afternoon.
Now, Chairman Ney, and ranking Member Waters, and once
again, my name is Robert Sausedo. I'm the Chairman of the Board
of the Los Angeles Community Development Bank, and I was
appointed to the Board of Directors by former Los Angeles City
Councilman Marjorie Thomas in July of 1999 and subsequently
elected by the entire Board of Directors to serve as Chairman
of the Board in 2001.
My role as the Chairman of the Board is a nonpaid position
and is strictly that of a volunteer. In short, I'm a community
guy. That means what I say here, I have nothing to lose with
respect to politics or what have you. I represent the
community.
I--before I move on, though, I do want to compliment your
staff, Congresswoman Waters, for always being there when a
cause is to be made and being responsive. As you well know,
there are times when you call certain political figures and
don't get return calls, and staff is less than sufficient; so I
do appreciate a good staff and always take the opportunity to
compliment you.
I'm here today to offer testimony on behalf of the Board of
Directors, and again, as a concerned citizen and volunteer.
Additionally, I am joined by our President and CEO Mr. Steve
Valenzuela for any of the more specific questions with respect
to day-to-day operations of the bank.
Let me begin by talking about access to capital. As you
heard earlier, HUD provided the bank with $100 million in
Section 108 funds and $100 million in matching EDI funds. This
is the City side of those funds. This extraordinary allocation
of EDI was made in recognition of the additional risk and
lending that the bank would undertake.
Credit risk was an enigma to most commercial banks
resulting in capital star businesses in the intercity community
of Los Angeles. The bank adopted credit guidelines and
underwriting criteria similar to those employed by the largest
commercial banks in the City. This was done, in part, to help
facilitate co-lending with these banks in both these
significant pledges made early on by three large banks in the
Los Angeles area in 1995.
The pledges of co-lending with major banks were worth a lot
less, of course, than imagine they just didn't show up. The Los
Angeles Community Development Bank was forced to assume even
greater risk than originally forecasted in order to meet unmet
capital need for businesses in the empowerment zone.
So what have we accomplished? Let's talk about that. What
have we accomplished? To date, the Los Angeles Community
Development Bank has closed over 250 loans and investments
totalling over $130 million in funding. We are especially proud
of having received an award from HUD for implementing an
innovative microloan program that funded over $1 million in
loans to very small businesses in L.A. With an average loan
size of $15,000 of LACBD funding, all of it in the form of EDI,
reached approximately 70 businesses, while many of these very
small junior experienced spent time expanding their businesses
to create new jobs, I will say that the vast majority have
either repaid their loans in full or are making good on their
commitments.
The bulk of the loans made by LACDB have been to small- and
medium-sized businesses in the empowerment zone and the one-
mile buffer which, by the way, is across the street from the
empowerment zone. Okay. We have a number of success stories of
businesses that remain open and viable that met the national
objective of creating jobs for the benefit of low and moderate-
income persons and that repaired their financial obligations to
LACDB.
We also have experienced, as you all well know, some set
backs--borrowers who have failed to execute their business
plans and, of course, media stories about the bank's missteps.
Rarely has the local press published a story prominently about
the bank accomplishments in light of its challenges.
Recognizing that some companies require capital and not
debt to further their business plans and create jobs, LACDB
also partnered with Draper, Fisher, Jergenson and formed its
own ventures. The partnership focused on funding early-stage
investments and portfolio companies in the empowerment zone.
We formed a similar partnership with Fame Renaissance and
Hancock Partners that focused on operating companies in the
empowerment zone. The strategic exits from Zone Ventures
partnerships relied heavily on continued vitality of the IPO
and MNA markets. And as we've seen of late, with the .com
busts, those markets somewhat have within dried up to some
degree which affected our long-term strategy in short--that's
the short of that.
We do, however, remain hopeful and optimistic that the
economic benefits resulting from these efforts doing the new
high-tech companies populating the empowerment zone in the
central City of L.A. And possible zoning impact will continue
far into the future. We've laid the ground work for the
baseline infrastructure.
Let me talk about reduction of liabilities. In 2000, the
bank, by direction of the Board of Directors, moved
aggressively to defease its outstanding HUD debt, which as of
July 2000, totaled $105 million. During 2001, the bank reduced
the City and County's liabilities to HUD by $10 million and $4
million respectively, approximately 16 years ahead of schedule.
The reduction liabilities occurred through a defeasance of
county long-term debt. The bank has successfully resolved all
outstanding significant legal issues and prevailed on appeal
and in the Supreme Court in overturning a 12 million-dollar
judgment. Our Board of Directors continues to remain pleased
with the hard work our senior staff put into this successful
conclusion because we have, in short, one hell of a staff.
With respect to job creation, providing eligible companies
with capital was always intended to be a means and not the end
of economic development. The measure of success we strive for
is job creation. Primarily benefiting residents hopefully of
the empowerment zone and/or other low to mod persons. That's
the standard set forth by the comprehensive agreement with the
city and County of Los Angeles and that's the national
objective set forth in the HUD regulations.
Each company assisted by LACDB is required to demonstrate
they have the capacity to create one job for every $35,000 in
financial assistance which is quite difficult to do, but it is
what it is. Taken together the portfolio of companies are
required to create approximately $3,800--excuse me, 3,800 jobs.
So essentially, based on the money loaned, 3,800 jobs should
have been created. Through December 31, 2002, LACDB-funded
small businesses have created 3,400 jobs. So what that means is
that 90 percent of the goal--90 percent of the goal has been
achieved, from a numbers standpoint. And while the number of
empowerment zone residents benefiting from these jobs totals
only one out of every five jobs created, low and moderate
income persons hold 80 percent of the jobs created by those
companies who receive funding. While we are proud of these
accomplishments, we expected to achieve greater results, but to
be quite frank, it was a difficult, difficult task to carry--
pull that off and make sure that we reach the 51 percent
number; but we continue to try and do that.
LACDB also understood that the federally funded job
training and referral program operating in Los Angeles would
provide our clients with the type of resources and workers they
needed in a timely manner. Things like work source development
and other entities in the community would be a resource that
individuals could go to for training and job placement which
and would augment the bank's activities which unfortunately,
we're not up to par in meeting that opportunity.
When the founders of the Los Angeles Community Development
Bank performing their strategies around what was anticipated to
be our targeted customers, the economy shifted as a result of
rapid growth in the technology sector. During this time,
commercial banks lowered their lending standards and began to
offer business loan products, and they were far more
competitive and had significantly less red tape than the
requirements that accompany Section 108 funding.
This resulted in LACDB taking on higher risk loans to
businesses that would need to stabilize their infrastructure
before they could follow through on their jobs creation
commitments. In short, we got even riskier leans. I continue to
remain significantly challenged as a board member when I hear
statements made like, ``The bank has failed at meeting its
national objectives,'' or, ``The bank is out of compliance,''
or, ``The bank doesn't know what they're doing.''.
It is important to note that the businesses that receive
funding and remain in business are not required to create jobs
within a specified period of time, but it appears that
requirement for jobs creation is open ended with respect to the
time line of--of the Section 108 commitment.
That said, current LACDB statistics once again show us the
90 percent achievement level. While it is true that the
founders of LACDB intended for the bank to operate autonomously
from the City, it is a significant departure from the truth to
say the City of Los Angeles staff has remained hands off and
unaware of the level of risk that is involved with LACDB
lending, a significant departure from the truth.
Additionally, it is important to note that the reason the
bank is moving towards closure, the reason the bank is moving
toward closure is primarily due to the lack of political will
to support the bank. In short, the bank was not set up to
withstand changes in administration at the local and Federal
level.
So where do we go from here? So where do we go from here? I
will tell you as a third-generation citizen of this great City
that I am very proud to--to have been born, live in and will
die in, I'm encouraged by the fact that this committee is
asking the question: What are you going to do with remaining
Section 108 funds when the bank closes?
As a suggestion, I offer the following: While the City of
Los Angeles wants to expand on the uses of these funds to
include housing development, I am of the mind that we cannot
walk away from the job without defined specificity on how the
funds will be utilized in the future. Additionally, it is my
belief that we must maintain funding for our mid-size and small
and/or microbusinesses.
Therefore, a significant portion of the remaining funds
should be relegated to this activity and should include the
areas of the City that meet the low income census track
criteria while utilizing the 2000 census data, and not the 1990
census data. Additionally, as the LACDB moves toward closure, I
believe local organizations that provide this kind of lending
should be considered for tactical deployment of this resource.
I offer the following highlights from South L.A. Rioting,
opportunities for economic self-sufficiency ten years after the
1992 civil unrest written by two UCLA students, Mark Drisey and
Danny Flemming, economic round table briefing paper: ``When
business is created and developed, you obviously have jobs,
short of that statement. South L.A., in particular, was the
hardest hit after the 1992 civil unrest with 547 buildings
damaged in Los Angeles. 78 percent of--or 428 of those damaged
were in South L.A.
For the purposes of this study, South Los Angeles included
the planning districts of South East L.A., South Central Los
Angeles and West Adams/Baldwin Hills. Of the 428 buildings
damaged in South Los Angeles, only 19 percent had payroll
paying estimates in 1999--excuse me, established. The 81
recovered buildings house 147 businesses employing 985 workers,
an average of 7 workers per establishment.
Of the 195 workers comparatively, they were paid 15 percent
lower wages than their counterparts in other parts of the City.
The South L.A. Workers are paid an average monthly salary of
$1,707, which annually is about $20,884, below poverty wages
for a family of four in the county.
One of the fundamental problems faced by South Los Angeles
residents in 1992 was the shortage of jobs. At the time, there
was only one job to be found in South L.A. For every 4.5
residents, making it the most out--making it the most job
scarce area in the City. According to the economic round table
study presented in April of 2002, by 1999, there was a slight
decline in City-wide job availability, but a precipitous
decline in South Los Angeles.
In 1999, there would 2.8 residents per job Citywide and 7.2
residents per job in South Los Angeles. This means that there
were only one third as many jobs per residents in South L.A. as
in the City as a whole. By the end of the decade, South L.A.
had a joblessness rate higher than that--the City average, but
three times higher than the national average, three times
higher.
What does this mean to distressed communities in Los
Angeles, particularly in South L.A.? It means that the initial
designation of the $400 million to boost the local economic
engine has a long way to go to create jobs and businesses.
Rather than place the $198 million in other areas, why not
designate at least half of those dollars to be placed at the
local level and local community-based business expansion and
job creation retention organizations.
If you'll allow me a couple more minutes, I will come to a
close. Let me give you an example of that statement: The
community financial resource center in L.A.'s first private
partnership in 1993, in its tenure of community economic
development service of the community, it is based right here in
South L.A.--by the way, I'm not advocating for one group. What
I'm advocating for is that we take the remaining dollars,
identify the people that do what LACDB was formed to do, but
they do it well, and have a coalition of lenders throughout the
City that help these underserved communities.
I will leave that example open for your reading that since
I happen to note in the interest of time, but I want to drive
this message home: There are many reasons why we should
continue to employ capital to small businesses and inside
business in Los Angeles.
Some additional reasons are: Of the 6 million people
estimated to move into California between 1999 and 2010,
approximately 900,000 will call Los Angeles home creating a 24
percent increase in Los Angeles's growth rate. Over the next
five to ten years, approximately 20,000 to 30,000 people in
California will be released from prison. On an annual basis,
landing in communities being underserved, poor and low income,
where will they work? As communities expand, the need for small
businesses required meet the needs of local communities. This
is driven by the need for inability for big bucks developers to
keep up with the growth rate. Increased businesses mean
increased taxes which mean you get a chance to increase the
services. As a citizen of this great City, I implore this
committee to keep the focus on standing on the side of what's
right in supporting our local economy. Thank you.
Chairman Ney. Thank you for your testimony. I have a couple
of questions just for my complete clarification.
[The prepared statement of Robert Sausedo can be found on
page 124 in the appendix.]
Mr. Graves, you will, under your auspices of the city, will
take over the bank in December; is that right?
Mr. Graves. We will.
Chairman Ney. Functions of the bank.
Mr. Graves. The bank functions basically, yes.
Chairman Ney. And then, you feel that you're ready, not
you, yourself, you know, the organization is ready to do that,
the transition would be occurring in----
Mr. Graves. Yes, I do. Keep in mind, Mr. Chairman, that the
department already administers the rest of the 108 program. So
we would essentially be merging that into our capacity, the
same is true with the EDI grants.
Chairman Ney. Now, originally the bank, I think it was your
statement that it was an independent body from the City. It was
completely independent.
Mr. Graves. It was set up----
Chairman Ney. In '94.
Mr. Graves.----in '94, '95 as an independent body, but the
idea was--is that a body that was not bogged down by the red
tape of the City or the County could become more aggressive in
its economic development activities.
Chairman Ney. Was it independent of the County at that time
in '94?
Mr. Graves. It was the same thing. As Mr. Jackson pointed
out, their monitoring process was a little different than ours.
Chairman Ney. Looking back on it, if you have Government
money that comes in, it's independent of the City and
independent of the County, is that wise--I mean, you want to
keep it, quote, ``from the bureaucrats,'' or want to keep it,
quote, ``out of the hands of politics?'' But sometimes
political activities involvement, not on a partisan basis but
how politicians actually vote on these items help these
programs along. The use of an independent body took it
completely out of the realm of the elected Representatives who
have the responsibility for the funds. Unfortunately, if the
independent body goes a little haywire, which I think it has in
this case, then the elected officials say, ``Well, it wasn't
us.''
The question I have is: If you reconstitute this will you
have the same type of situation or how will it differ? If
anybody wants to answer.
Mr. Garcetti. Mr. Chairman, I think maybe the best metaphor
for this was, if it was an arranged marriage and either of the
spouses live together. So yeah, we have one in which they
would----
Chairman Ney. Are either one of them alive? Has one left
the country?
Mr. Garcetti. Well, I think we have two alive today. When
we look at, you know, whether we have the capacity to, I think
we have to ask ourselves a question: In some ways the bank was
put in a difficult position because there was never a clear
policy direction.
Do we want this to have great jobs, or do we want this to
have a portfolio that works? Do you want this to be a purely
functioning financial institution, or do we want this to be
something that creates jobs? In high risk areas, those are not
going to always dovetail. In fact, it's almost possible to have
them dovetail.
So I think that if the city takes over some of the affects
in the way of authority, we're not in the business necessarily
of trying to get the highest return in pure fiscal terms for a
portfolio. What we are in the business of is getting the best
return on a human portfolio, and I think that is something the
bank in some areas did something really well.
Participating in a microloan program, that was one, I
think, in which we see the best of entrepreneurialism, and see
money going out there, and it was a model for the entire
region, and arguably for the country. Those are the stories of
successes on the bank side we want to build on new loans. But
our own section of the loan program is definitely in place and
ready to go and ready to spend that out in coordination with
housing and job development programs.
Mr. Jackson. Mr. Chairman, it wasn't totally independent.
There was, through the comprehensive agreement, a relationship
between accounting and the bank. We had----
Chairman Ney. Excuse me, but not the City.
Mr. Jackson. The City had the same arrangement because
there was a joint body and honor committee between the two
entities that looked at program performance, looked at
different types of----
Chairman Ney. Not to interrupt. I just want to follow. But
I think Mr. Graves said it was autonomous.
Mr. Graves. Well, it was autonomous in the sense that we
did not participate directly in their loan program, except for
108 passing through 108 applications to HUD. We did have an
annual business plan which was reviewed by the county and the
city up through the City council and the board of Supervisors.
Chairman Ney. Sure. Well, was there a vote on that plan, or
was it just there; or did somebody say good or bad?
Mr. Garcetti. Well, this information, we still have this
coming before us, we decided last week, and since I've only
been here the two years, that we get briefed on it and ask
questions, and move on. There's no formal vote.
Mr. Sausedo. And that plan is co-authored by the bank, the
county and the city.
Chairman Ney. What was the role then? If there was
autonomy, what was or is the role of the City or the County
then? What would you deem your role was? If there was an
autonomy of this board, but what was the role, to monitor----
Mr. Jackson. It's similar to like a nonprofit organization.
We have an agreement that specifies program requirements,
program activities, the target areas, and then like I
mentioned, we were not satisfied initially with the
establishment of the bank in this operation. So we--withheld
any approval of any expenditures until we felt comfortable, and
at that point, it was at that point that we allow expenditures,
loans to be approved. But we were not involved in the daily
operation of the bank. That was not our responsibility. So we
had guidelines----
Chairman Ney. Whose responsibility was that, do you know?
Mr. Jackson. That was the daily operation staff.
Chairman Ney. But you had an oversight on the daily--
reporting mechanism to the City and the county that sees funds
coming through for local control or----
Mr. Sausedo. The answer to your question is yes. I could
probably have Mr. Valenzuela speak to that more specifically.
Chairman Ney. We need your name into the record.
Mr. Valenzuela. I'm Steve Valenzuela, President, CEO of the
bank. I think in Mr.----
Chairman Ney. How long have you been CEO of the bank?
Mr. Valenzuela. I'm the President and CEO.
Chairman Ney. I'm sorry. How long have you been CEO?
Mr. Valenzuela. Since March of this year. Prior to that,
prior to six years, I was chief operating officer.
Chairman Ney. Who was the previous?
Mr. Valenzuela. There have been two prior CEOs. The
original CEO was Robert Kemp. He was the initial CEO from
approximately June of '96 until about late 1999, and then the--
we had an interim CEO for about six months in the form of a
board member, Linda Griego, and then in February of 2000, the
board appointed William Chu as a CEO who served as CEO until
March of this year. He's gone to private industry.
Chairman Ney. Thank you.
Mr. Valenzuela. And your question was?
Chairman Ney. The question I had is: Who--well, I'd gotten
to the issue of monitoring, and what I wanted to know: Is
there's a certain amount of autonomy between the City and the
county, say, that they do have a plan that they review. On a
daily basis, as you all were operating the bank, how or do you
or when do you report to the City and County and in what
manner? Is it just reporting, or are they involved anyway in
the decision making process?
Mr. Valenzuela. Neither the County nor the City were
involved in the decision making by the bank in terms of which
loans or investments they were to make or approve. That
authority rested with the Board of Directors and credit
committee of the Board of Directors.
Chairman Ney. Okay. Which comes to the point that these are
government minds that come down: Any decisions made at the end
of the day, who was the bank accountable to? Just the autonomy
agency of the board? I mean, was there any accountability to
the City and County?
Mr. Valenzuela. Well, each year I think as--I think as Mr.
Graves indicated, each year the bank submitted under the term
of the comprehensive agreement in October, an annual business
plan to both the City and the county with copies to HUD, they
would outline what the expected loan activity and investment
activity was for that particular year.
And that--those business plans were--were reviewed and
approved by the city and County, and while they didn't identify
specific loans, companies or that we would be making specific
loans to, it did identify the range of dollars that would be
made to small businesses to microloans to the venture capital
program.
We also work closely with the county, the City, and HUD
used to participate as a stakeholder as well in oversight
committees that would meet on at least a quarterly basis
wherein we would report and the county, City and HUD would sit
in on these meetings to listen in on the performance of the
portfolio, the performance of the achievement of our business
plan day and other activities.
We also reported on a quarterly basis to the City, County
and HUD on our progress toward job creation with a detailed
report showing how our borrowers, investees are doing with
their job creation goals, jobs to date and some of the remedial
actions that we would undertake in order to improve
performance.
Chairman Ney. Congresswoman Waters has some questions, so I
want to ask one final question.
When you talked about the--Mr. Sausedo talked about the
analysis or about the jobs and the money spent, of the
successful loans, is there a breakdown or an analysis of how
much money was spent to create what job--was it 35,000 per job,
10,000 per job--is there some kind of average, number one, did
that take into account, of course, the loans that didn't make
it that were still funded that a person didn't get a job out
of, but of the successful ones, was there a dollar figure per
job that can be available out there?
Mr. Valenzuela. That number is available. We're--we're--the
county and the city required that we have quarterly compliance
reviews that are conducted by an outside audit firm as well as
quarterly financial reviews which are conducted by the same
audit firm, and one of the evaluations that they conduct--and I
can make that available, I don't have that information with
me--is they look at that standard which, I believe, under the
Federal regulations is one to 50,000 and--one to 35 for the
bank. I think it's one to 50,000 in general. We have that
information and can make it available to you.
Chairman Ney. I just want to--make one statement. We'll
move on to the gentlewoman from California. It seems to me and
this is something of importance to us because, you know, when
you're in Washington, you're voting I'm all for local control.
I'm a preacher of the legislature and you serve on the
legislature also. I'm all for local control, but then if
there's not a check and balance or an assessment or something,
we can't just say, ``Well, we're trying to help poor people.''
It doesn't actually overall do that, not because it was
intentional, just because of a series of problems we
represented. But then as we tried to support problems that
become more difficult here or in Idaho or Ohio or larger or
smaller places because it's more difficult to support them.
People say, ``Well, how effective was it?''.
Also, one thing that's unclear to me--and I'll ask you
right now--one thing that's unclear to me as you take your next
step, was this, the whole request of money and the bank all
geared towards helping distressed area and now as you recross
this--I shouldn't say you, as this is reconstituted, is it
really going to help the distressed areas, or is it going to go
somewhere else where it really wasn't meant to be? I have a
County at home right now, we're at 13 percent unemployment.
It's horrific. We were at 17, but now we went to 13. I had a
County that was 26 percent official unemployment, which was
depression era on unemployment. As we went to help those
counties who needed a wide variety of support, I think we had
to get away from this generic, ``Well, we're helping this
area,'' and all of a sudden, the money comes in; and we create
a small factory, but nobody in that County works in the
factory. That's a problem.
You know, ``Well, gee, this County adjoining it, if we help
that County, those individuals that need that job are going to
work there,'' but then in actuality, they didn't. And we had a,
you know, major corporation of Honda. I just want to give a
estimate of the $43 million to, they specifically would not
interview anybody from my zip code. I mean, this is a fact. Of
course, we didn't testify. I voted on that Honda loan, too,
when I was in legislature. I just threw out there as this is
all reconstituted, I just think that, first, you have to be
careful of how you do it.
Mr. Sausedo. Absolutely, Chairman Ney. I'm three years into
the bank. When I was brought here, I was looking, trying to
find innovative ways to make our borrowers successful. For
example, the stakeholders are the City, County and the feds. If
there's something we can do with the procurement to give these
people contracts to pay us back, that was one of the things we
needed to discuss that was left out. This was an experiment, I
think, that we all have the benefit of hindsight and looking at
and saying, ``Well, we probably shouldn't have looked at it
this way, or we could have done it that way'' or given certain
resources; and you're right, I mean, we have to target the
areas, but some of the areas--for example, when we start
looking at employment law, can we legitimately prevent someone
from getting a job from someone who got a loan from us and not
be in violation of labor law because they have to meet a
specific criteria.
There are a lot of unanswered questions. But what I don't
want to miss here is that there is a significant lesson learned
here, and that is that with an entity like LACDB, what we can
do is take the bureaucracy out of deploying money to businesses
that need it immediately. And there are other institutions out
there--I named one--but if there was the right coalition
because what I don't want to see as a citizen is, to be very
frank, which is take a hundred million, 50 million or whatever,
put it in the hands of CDB and say, ``Do the right thing.''.
Chairman Ney. That's my--and it's going to take the will of
what we call political or elected, and I have to be in
preparation, and for the record not in the soft light of day,
or we are going to shut the lamp off, if you know what I mean.
Mr. Sausedo. Right.
Chairman Ney. I'll just mention that I think there's got to
be a lot of communication out there.
Mr. Sausedo. Absolutely. What we will tell you in short, is
that this board--you can probably hear a little bit ever anger
in my voice. And where that comes from is the Board of
Directors on this bank are some very savvy folks, some of you
know Professor Gene Grigby, who has now transitioned off the
board. Rob Amens, Far East National Bank, and--just to name a
couple notables. Denise Fairchild, these are people that are
critical thinkers that analyze policy that understand business
and that came here to do good.
We spent the last three years putting out fires, and it's a
shame because the last three years, we weren't able to serve
the community in the way that it needed to be served. What we
were able to do is serve as a buffer to protect the City. And
we don't get acknowledged for that, and I take issue with it.
I take issue when I hear statements like, ``The bank did
this wrong,'' but then when you call the City council members
to sit down when they're newly elected to say, ``Let me share
with you where we've been and where we're going'' and you don't
get a return phone call, and you walk the halls on your own
time twice to do it, there's a disconnect; and the disconnect
with any organization is when there's lack of communication,
that is ultimately going to lead to failure. And we cannot not,
not let that happen again.
Chairman Ney. Congresswoman?
Ms. Waters. Okay. This has been--this is--I'm going to try
and have questions for each of you.
Mr. Garcetti is an elected official. I've got to ask some
questions that may be a little bit uncomfortable.
Mr. Garcetti. Please do.
Ms. Waters. But I was drawn into making this work kind of a
priority despite all the issues that we're confronted with.
There's Medi-Care reform and all of that. I said I got to pay
attention to CDBG Section 108 and the development bank and how
it all works.
And the reason that I was made to focus on this is several
things happened: One was I was sitting with angry young people
at one time who said, ``The Federal Government doesn't give us
any money.'' ``If it wasn't for my City councilman, I wouldn't
get any funding.'' He was talking about Federal money. He was
talking about CDBG, and I thought about it; and I said, ``Well,
you know, there is a lack of understanding about where this
money comes from.''.
Now, for people like me who are tagged as old taxing spare
liberals who push for money to be sent to my community, I don't
like it when somebody says you don't spend any money. Then, I
began to pay attention to campaign brochures where some local
elected officials were politicking with the money, I'm leaving
some blood on the floor here in Congress.
This is what I did as a City councilman. I developed a
shopping center. I did this. I did that, whole long list of it.
No mention that that money was Federal money. That it was CDBG
or Section 108, any of that. And then at one point in time,
when Los Angeles had not spent its money in a timely fashion,
$25,000 checks kind of showed up. Okay.
They were pulled out the back of somebodies pocket and they
just started passing them out, and that was CDBG money. So I
guess I'm saying this because you kind of mention, you know, it
used to be politicize and it's really not so political, and
these decisions are made because we have this one reform
outreach and response to requests for proposal and on and on
and on.
I'm concerned about all of that, and I'm trying to work
with this committee and my delegation to figure out how we
straighten all that out. I have a great respect for what was
described earlier today about the flexibility that you have in
City government to be able to target and identify, set some
priorities about what needs to be funded, and I'd like to see
that.
But you know, because I know the community so well and know
who's connected, I know who gets funded. I know how it works.
This is what I spend my life doing. I know this stuff. Then I
figure I got to help straighten this out. So having said that,
and I'd asked Mr. Graves this question before, and Mr. Graves,
when we talked, kind of gave me a little bit of idea about how
you--I asked where is the discretion?
After all is said and done and you got the CUP and you got
the neighborhood councils and all of is that, where is the
discretion, and how do we get to write $25,000 checks and pass
them out? Where does that come from?
Mr. Garcetti. Well, I think--you ready for me to respond?
Ms. Waters. Yeah.
Mr. Garcetti. Okay. I think you hit the nail on the head,
and I 100 percent agree. I think that passing out on the last
round $25,000 checks was the gasping cough of a dying system.
Because that was that one time in which there was that surplus,
and as Chair, I mean, you can appreciate this when a colleague
comes to you and says, ``Help me out, I got this project. I
have this, I have that.'' There really is not much to go around
anymore.
So we are looking at community base in terms of
discretionary money. There really, we have a list probably five
times as long as the money that our members request and that
wasn't the case in the past. When Mike Menendez, my
predecessor, was there, he was sharing stories with me that he
had absolute responsibility and somebody come to me, ``Oh,
okay. This isn't spending out. Let's move that. We funded that
for five years, and we should have funded it for one,'' and we
don't have that. I mean, my position's a lot less powerful, but
I'm glad because that means that some of that is being
devolved. And I didn't mean to paint too rosy a picture that
we're there yet. I guess it's about the intent that it's really
permeating the system right now. For me, that's different. It
was because we had the crisis of spending down from that 20.5
to the legal limit there was a bunch of checks that just went
out the door. And I for one, want to praise the Federal
government--I always publicly thank the Federal government and
let my constituents know this is Federal money. When I say that
we have a hundred million dollar housing trust fund, most of
that is our money going out where our money is about $5 million
of that is from CDBG money, so we're always trying to leverage
that, and I think it is critical for that to be closed. Now----
Ms. Waters. Well, go ahead.
Mr. Garcetti. The flip side, though, and I respect very
much what Mr. Sausedo was saying and I was one of those council
members who sat down immediately and did get briefed on the
bank, but I understand the lack of interest. It's something
that I've tried to get my colleagues to show some interest in,
too, and it's been a mixture of, ``Oh, I don't want to be
touched by that.''.
Because of that perception, sometimes it's unfair to talk
about the bank, but nobody wanted to engage in the political
will on this when they saw that it's already out the door. But
that said, if we just did a system where it only went to the
community which I, too, philosophically favor, we get that
oversight problem.
We have to figure out a thing where if the CDD has failed
in the past and certainly I think there's blame with the
department as well as with the bank, we have to shoulder that
as well. So just to say that I'd be worried CDD take this money
and run with it, we have to have a CDD that can take that money
and run with it.
We have no choice in our system but to have a system that
works, so the internal reforms that Mr. Sausedo was talking
about is something that we're working on just as much from the
inside to make sure that happens, but I was not mincing words
when I said the leadership term and that attitude is permeating
places immeasurably different.
And I think it's got community members that would begin to
wash out toward the community tried to do but we only have gone
through one round since those changes have been made.
Ms. Waters. Okay. And I'd just like to mention, too, while
my mind was on the description of this money or lack of
description of where this money comes from. We are pleased
about the teams that are put together to do some of this
development, whether it is a big private developer and a
community group or organization, et cetera, et cetera.
I've seen some of the private developers who wouldn't walk
foot into the community without all this gap financing, who go
around touting what they have done for the community, and they
don't seem to know where the money comes from. When in fact,
those developments would never take place without Section 108
and certain gap financing. So I'm looking at that also in terms
of developers because in the final analysis, if we know these
are business deals, but we don't mind people making money, but
I don't want to see some of the well-healed developers who make
these--put together these teams walk away beating their chest
about what they did for the community without recognizing that
this was a team effort with the Federal and the local
government playing an important role. So we're going to be
looking at how we can bring some reality to some of this. We're
not out to change the mission of--of CDBG, but I think we do
have to have some new definitions and I just----
Mr. Garcetti. Absolutely. In fact, if I could make one
suggestion. It's not about the name Maxine Waters' name out
there or whoever's name not on there. But I think whenever we
have those projects and we have those signs that are out there
so people know where their tax dollars are going, whether it's
Federal or whatever. I will make an instruction of the
community redevelopment, that they make sure that Federal
moniker's on there, too, because this is made possible by
Federal Section 108, that this is the rep for the area, that
these are people who are fighting on the floor because I think
that is critical for that credit to be out there, too.
Ms. Waters. Yes, I think that, too. I've never seen that on
a site. That's interesting.
Mr. Garcetti. You had my word that I will make that
direction to the department and try to see if my colleagues
will come on board with that, too.
Ms. Waters. We'll have some directions for you also.
Mr. Garcetti. Good. Thank you.
Ms. Waters. Thank you. I thank you for volunteering that.
Mr. Graves, why should we support the idea that CDD should
have this $196 million, be it in a $50 million allocation or
further and whatever, and why shouldn't we insist that the
money go into the areas that were intended in the supplemental
zone; and could this not be better done by one of these CDFI
organizations or take, for example, some of our local banks
that are really Community Development Banks? I see small banks,
we have them all over. That's what they do. They're in the
business to lend money. Now, I know that you said that this
Community Development Bank ended up being the bank of last
resort. And they had to take businesses to lend money to that
the banks and turned down. Now in my mind, that's not so bad.
Let me tell you why.
The banks haven't had a clue for what to do with minority
businesses, start-up businesses and never supplied any real
substantial capital. This has been a struggle that I've been in
for years. So they've turned out a whole lot of people who, in
fact, should be given loans and who can pay those loans back.
So I'm not disturbed by being the bank of last resort.
When I was in the State of California and we had our small
business development operation that the banks did guarantee
those loans, that was the same kind of idea, too, that we were
kind off of the bank of last resort. And that bank discovered
ways by which to evaluate the applicants in ways that
traditional banks don't always do.
First of all, looking for the ability to repay. But also,
doing some of the kinds of things that have never been done
particularly for poor communities and minority communities
before. We have people who have--could go out and get signed
contracts for goods or services that they could negotiate at
any traditional bank, but it's done in nonpoor or nonminority
communities where, you know, you've got a whole list of people
who say, ``You make this product. I will buy. This is what I
need. I'll sign the contract.'' Business does not have money to
get the inventory. Can't get it from a traditional bank, but I
would expect a Community Development Bank to be able to look at
that just a little bit differently, look at the history of the
person, look at the entrepreneurial spirit of the person, look
to see, ``Well, maybe they have a little something in
collateral someplace where they could help out with this,'' put
together a package where maybe they could get the family or
somebody else involved in what would be some kind of good faith
money to show that, you know, you're really struggling for this
startup capital and then make it work.
Now--so I--I'm not again shocked that traditional banks
turn people down, and you become the bank of last resort. But
what makes a civil servant or a political appointee a better
judge than some of the Community Development Banks? We're
funding through the community development financial
institutions, some banks that are identified as community to do
this very work.
Why can't we go over there and look at what is it, One
United or whatever that bank is, that consolidated with family
and founders and all of that, these aggressive, young
community-minded spirited people. Why can't we put that money
into those banks and let them do this work and just wipe your
hands of that? Get rid--you don't need that. Why do you want
that?
Mr. Graves. Well, now you made me stop and think about it.
Actually, at one level, there is no reason not to consider
that. When I was in San Francisco, the redevelopment agency, we
worked with a couple of banks to use tax increment funds as
loan loss reserve in exchange for their commitment to make
loans in our targeted areas.
There are a lot of ways you can use a bank and not spend a
lot of money, by assuming some of the risk that they otherwise
wouldn't take. It's not that what CDD would be doing is that
much different than what we're doing already.
As I pointed out, CDD operates the 108 loan program outside
the bank now, and I think that our folks have a pretty good
track record in terms of the creativity of using our funds to
fill in those gaps that you're referring to. At this point, I'm
not ruling out any alternative for the use of those funds. I do
know that the initial 50 million is a relatively small amount
compared to what we're already doing with the same 108 funds.
With regard to the larger amount, then we probably would
need to bring in some different kinds of partners, but I would
very definitely prefer to go with an existing lending
institution and give them some incentive to take a second look
at some of the applicants that----
Ms. Waters. Would you take a very close look at that.
Mr. Graves. Sure.
Ms. Waters. Because I think that that's something that
ought to be considered. While I have both of you.
Mr. Garcetti and Mr. Graves, there's a pile of money in
CDBG that's being used for certain kind of City infrastructure
services that I wonder about--code enforcement, why are we
using CDBG to do code enforced?
Mr. Garcetti. This is for housing, substandard housing for
people--kids who have lead paint poisoning. We're using it to
make sure that people aren't living--I think it's 15 percent of
all of our housing stock qualifies as slum housing, and it's to
make sure that we can supplement and everything is in a three-
year cycle so that every piece of housing in this city was
getting inspected just once every three years.
Ms. Waters. Don't we have some special funding for--
Somewhere?
Mr. Garcetti. We have some from the State that we've
gotten. It wasn't--we found that it is insufficient.
Ms. Waters. Okay.
Mr. Garcetti. So we wanted to make sure--we had kids, you
know, even as a candidate, I remember going to a couple
buildings. You could see the kids with gray faces, stunted
growth and with that, it wasn't nearly enough when you look at
15 percent of the City of Los Angeles.
Ms. Waters. I see.
Mr. Garcetti. They had not begun to even look at that, so
that was the code enforcement. Also, City infrastructure we
supplement other areas, sidewalk repair and other things and
census tracks, poverty census tracks, districts like yours and
mine.
Ms. Waters. Why don't we pay for that with regular City
money--sidewalk repair?
Mr. Garcetti. We do as well. Say that's split up by 15
districts equally, more or less, then those districts that have
greater need are supplemented even more with CDBG so that those
districts that are represented are getting more than, say an
area where there's not poverty, although we do that as a City
anyway, too, that supplements that further.
Ms. Waters. I have some questions about that. I'll continue
to think about that.
Mr. Garcetti. That was cut by half the----
Ms. Waters. You did reduce there.
Mr. Garcetti. Yeah.
Ms. Waters. Because while you're asking for social service
money, it is identified that this is high priority, don't tell
me you spend it on sidewalks.
Mr. Garcetti. Right. Well----
Ms. Waters. Because I expect the City, I expect the City,
one of the basic responsibilities of the City is to trim trees
and clean alleys and to fix sidewalks.
Mr. Garcetti. Sidewalks are not a legal responsibility of
the city, so the City wasn't doing them at all up to about 15
years--10 years, at all.
Ms. Waters. Is that right?
Mr. Garcetti. At all.
Ms. Waters. And for the homeowner?
Mr. Garcetti. And for the homeowner. We're looking at
systems where maybe we share that cost again. We'll go back, I
know we're not testifying about sidewalks today. But it's
interesting that we never had done that at all. And it was
precisely because some of those areas that we're trying to deal
with blight, so how can we bring economic development if we
have the older blocks, the older sidewalks, older part of it?
Ms. Waters. Where'd you get the hundred million dollars
done from the housing trust funds?
Mr. Garcetti. Mostly a combination of sources. Community
redevelopment agency tax increment money, from our general fund
which was pretty dramatic considering the last two years has
been our worst budget years in a decade. We have monies to be
gotten from tax reform, there are tax slough laws that weren't
paying any City business tax and so additional monies from
that, were dedicated for housing trust funds, and some monies
from surplus property sales that the City owned.
Ms. Waters. But none of the CDBG----
Mr. Garcetti. On top of the balance of $5 million----
Ms. Waters. Five?
Mr. Garcetti. Yeah, about 5 million.
Ms. Waters. 5 million in CDBG----
Mr. Garcetti. With the exception of the housing trust fund.
Ms. Waters. A hundred million is a nice amount to package.
If you can package 95 million, you can package $100 million and
leave that 5 million in CDBG alone.
Mr. Garcetti. Well, here's where it came from. Under our
previous mayor, about--I don't know, a lot of the money
consolidated families for monies used to go to housing was
moved away in housing. And so this was found as a commitment
because housing had basically been not a priority under the
previous administration. So this was a way, whether or not it
was through the housing trust fund or whether it was just
direct dollars into housing subsidies, we thought it was to
rewrite that wrong.
Ms. Waters. Oh, don't worry about that.
We need that 5 million in CDBG for these nonprofit
organizations that you want us to continue to support the
waiver on, and I can understand what you're saying.
Mr. Garcetti. That wasn't coming from that waiver piece,
though. Yeah, that was coming from----
Ms. Waters. I know, from the regular CDBG.
Mr. Garcetti. Okay.
Ms. Waters. Yeah, I'd like to encourage you to not to use
that as a symptom. Give the people the money because--like I
said, if you can package, 95--if you can package, you know, a
hundred, we need that so, so, very badly.
Mr. Garcetti. I'm sorry. I would be corrected. Of the
original plan by the mayor was 5 million, but it's only
500,000.
Ms. Waters. We can take that back, too. Okay.
Now, before I get to Mr. Sausedo, Mr. Graves, this proposed
arrangement for the joint venture company, to divest the City
this portfolio and move its management fee over to the new
entity that may buy, it sounds to me as if the management
company would continue to be able to manage the portfolio, they
would just change hats and who's paying for it.
But that's not a high priority of ours to make sure that
the management company stays in business. Your priority is to
see what you have in this portfolio and how you can get back
the most money that you can get back from this portfolio.
Now, some of the businesses are performing; some are not
performing. I don't know what the total assessment is, but
could you look at that very carefully and decide whether or not
the way that it's been described to us is the way you really
want to go with that, and whether or not--you don't have
anymore--you don't have any management by anymore organizations
as FAME or any other of the organizations still managing those
loans that they made?
Mr. Sausedo. No, FAME actually--there was a breakdown--
there was a $5 million allocation for FAME to do similar type
work in venture capital. There were no deals brought to the
table, and so we subsequently----
Ms. Waters. Took that 5 million back?
Mr. Sausedo. Right.
Ms. Waters. And you had one other entity----
Mr. Sausedo. Which what associated with FAME which was
Hancock Partners.
Ms. Waters. Hancock Partners.
Mr. Sausedo. Right.
Ms. Waters. So all that 5 million is back into the bank.
Mr. Sausedo. Right.
Ms. Waters. So all that you have now is this portfolio
that's managed by, what is it, Zone----
Mr. Sausedo. Zone Ventures.
Ms. Waters.----Zone Ventures that you have to be concerned
about.
Mr. Sausedo. Yes, and the short of it is--let me give you a
little background.
Ms. Waters. Yes.
Mr. Sausedo. Because it's important to note history.
Ms. Waters. Yes.
Mr. Sausedo. In the fall of 2000, the wonderful ``L.A.
Times'' reporter--and I do say that sarcastically--wrote an
article about the Zone Ventures portfolio--why is the City
involved in venture capital? It's sent a flurry in City hall of
some council people, not all, but some influential council
folks, I should say at the time, to include staff and the net
result of that was, ``You guys need to get out of this, and you
need to do it now.''.
Well, the Board of Directors took the position that, ``We
were brought here to make prudent financial decisions. If we
walk away from the portfolio, we have a contractual obligation
to pay all venture fee, et cetera, et cetera, you will lose any
potential up side. We will not make a poor financial
decision.''.
So after some creative thinking, we said, ``How can we make
a good financial decision and political decision which
sometimes, more often than not, is an oxymoron and do that in a
way that the City can win and get them most or best paid back,
if you would, from that.''.
So we came up with a strategy as a board to identify a
third-party entity that would take on our responsibilities, and
part of that $35 million commitment is about $5 million in fees
over the next several years due to the general partner, Zone
Ventures.
So one of the things we need to do is relieve ourselves
from that responsibility. During that time we had about 1.5
million in follow-on investment, meaning if there's a capital
call, we have to participate in order not to be what's called
``deluded'' or lose some of our investors. One of the things
that we did, we engaged a technology firm to come in and not do
a financial audit of the company, but to come in say, ``Look,
of what we have, are these companies that are worth continuing
to invest in, are we getting our money's worth in Zone
Ventures.''
Okay. So that if we're not, let me take a different tack.
At the end of that study, we found that we some funds in the
group. We also discovered that for them to--one of the main
companies, for them to go public, they're probably going to
need about $15 to $20 million in a capital call in the future,
and as whether some of the other companies. The next question
is: Will we be in a position to do that and as----
Chairman Ney. Can you--I'm sorry, hold your thought for a
second because we're running out of paper, I'm told. So just
hold that thought about the next question.
Mr. Sausedo. Fair enough.
[recess.]
Mr. Sausedo. The next question was: Will we have the
financial resources to participate in this long term? The
answer's no. And you know, it's the will of the City in a
position to do so? How will they do so? They're going to pull
money from the general fund, et cetera. With the caveat over
our head, get out of this deal.
We then ask ourselves to go out and identify on a
performance-based agreement some investors that would be
willing to take over the investment from us and then take over
our capital commitment, and as part of that, they would be
taking on future rounds, taking on future rounds of investment
and the remaining fee arrangement.
We did talk to a number of other people that potentially,
and no one wanted to touch it at the time. And now that we've
been in negotiations with--actually, there were two investors
at this time: One was MR Bill which was one of the largest bond
companies in the City at the time and a local developer Bedford
Group who was interested in taking on and stayed in the
process.
MR Bill unfortunately lost their taste to stay in the bill
because it was being too bureaucratic so what I thought would
be a very simple process. So--so we think that the board had
voted on moving forward on this, because we don't feel that we
have the venue capital to stay in the game, if you would, if
the City makes a decision to stay in the game and they have
some other financial resource to do so, then that's a good
call, because I do believe that some of the companies in the
portfolio are good, but when you're looking at issues like
police and fire being challenged by the shortfalls in the
budget kind of a difficult call to make.
So that's why--that's the history behind us looking at
selling off or--or divesting, if you would, the portfolio while
having some upside in the future should a future event occur
mark the conditions allowed more.
Ms. Waters. Well, I think that--that certainly should be
revisited. For a number of reasons. It seems to me--and I don't
know if you've done an assessment of that portfolio--there is
some document that talks about each of those companies, the
assets, everything, the management, everything, because it
seems to me that venture capitalists are not magicians anymore
than anybody else who manage monies or companies.
You make sound decisions based on the information and the
facts, and you can determine which companies are going to hold
and which ones are going to fold. And it seems to me that
rather than a management company, you know, managing that
portfolio, that if it's all going to be drawn back in to
someplace, that all be vested in that someplace to make some
decisions about rather than keeping the management company
involved at this point.
Mr. Sausedo. Unfortunately, we don't have--I concur with
you 100 percent. We don't have the luxury of making that
decision because there's a contractual obligation.
Ms. Waters. I see. How long does the contract run?
Mr. Valenzuela. July of '08.
Ms. Waters. July of what?
Mr. Valenzuela. July of 2008.
Ms. Waters. Who made that deal?
Mr. Valenzuela. It's fairly standard. I mean, limited
partners----
Ms. Waters. Really?
Mr. Valenzuela. I mean, limited partners generally have a
ten-year life span, and in many cases additional options to
extend at the option of the general partner with the consent
limited partners. In this particular case, I just want to add
to the complexity of the matter: Los Angeles Community Bank is
the sole limited partner.
So we're the 99 percent financial interest of the limited
partner with Zone Ventures having the 1 percent stake which is
fairly common. But we are not in many cases the investments
that we have through Zone Ventures and the portfolio companies,
there are numerous other investors and so our ability to--well,
first of all, we have limited, if any, ability to control the
investments were limited, and--and so we take recommendations
from the general partner, we review them, we--we try to
evaluate, make determinations as to whether the investments
will meet national objectives and other criteria that we're
subject to, and the portfolio has grown and matured and it's
gone through its ``I'' curve and ``S'' curve and beyond.
We've seen material deterioration and the value of the
portfolio very similar to what's occurred in other portfolios
with similar or like kind investments. And so the decision
process and the bank and the one that we've been communicating
and sitting on, how do we preserve, maximize the recovery from
this as opposed to walking away and taking a deep loss and
worse yet, we think that the proposal that has been approved by
the board and approved by the city and is now being discussed
with HUD to get their thoughts on it, is the best available to
us at the present time.
We're not sure--and I think, I'm not sure if they're
prepared to comment, but I know the City hired a consultant to
do kind of an evaluation or short valuation of the portfolio to
evaluate the terms and come up with some additional comfort,
but we believe that is on behalf of the bank and for the
businesses, this is the best possible proposal of this
portfolio that's been put forth that we've seen that preserves
the opportunity to participate in the upside, and we do believe
that there will be an upside for at least one or two of the
other----
Ms. Waters. Well, I forgot about the complication of other
investors. I was not taking that into consideration when this
was described. That complicates the matter somewhat. Let me
move on to Mr. Carlos Jackson.
Mr. Jackson, we know about the RFP process and the City of
L.A. And we know about the hearings, and we've heard the CUP
described and the neighborhood council is placed on role and
all of that. And whether or not that is fully operational or
realized, it is a kind of an oversight and involvement that
certainly everybody supports it should be done. It should be
worked at so that--in fact, it is real. Now, at the County, you
don't have an RFP process?
Mr. Jackson. For public services? We talking about public
services?
Ms. Waters. Well, you tell me.
Mr. Jackson. In the area of housing, we do have RFPs. In
the area of economic development and limited to what we have in
the two Supervisorial districts is working in targeted
communities, and basically it's a commercial business
revitalization or business loans and solid improvements so
really owner driven in that sense. In terms of our housing
rehab program and income driven which is equitable driven, we
can come forward.
Ms. Waters. Let's back up so you and I can talk about the
same thing. You get $38 million in CDBG money. How do you
disburse it? How did you dispense it?
Mr. Jackson. Being in L.A. County for 48 cities involved,
and since 1975, the board has adopted a policy for distribution
which is using the same formula that HUD uses for the entire
jurisdiction, population of current housing and people in
poverty. We run the numbers for the 48 cities, so it's very
objective in terms----
Ms. Waters. Okay.
Mr. Jackson. The cities are responsible for developing
their program according to the guidelines and requirements of
CDBG. And they will do a variety of things. For the
unincorporated areas, I work with each of the Supervisors,
there's five of them, and predominantly, that money goes into
housing.
Ms. Waters. Wait just a minute. I'm talking about a process
right now.
Mr. Jackson. That's----
Ms. Waters. You have a pot of money. Do you just divide it
up between the five Supervisors?
Mr. Jackson. No, it's done again by formula. Same formula
we use with the cities, we use for the Supervisorial districts.
So----
Ms. Waters. How do you do that?
Mr. Jackson. Using the three factors again: Housing,
population and poverty. We have the census information for the
unincorporated areas, and that yields a certain number for each
Supervisor. One Supervisor whose district's predominantly in
the City of Los Angeles may get 150,000. To Supervisor Burke
and to Supervisor Molina, we get the bulk, they have the
highest level of poverty or low income housing. And then, we--
for the cities, they do it, you know, according to their
particular needs.
Ms. Waters. Okay. So you've got this formula that's
synonymous with the formula that you use to disburse the money
to the cities which is the same formula we kind of use in the
Fed that divert to the States. We know that. So now you use
your formula and we each have this pile of money. How do we
spend it?
Mr. Jackson. Each of the--I"m going to focus on the
unincorporated areas because, again, for the 48 cities, if I
can, as an example mention South El Monte, that City of South
El Monte would get a----
Ms. Waters. Just because his relatives are in South El
Monte.
Mr. Jackson. I doubt it. But they've been in a program the
entire time. South El Monte would get an allocation stating
$200,000.
Ms. Waters. Okay.
Mr. Jackson. They will work with their council and the
staff and the community there as to what is pertinent and
important to them. We do not interfere with their programs
select in the sense. We allow them to develop their programs,
provided it meets all the requirements.
For the unincorporated areas, it's different. Each of the
districts, we work with the Supervisor and the staff and our--
and we also conduct community meetings. Like I mentioned
earlier, we have 16 communities that we go around and listen to
the communities. Unfortunately, when you look at the numbers
allocated, we get $30 million, it sounds like a lot. But for
the unincorporated areas, it's only $16 million.
Ms. Waters. That's not a lot of money. That's very little
money.
Mr. Jackson. That's the reason for----
Ms. Waters. But they do just kind of give it to whoever
they want to.
Mr. Jackson. Not--on the public service side. But not on
the--not on the other targeted for a particular program. And
it's really like, say, for instance, in one district we'd have
certain streets that are earmarked for community--commercial
business revitalization. It's really the participant's
willingness to participate in that program, a business. If they
wanted to do it for sign improvement. For housing rehab, it's
the same story. We will publicize and market the program, but
it's a voluntary program. We can't force anybody to take out a
loan or to accept it. In some cases, unfortunately, we have
gone and walked the neighborhood and offered a grant. People
still fear Government, fear the paperwork.
Ms. Waters. So let's get back to process. For your
unincorporated areas, you have 48 cities. In that, you have the
City of Hawthorne? You have Hawthorne?
Mr. Jackson. It's an entirely different jurisdiction.
Ms. Waters. Give me--Lawndale?
Mr. Jackson. Lawndale is a participating City in our
program.
Ms. Waters. They get a set amount of money based on this
formula, and they do what they want to do with it, but they
have some process, some process, but they spend that money.
Mr. Jackson. Right.
Ms. Waters. You have the unincorporated areas, and in your
unincorporated areas, you have should have some targets that
you'd like to see the money spent on. The money is basically
divided up between the Supervisors.
Mr. Jackson. By formula.
Ms. Waters. By something, formula. For the unincorporated--
--
Mr. Jackson. Same formula we use for the cities,
everything's above board on that.
Ms. Waters. And people apply for the money. People ask for
the money. You have community booster organizations who would
like to see--see some funding and maybe small amounts of money
because you don't have that much. And so you look at it and
say, even eeni-meeni-mini-mo, or I know this person. This is a
good program, something. You do something like that.
Mr. Jackson. In one program home, which you know we can buy
with our block grant.
Ms. Waters. Right.
Mr. Jackson. Home is an open RFP.
Ms. Waters. Oh, okay. But that's not the money that was
included in 38 million.
Mr. Jackson. No, just----
Ms. Waters. I want to talk about 38 million.
Mr. Jackson. Under the public services category.
Ms. Waters. Uh-huh.
Mr. Jackson. Under the RFP program, it might be money
targeted for the redevelopment area, small redevelopment area,
Willowbrook, say, for instance, and we have certain things
we're going to do there. But the area that we're--I think we're
talking about the public service category, this is the--the
dollars that Supervisors as well as the County we look at in
terms for social services.
Ms. Waters. Look, I'm not----
Mr. Jackson. No.
Ms. Waters.----saying you shouldn't do it. But I don't want
you to labor at this too hard. There is no RFP process for
those dollars.
Mr. Jackson. I didn't say there was an RFP.
Ms. Waters. I know. I know. You have a hard time getting
me. I'm not beating you up about it. I just--I have to
understand it before I have to start talking about making law
to try and deal with this. They have the flexibility to fund
programs that they'd like.
Mr. Jackson. That's right.
Ms. Waters. That's right. That's okay. Now, you mentioned
something that I did not know about--the monies that you get
from something to do with the city of Industry. What is that?
Mr. Jackson. Back in early 1990, '91, the City of Industry
had specialization set aside at the state level. For City of
Industry, they're set aside money for a tax increment for the
redevelopment areas, 20 percent set aside. They claimed and the
legislature approved it that there was no need for housing
within the City of Industry, and it reverted to the L.A. County
Housing Authority.
Ms. Waters. Great.
Mr. Jackson. Our agreement with the city of Industry was
that we would do it by housing program, without any input from
the--in terms of decision making, and so since then, since 1997
because there was a lot of litigation on that particular
matter, we've been using the money to elaborate for
homeownership, senior housing, special needs housing, and a few
other ones, you know.
Ms. Waters. That's good. Now I know there was something
about the City of Industry, and I remember some years ago when
we found that there were elected officials who lived every
place but the City of Industry who didn't have to worry about
it because it was all commercial and industrial. That's okay.
I'm glad that the county is the beneficiary of that. That's
fine. But now let me ask you the same question I asked the City
when I kind of talked to them about not using--maybe they
should be using money for a certain kind of infrastructure,
that maybe the money should be used for social service
programs, et cetera. What--how much of that 38 million are you
using for something like that, some kind of infrastructure, are
you repairing rec and parks--park and rec, facilities with CDBG
money?
Mr. Jackson. We do limited park improvements.
Ms. Waters. Why are you using CDBG money to do that?
Mr. Jackson. Well, the County itself has the park
improvements.
Ms. Waters. Why don't you use some of that City of Industry
money?
Mr. Jackson. It's strictly for housing.
Ms. Waters. It was strictly for housing based on the
legislature?
Mr. Jackson. Yeah.
Ms. Waters. The legis--Sacramento?
Mr. Jackson. No. In the redevelopment area, 20 percent of
the tax increment monies that are collected is set aside for
housing by law in any development area. That 20 percent is
transferred over to and--us, and we have to use that more
housing and no other purpose.
Ms. Waters. The tax increment cannot be used for any other
purpose, even though when you're developing housing and
considering the neighborhood or the environment which should
include recreation, parks, all of that, you can't use any of
that money for that?
Mr. Jackson. We do not receive the balance of the dollars
that they--you know, the 80 percent--we're not using that. They
keep that money. We're only receiving the 20 percent of the
housing set aside. We're not receiving any other portion. That
money's restricted to housing only.
Ms. Waters. And so tell me again, how much was your last--I
mean, give me some idea of how much money that is, that the
City of Industry tax increment?
Mr. Jackson. On an annual basis in July, we get maybe $11,
$12 million.
Ms. Waters. You say housing----
Mr. Jackson. Strictly housing.
Ms. Waters. So what do you do with it? I mean, how do you
spend it on housing?
Mr. Jackson. The board of Supervisors adopted an allocation
plans, and 50 percent went for affordable housing which is home
ownership, multi-family housing and senior housing, three
categories.
Ms. Waters. That's to the developer.
Mr. Jackson. It could be to nonprofit.
Ms. Waters. Computer down payments.
Mr. Jackson. Not that money. There's another half--the
other half is special needs housing. It's housing, and it
cannot be emergency housing. It has to be transitional.
Ms. Waters. So how do you use 50 percent of that 11
million. Give me some idea of how you use that for multi-
family, for example.
Mr. Jackson. We have--we allocate money for helping them on
acquisition, of property----
Ms. Waters. Developers.
Mr. Jackson. Right.
Ms. Waters. You give it to developers to do acquisition and
land packaging in order to build multi-family housing.
Mr. Jackson. It's not just--well, again----
Ms. Waters. Profit on nonprofit.
Mr. Jackson. And that is strictly on an RFF process.
Ms. Waters. Okay. On an RFP process. Right, okay. And the
other 50 percent, you do on special needs?
Mr. Jackson. Special needs housing.
Ms. Waters. Okay. You use any of this for homeless?
Mr. Jackson. If it's transitional housing. By law, we
cannot do emergency housing under the redevelopment law.
Ms. Waters. Okay. All right.
Mr. Jackson. So we do--again, we do domestic violence. A
lot of our focus is emancipated youth that come out of foster
care at 18.
Ms. Waters. You have a lot of focus on emancipated youth?
What are you doing for them?
Mr. Jackson. This. We will develop transitional housing.
Ms. Waters. Where is it?
Mr. Jackson. Disbursed throughout the County.
Ms. Waters. We can't find any homes for people coming out
of foster care.
Mr. Jackson. You have to be 21, and the need is tremendous.
Ms. Waters. Okay. Thank you.
Mr. Chairman, you were very generous.
Mr. Garcetti. Just because of your line of questioning, I
want wanted to give one--and I'll try to make a succinct
argument for some of the more infrastructure-based things.
Ms. Waters. Okay.
Mr. Garcetti. I think all of us want to grant money to
provide people with self-sufficiency----
Ms. Waters. Yes.
Mr. Garcetti.----and communities with self-sufficiency.
Ms. Waters. Yes.
Mr. Garcetti. It's really a lather. So when I think about
where we spend the money as the City, first you have to have a
safe community.
Ms. Waters. That's right.
Mr. Garcetti. I represent an area, which in a 2-month
period, 13 young people, 5 were taking drugs, in a similar
district.
Ms. Waters. Sure.
Mr. Garcetti. We were able to take some block rent money
and bring gang intervention folks, chased away at gunpoint.
Within two months, they had 70 percent of the gang members
positively enrolled in becoming forest fighters, just one
example. The second step on the ladder is the infrastructure
buildings so the community has some capacity.
In Echo Park where I live, where there was gunshots just
this weekend, we had an improvement project which had to do
with sidewalks and trash cans and actually the facade of our
businesses, things which gave the community pride, things like
the City should be doing, but the City cannot similar afford to
use those Federal dollars to get to the third step which is the
delivering of services, the economic development projects, the
community pool project.
Ms. Waters. Can you use Section 108 for infrastructure
repair?
Mr. Garcetti. I don't know.
Ms. Waters. Who mentioned that? Who mentioned the City of
Santa Fe to you?
Mr. Jackson. I did.
Ms. Waters. Did you tell any----
Mr. Jackson. No. That was economic development project
where----
Ms. Waters. Where you had to do some cleanup where----
Mr. Jackson. Major cleanup.
Mr. Garcetti. And if you get all those pieces in place,
then you have Federal money with which you will be able to
provide self-sufficiency to some parts of communities and
actually get the rest going and get the community going.
Ms. Waters. Okay.
Mr. Garcetti. But I think that's the last round of actually
being able to deliver services.
Ms. Waters. It may be, and it's not a lot of money, and I--
--
Mr. Garcetti. I hear you.
Ms. Waters. The City of responsibility.
Mr. Garcetti. Absolutely.
Ms. Waters. Now, having said all of that and--I'm finished
Mr. Chairman.
As we look at the possibility of the management of the bank
by a financial institution, CDFI institution on bank or
something, we would really like to keep in contact with you as
you think this through.
Mr. Garcetti. Absolutely.
Ms. Waters. We think that's very important. The other thing
I'd like to impress upon you is this: You talk about
infrastructure, the sidewalks, the trees, the alleys, the
poverty, the unemployment, buildings that are still boarded up,
since the insurrection, I am going to have to really, really,
really work--look very closely at what you talk about doing
with that money, that 50 million and the 146 million because we
know politically it's very hard oftentimes to direct the money
where it should go because everybody wants a piece.
You know, it's just a political reality, but we have to
resist that. We can't continue to look at the epicenter of the
problem and divert the resources that were intended for that
epicenter away from there. I think that most of us have been
very, very generous in our lack of criticism about this Condit
thing, but we're in a deficit situation in the Federal
government, the state's in a deficit situation.
So this is precious money. I mean, this is precious money.
And I would like very much to see it go where it was intended,
and so I'll stay on top of that; and.
Mr. Sausedo, where I don't agree with everything, I think
you've made some very valid points about the bank, and if
you're not to do it, what you think ought to be done in some of
the statistics that you have cited have been riveting and
forces us to have to focus on what happened with this very
precious money that's before us.
Thank you very much.
Chairman Ney. Thank you. I would also note to the witness's
first and second and also in vase of the third panel, some
members of the subcommittee may have some questions that they
would like to ask, keep the hearing open for 30 days so their
questions may be asked in writing potentially.
Thank you for a very interesting panel.
We'll take a five-minute recess.
[recess.]
Chairman Ney. We'll begin your testimony.
STATEMENT OF LORI GAY, LOS ANGELES NEIGHBORHOOD HOUSING SERVICE
Ms. Gay. Thank you. Good afternoon, subcommittee, ranking
Member Ney and ranking Member Waters. It's a pleasure to be
here. Welcome to Los Angeles.
Just a quick word about NHS, and since this is a field
hearing, we'll focus our comments on what CDBG's been helping
us do here in Los Angeles. LANHS is 18 years old. We've served
over 1.8 million people. We are a CDFI as well, and last year
generated $72 million of business assisting families to improve
their homes and obtain their homes.
We provide financial literacy, education, affordable loans,
construction management services and neighborhood
revitalization programs. We are members of the national
NeighborWorks Network, and we spoke to this committee in April
on the down payment assistance fund, so I won't reiterate all
the information that I have.
Chairman Ney. Just a note, I was so impressed I stopped
you, and I said I wanted to visit----
Ms. Gay. You did.
Chairman Ney.----you.
Ms. Gay. You did, and we welcome you to do that at any
point. We are interested in leveraging. That's the business
we're in, so the other panels that spoke before us, one of the
things I thought was interesting was the capacity for leverage.
We're at a 35 to 1 leverage now in the housing business we're
in, and I think that the small business sector has a very
difficult challenge.
It will be interesting to see if they can leverage the
funds that you so adequately place with them, and I thought it
particular intriguing, the idea that we're suggesting for the
Community Development Bank resource is what I would certainly
offer is the notion, that's not our business.
We don't do small business development detail or investment
peaks. But a group like LALDC, Little Tokyo Service Center here
was earlier this morning. These are entities that are CDF
investments. They along with banks put money on the street
aggressively, and so just the notion of being able to perhaps
share some of that 196 million, spread it around, I think,
would particularly behoove a lot of the communities that were
formerly served by the bank.
The other thing I'd note just on CDBG, some of the
communities we've referred to throughout L.A. County and low
income census tracts lack economic resources, lack neighborhood
facilities, lack basic affordable housing so we've spent the
bulk of our time working with the municipalities and now,
seeing ourselves as one of the largest home ownership providers
in the region putting 42 families a day onto home ownership
paths, we see now the importance of being able to utilize
flexible CDBG dollars, not only to assist families to get
ownership, that's just one piece in your district.
Congresswoman, just as a sample, HUD ran studies several years
ago which I was certainly happy to provide to your staff
involving a third-party predatory lending detail going on in
your district and Congresswoman Diane Watson's district as
well, and one of the interesting statistics I recall was that
moderate income blacks borrowed at nine times the rate of low-
income whites from subprime lenders.
Hispanics were borrowing from FHA at 20 times the rate of
whites. 14 times the rate of whites for blacks from FHA, and
just the notion of affordable money being available in our
communities, it's a huge lack, it looks black, brown, Asian,
rural, poor whites in many instances--and I raised this because
I didn't quite hear it today yet on the other panels--that the
families who are underserved look like some of all us. You
mention the fire truck.
I'm interested in the very simple stories. You mentioned
$500,000. Some might ask: Why are we talking at these levels,
but for practitioners like us, I'm interested in every single
dime getting to every single family that needs help. In certain
instances, it eliminates the opportunity for families to
participate so that's why I mentioned the bank's resource
allocation for the future would be very intriguing to privatize
it, let CDD have some oversight, but whatever's appropriate,
but see how the people on the street can get the money out.
That would be a real notion that we've seen work in
housing. The other thing I'd mention with CDBG, in particular,
we were given--I'm from the old school--a lump sum draw down
grant to get or revolving loan fund started 18 years ago, and
when I came to the NHS it hadn't leveraged very well; and so as
we got a little more sophisticated, what we found was that, our
revolving loan fund that's now made up of mostly private
dollars, could be utilized to leverage Freddie Mac and Fannie
Mae-type programs, leverage individual down payments and/or
closing cost assistance.
And what we see is in using a system to get that money on
the street, we've been able to maximize as the City of L.A.'s
primary contractor on their home maintenance program,
neighborhood preservation program, we end up helping, you know,
maybe it's only a hundred families a year, but those are people
who are in danger of losing their home and are at risk of
falling subject to predatory lenders and are living in homes
that really are in disrepair.
So it's how do you utilize CDBG as maybe an initial source
which the housing department, I believe, has tried to do well
in this city over the years and then leverage that well past
the original intent so that the government's money is not
wasted? And that, in fact, more consumers are assisted because
your money got it started perhaps.
Your initial investment of a thousand dollar grant into a
fund like ours 18 years ago is now generating $72 million a
year. I mean, that's the kind of story you want to be able to
have with every single dollar that's spent on CDBG, I would
think. Similarly, programs like Section 8 to home ownership,
particularly interesting I think in Congress right now, we're
watching it, we see those kinds of programs.
In L.A. There are probably only four or five homeowners
among 9,200 right now who are able to receive that assistance
and use their Section 8 voucher to make their mortgage payment,
but the notion is: How do you make that 40 people? You know,
how do you take many people off the voucher program and, in
fact, assist them to grow their lives to a place where their
capacity is beyond utilizing Section 8, and they're working
contributing citizens who then give back by becoming homeowners
on their own?
The final points I'll make, everything from code
enforcement to nuisance abatement to graffiti removal to the
city's handiworker program are all things we've seen in what we
call full-cycle-type revitalization effort that are needed to
make neighborhoods work. And what we keep finding is that if we
limit our vision to thinking that our little home ownership
stuff and our little home maintenance stuff is all that
matters, we screw up, quite frankly, the capacity of families
to make their lives better because as soon as you get them in
the house, then you have to deal with an alley closure because
there may be gang members driving behind the alley of the house
they just bought, okay? Okay, to traffic their drugs.
There may be some nuisance abatement problem. There may be
some sidewalk that is a hazard to their children in front of
their homes. So it's how do you strike the balance? That's
always the question. Groups like ours have been asked to help
strike it clearly on the housing, affordable housing and the
rental side, but I think we have a lot more work to do.
What we certainly want to encourage the subcommittee to
consider, is that whether it's small business, economic
development or affordable housing, commercial resources, we
need all those pieces of the pie to be able to make the whole
pie work.
And the real job of the nonprofit community in our meager
opinion is to take one small percentage of a pie that makes up
a community and then stretch that as far as possible so that
everyone gets to eat from the pie, and that's our job as your
partner so we're committed to that.
If you end up having more specific questions on the types
of programs that we've managed for the City of L.A. Because
they do privatize through the housing department much more
aggressive than they did even a decade ago, I'm happy to answer
them. Just wanted to offer some of the solutions that we see.
Thank you for your time.
[The prepared statement of Lori Gay can be found on page 91
in the appendix.]
Chairman Ney. Mr. Mistrano.
STATEMENT OF SAM MISTRANO, ACTING EXECUTIVE DIRECTOR, SOUTHERN
CALIFORNIA ASSOCIATION OF NONPROFIT HOUSING
Mr. Mistrano. Ranking member Waters, Council. Thank you
very much for having me.
My name is Sam Mistrano, the Executive Director of SCANH,
which is the worst acronym, which stands for Southern
California Association of Nonprofit Housing, and I get
introduced all the time as working for SCAM or SANK or
something like that. There are two syllables in our time.
We have over 500 organizational members who help produce
and develop affordable housing throughout Southern California.
Our members have built 76,000 affordable housing units since
1986, and last year, started, completed or were in construction
on $1.7 billion worth of projects.
Our members are great supporters of CDBG, and I'm going to
touch on two reasons why in my testimony briefly: First of all,
Los Angeles City is in a housing crisis. There's not enough
housing units being built. For example, between 1990 and 2000,
the L.A. City population grew by 200,000 people. 80 percent of
that, by the way, from births.
However, L.A. County only produced 37,000 new units despite
the 200,000 population growth. So there's a very large mismatch
between the need and the production. In fact, the Southern
California Association of Governments SCAG, perhaps another
horrible acronym estimates the City needs to produce 47,000 new
units to meet the current demand.
What happens when demand is not, assuming production,
doesn't meet demand prices rise. Of course, it's basic
economics, and last year the medium price for a house in this
city was $328,000. That's the medium price of a house. That's a
30 percent increase since the year before. So it makes sense
that the statistics show that home ownership rates in Los
Angeles have actually dropped in the last ten years.
They--home ownership has risen in California, it's risen
across the country, but not in Los Angeles. It's dropped. And
so again, it's understandable that most of the City rents--62
percent of the City residents rent. The medium rent for a two
bedroom/one bath apartment in the county is $1,100. $1,100 for
a low-end basic two bedroom/one bathroom apartment. That means
people cannot afford this.
A person earning a minimum wage has to work a 124 hours a
weak to be able to afford that which means a family--a family
of two people working minimum wage still have to work over 60
hours. So there's a massive housing crisis in L.A. City that's
still current. That's my first point.
My second point is easing the housing crisis our members
believe happens to be production of new units. Production of
affordable housing to meet the demand. CDBG helps ease the
housing crisis. Basically, local officials and the people who
live in the region understand that we need to build our layout
of this crisis.
Earlier this year L.A. City Council and Mayor Jim Hahn
approved $100 million affordable housing trust fund to help
produce new units. And last year 63 percent of L.A. County
voters voted yes on the statewide initiative of Prop 46 which
is all about housing, a $2.1 billion housing bond. So people
who voted for this knew what they were voting for. 63 percent
of County voters voted yes.
Despite this new money, L.A. Still desperately needs CDBG.
It's a critically important financial tool. As Miss Gay pointed
out, it's a tool that our people--our members leverage. So
we're a portion of the City funding helps fund L.A.'s high
leverage program which is a key source of local support.
So for example, Esperanza Community Housing Corporation,
one of our members, was awarded almost $600,000 from the
housing department. Some of that money is from CDBG. Well,
Esperanza used that first grant of $600,000 to raise an
additional $2.8 million and was able to build its Alley Grave
Court project. So the money was used to leverage other money.
And CDBG also helps to fund the City trust fund. An example
of the trust fund which is new to L.A City, it committed its
first rent of 13 projects earlier in the year, and these 13
projects will produce 700 new affordable units, and CDBG's a
factor within this fund. So in conclusion, I'd like to say this
our members or semi-five area developers all have CDBG money in
their projects. They all need it.
One of the most important strengths of the program is its
flexibility. It allows the counties to use the money to best
fit their own needs. The rest of the state does not understand
Los Angeles's unique needs, its overcrowding, its high prices,
its unique City needs. So we support the program as is. I
appreciate the time. Thank you.
[The prepared statement of Sam Mistrano can be found on
page 121 in the appendix.]
Chairman Ney. Ms. Gay.
Ms. Gay. I'm here wearing two hats, Chairman Ney and
Congresswoman Waters and other members. I just want to thank
you for having me. I'm here as the associate director for the
Los Angeles Metropolitan Churches, and we are an organization
of 45 small and mid-size churches.
Most of our work focuses on employment linking residents to
job opportunities as well as education opportunities for
exoffenders. I also happen to be the chairperson for the Los
Angeles Empowerment Zone Oversight Committee, which is the
community group that was convened as a result of the Community
Development Bank we had formed in 1994 and 1995.
So I'm here today to make testimony in terms of the
Community Development Bank's contribution to CDBG, but more
importantly I want to lift up for you that the task of the
Community Development Bank's lending was to raise the economic
status of empowerment zone residents, and in our opinion, that
was not done.
The other point that I want to lift up for you is that the
result of the lending was to link residents to job
opportunities. There was no mechanism to do that which means
that that component of the bank's goal went unfulfilled. As a
requirement by the Federal regulations, the empowerment zone
and oversight committee was established and firmly fostered
those partnerships between the public sector and the private
sector.
In January, 1997, the L.A. City Council had to instruct the
Community Development Department to identify a source of funds.
These funds were CDBG funds of approximately 144,000, and those
funds would be used by the empowerment zone oversight committee
to carry out its oversight work of the job linkage and job
creation.
So as you can see, from '95 to '97, there was no funding,
no apparatus, no infrastructure that was put in place behind
that mandate in the cooperative agreement. It took the
community two years to get funding to make a phone call, to
send out a fax, to be at the table. In order for residents to
participate, we have to be at the table. Since that time, the
empowerment zone oversight committee has approved over $100
million in a request for Federal funds by both public and
private entities that operate in the zone or that serve zone
families.
About 60 million of those funds have actually come into the
zone from other sources than the loans that were made by the
Community Development Bank. Also, our committee has provided
technical assistance and capacity only for microbusinesses,
small businesses and community-based organizations in the
empowerment zone since 1995.
We've also provided ongoing staff support using CDD staff
which is our administrator in this project to support the youth
programs in the empowerment zone, Yo Watts, the Cooley Program,
all of these were initial employment demonstration programs in
the empowerment zone. In 2000 when the zone actually received
the wage tax credits, remember prior to 199--to 2000, we didn't
have that. In 1998, HUD gave us our full designation as the
empowerment zone which the tax credit would take effect in
January 1, 2000.
So from 1994 until January, 2000, there was actually no
mechanism and no incentive under this particular lending
apparatus to attract or retain businesses. Neither was there a
wage incentive for them to employ residents from the zone. One
of the questions I want you to ask is: If they're not going to
tell us what happened to all the money, where are the jobs?
Where are the individuals that were hired by the jobs, the
90 percent jobs that were created, which are those empowerment
zone residents? That's one question we want to know. Of the 51
percent that were supposed to be retained, are any of those
employees actually living in the empowerment zone or these
high-census poverty tracks? We have been unable to get that
information.
Additionally, a couple of months ago, HUD came out with a
report that tells us that there's five states in the union that
have a disproportionate number of homeless, undocumented
immigrants and individuals who are below the Federal poverty
line. California is one of those states.
HUD has lowered the average medium income which is going to
place an additional burden on our community development
corporations, economic development corporations who offer
affordable housing and other services that these residents need
that's going to place an additional burden on them, and they
may no longer be able to provide those services.
So I wanted to lift that up for you. The employment needs
that are emerging in the empowerment zone are particularly in
the 35th Congressional District are comprehensive and adverse.
We've been told by another division within the corporation of
the city, our public safety arm, and the State Department of
Corrections that approximately 30,000 parolees and probationers
will be returning to these very communities that are currently
designated at empowerment zone census tracts. How do we want to
address this problem? We're also being told that there's a
tremendous housing shortage. How are we going to meet those
needs? The County also has a health crisis. How are we going to
meet those needs? The very census tracts and zip codes that the
economic development activities that were treated by the
empowerment zone with all of these other myriad domino effects
happening, we still would like to know, the bank didn't do
this; the loans didn't do that, how are we going to address the
job linkage, job creation, job placement requirement? This was
not an option.
This was an express outcome in the cooperative agreement as
well as the empowerment zone initiative, so we have these
recommendations. For the committee: We believe that about $50
million of the Section 108 fund which is equivalent to 1,400
jobs at the market rate of 35,000 for one job, we're not sure
if that is the equivalent market rate today, but we're going to
go with that number, that that should be used for broader CDBG-
eligible purposes to create an empowerment zone job creation
and training center that could address the needs of this
population in the empowerment zone.
We already have a study that's been commissioned to June,
2003 with refunds investment at the empowerment zone oversight
committee worked to put in place. That study will be complete
in May, 2004. So our request is for implementation funding of
which these funds that are on the table for discussion right
now could be used for implementation of the recommendations
that the City will produce in May, 2004.
Finally, the empowerment zone oversight committee
recommends that the following criteria be applied for all
remaining activities for Section 108 funds including any
portion of the funds that are reprogrammed for CDBG objectives
or for outside the zone.
Number one, the empowerment zone residents must have access
to at least 51 percent of all jobs resulting from loans made on
any economic development activity with remaining Section 108
funds. $50 million to create an empowerment zone job creation
and training center with four satellite subsites in the other
remaining communities. Empowerment zone residents must be
trained in the areas where they are deficient. Empowerment zone
consideration in review of the cumulative effect of ecological
and environmental impact, as they are improving our areas, and
whenever possible, headquarters of businesses should be located
in the community, and they should be--utilize local services
and its suppliers.
So what we want to leave you with is that even though the
bank has struggled, and I will admit that it's--I personally, I
think it's important to know that I personally have been a part
of this process since 1992, when the application was actually
prepared, we didn't get anything, so everyone whose come to
speak to you outside of myself and one other individual are
new.
So I think it's important to understand the historical
process that has gone on and that the community participation
experiment is only real if the community is actually
participating in decisions, sharing power and having a real
voice, and so I'm here to represent those 200,000 nameless,
faceless men and women in the empowerment zone who need these
jobs, who did not participate in the economic benefits from the
lending that has occurred; and we would like to know: If we
don't have the money, where are the jobs?
Thank you for your time.
Chairman Ney. Thank you.
For the record, we have two additional witnesses who have
joined us. One is Felipe Merino and--with the Molina Gardens
Improvement. The other is Arturo Ybarra with Watts Century
Latino Organization.
STATEMENT OF FELIPE MERINO, MOLINA GARDENS IMPROVEMENT
Mr. Merino. Good afternoon, Mr. Chairman and Congresswoman
Waters.
Thank you very much for allowing me to testify before the
subcommittee today. My name is Felipe Merino. I'm the Executive
Director of the Molina Gardens Improvement. I'm the 501C3
community-based nonprofit in the City of Hawthorne, serving
Hawthorne, Lawndale, Lennox Gardena and other surrounding
areas.
Our community-based organization provides very vital
services to the community, services that I would say are at the
front line of survival for a lot of families. We help folks
with housing issues, Government benefits, health care access to
State-sponsored programs and other social services that are
very necessary for a lot of our families.
We work in direct partnership with over 150 partner
agencies including educational institutions, electrical
government agencies and other nonprofit organizations. Most
namely, we work with the Hawthorne School District directly so
we can make sure that the children of our community have access
to resources so that students can get a good quality education.
We've found in working with the Hawthorne School District that
a good quality education doesn't just mean the textbooks. It
doesn't just mean what happens in the classroom. It means
everything after the home, after school and before school. It
means making sure that the child is safe, making sure that the
child has a roof over his head, that they have food on the
table. That their parents are able to get medical insurance.
That their parents are able to teach them that the cycle of
poverty can be broken, and that they can excel at everything
that they set their hearts to.
As a small nonprofit organization, what we've been able to
find is that CDBG resources are tremendously necessary in the
community. They really are an access to other resources is not
readily available to everyone, which is a sad state of affairs
particularly in our community where so many things are needed.
But let me share with you a little bit, and I'll be brief.
I'll share you with a little bit about what happens in our
community in the City of Hawthorne. In our community, we
started off this nonprofit organization. When I came on board,
we had an annual budget of 6,700 and something dollars which is
amazing that an association of nearly 150 different partner
agencies was getting all those different types of things done
in the community. However, there was nobody on board to make it
a concerted effort or to channel the agency of those other
nonprofit agencies or other individuals from the community.
After our first year, through the budgetary cycle, we were
at $87,000, I believe, for an annual budget. The reason
largely--the reason why we were able to expand our budget, and
now we're at a point where we're going to be closing out our
books at about $250,000 a day after two years is because of
CDBG funds because that money was accessible to us by way the
City of the Hawthorne, and we had the support of people here
are CDBG funds.
Why don't you apply for them? Now before that point, we had
a terrible time as a small nonprofit organization trying to
raise money and develop the kind of credibility that we needed
in the community and in--with foundations and with other
government agencies to do the kind of things that we're doing
now.
But once that money was available to us, it was to--would
have a multiplier effect. We were able to leverage those funds
because all of a sudden we had the backing of not only the City
but the Federal Government, and we were table to say, ``We have
Federal dollars by way of the CDBG program--and mind you it was
only $10,000 because it's--a percentage of the budget goes to
direct program services by way of nonprofit organizations, but
that amount of money has now multiplied to what, next year our
budget will be closing out at about $600,000 is our projection
at this point--and that's not even starting the fiscal year
yet.
So I want to thank the Federal Government for the CDBG
program; however, I caution you that in the written testimony
that I've provided there are three different concerns that I
have as far as access to the community block rent funds: The
first one being that many nonprofits don't even know that the
funds exist.
Whether it's because they're grass roots nonprofit
organizations where the education level attained by a lot of
the individuals that are part of the nonprofit board doesn't
permit them to know about such resources and because they start
off with such humble beginnings like ours.
The second is that a lot of times elected officials are
disconnected from what's going on at the grass roots level, and
they really don't understand that the survival of these
organizations depends on funding like CDBG funds, and unless
you have somebody who's completely savvy on your Board of
Directors or involved in your organization, it never trickles
down to those organizations.
It only trickles down to the organizations that people know
about which is very unfortunate, as Miss Waters mentioned
earlier, that that's been what's been happening.
And the third point that I have is--is the notice
requirements. The notice that's given about CDBG funds is done
by newspaper--by way of newspaper which is a very minimum
requirement for people to satisfy. However, not all of the
individuals involved in community agencies in the business of
survival of community members have time to read through every
one of those little notice provisions that comes in those
throwaway papers that go through the communities or even some
of the larger papers where they're compacted and put in some
obscure section of the newspaper.
And at the end of the written testimony that I provided, I
make a few suggestions that you may want to consider or reject,
whichever you prefer: The first in order to deal with nonprofit
organizations, the smaller nonprofits becoming aware of those
resources and also being able to apply for CDBG funds.
I've suggested that some kind of technical assistance be
provided to nonprofit agencies so they're able to develop the
kind of accounting mechanism that they need to have a place in
order to track funding and be able to receive funds from cities
and from counties in the area. The second is addressing the
concern about elected officials not being aware of what's going
on at the grass roots level and needing somebody politically to
be involved.
I don't think that funding for CDBG programs should be
contingent upon whether or not you know a political or elected
official. I really believe that it should be a broad enough
process where everyone has an equal chance and equal access to
those kinds of resources because I think there are many good
causes that are being looked over for whatever the reason, and
I think in order to employ that, you would have to require some
kind of mechanism in which you were able to get information
about other nonprofits.
I know that there are several Web sites in place right now
where, if you wanted to investigate a nonprofit organization,
you wouldn't have to call the IRS. You could get on Web sites
and find out financial information about nonprofits. I don't
know how difficult it would be to link that up with some kind
of database that local governments would have to access in
order to identify nonprofits within their zip code or within
their community that could provide equally as good services as
the ones that are being contracted for elsewhere.
And the third is the notice provision of CDBG services. A
lot of nonprofit organizations have absolutely no idea that the
CDBG funding exists. And I've suggested here as a--as a way of
notifying nonprofits that that funding is accessible, that
there probably be some kind of collaboration with the Internal
Revenue Service that when nonprofit organizations are notified
of their nonprofit status, that there be an instrument of some
sort notifying them that there's Federal funding available and
a possible suggestion of some Web sites that they could combine
possible resources from some other resources.
[The prepared statement of Felipe Merino can be found on
page 131 in the appendix.]
Chairman Ney. Mr. Ybarra.
STATEMENT OF ARTURO YBARRA, EXECUTIVE DIRECTOR, WATT CENTURY
LATINO ORGANIZATION
Mr. Ybarra. Good afternoon, Chairman Ney and Congresswoman
Waters and Mr. Jones. My name is Arturo Ybarra, and I'm the
Executive Director of the Watt Century Latino Organization.
Watt Century Latino is the only Latino Multicultural oriented
in existence in the whole south central area of Los Angeles. We
have been in existence for the last 12 years. We are currently
involved in programs to--that go from violence prevention to
emergency education, homeless prevention and counseling, job
training and placement.
And we also have other projects distributing safety car
seats for needy families in the community. And we are
concentrated in serving a community that is growing all over
California, especially in South Central Los Angeles. Latinos
are now 60 to 65 percent of the total population in South
Central Los Angeles.
Watts Latinos are close to 70 percent of the population.
And unfortunately, there is a total lack of infrastructure to
channel services and resources to these communities. A public
official mentioned earlier that many people in our communities
are reluctant to deal with government programs because--because
of the stress of government, and it's very much true within the
Latino community or the immigrant community.
But whenever there is--there are programs that are
culturally and--and very sensitive to these sectors, special
sectors, the--the programs are property market are very
successful. In 1994, the Watts Century Latino Organization
insisted they become an action of the Los Angeles Housing
Department to successfully market a residential loan program in
Watts.
Unfortunately, it was only a drop in the bucket because
despite the success of this type of program, it has never been
implemented. Watts has a very large old housing stock with many
senior citizens and many houses that are in urgent need for
rehab. But never, as I have told you, never again, these are
residential low interest loan program, has revisited our
community.
My organization will be more than happy to help any senior
or County officials or department in conducting these kinds of
committee outreach comprehensive and sensitive marketing
activities to market these rehab loans or even those grants
that are available to improve facade, if those housing--houses
are in need of.
Finally, I would like to suggest to local officials to--
that are in charge of distributing the CDBG funds, to get in
touch with my organization. We will be more than happy to
coordinate the development of a kind of strategy to facilitate
access for available funds for rehandle grants improvements and
other community development programs especially for monolingual
Spanish-speaking and immigrants.
Chairman Ney. Thank you. Just--I really don't have a
question. I want to thank you for your testimony, and you know,
it helps to acknowledge whether you're supporting CDBG or not.
Just a couple of, I guess, points: One, for Ms. Branch, any
questions, and we have for the record your testimony now; but
other questions you want--you would want asked, and it seems
you have probably a few people that have been there from two
years to today through the home situation.
I think it's good to pose the questions of what happened,
because if there's going to be oversight and HUD is going to be
involved in an oversight sense, whether it's here or where I
live or whatever state, we've got to ask questions of--of what
went wrong in order to find the ability to make sure things go
right. Not just here, anywhere in the country.
So any other questions you'd have, I think it--it kind of
interesting to me that something just hasn't been answered.
They always elicit testimony, and then I kind of clear and then
confused. That happens to me quite a lot wherever it is. But
anyway, I thought I deserved that.
STATEMENT OF CHERYL BRANCH, ASSOCIATE DIRECTOR, LOS ANGELES
METROPOLITAN CHURCHES
Ms. Branch. I think you understand how we feel. It's just
the most frustrating for me to be in a process where they say
the goal is to have community participation, and then we're not
there. But I think in addition to asking for a breakdown, ask
Mr. Sausedo and the community development department, Mr.
Graves, to provide for you a breakdown of the so-called 9
percent jobs that were created.
We want the census track breakdown or the Zip code. The
mandate when the bank was created, was there were 2000 criteria
in order for an individual to get a loan from the bank. Number
one was that they had to be turned down by a conventional
banker.
Number 51--they had to have a business plan. That included
that 51 percent of the jobs would be given to zone residents.
They also had to have a business plan that indicated how for
every $35,000 borrowed, they create a job. No one ever--they
say that there's no time frame on when this should occur.
That--that shouldn't--that's a question: Why are we doing it
that way? Why is there an open ended because the community
doesn't have an open ended option on balance, you know in terms
of meeting our needs. So we would like to see--there should be
a time frame, and actually, our committee has made a question
for that in 1998, 1999 and 2000 that borrowers be given two
years.
Some of those things we haven't been able to get any
feedback. You can ask them: When did they inform the borrowers
that they had a job creation requirement? I have heard from
some borrowers and some individuals who've tried to access
funds or who got funds and their business failed and they
weren't aware of the job creation requirement when I inquired
to them from any question. Where is the job?
They didn't know so we want to know: At loan closing? At
quarterly report? Disbursement of the first payment? When are
you telling individuals that they have had job requirement? How
is the City assisting them in meeting that job requirement? We
heard Mr. Sausedo did support the community's position in that
the bank turned to the city's work force development system,
the ones that used to be JTPA.
Now, it's one stop, and that that system was not able to
help them. That's not a response because you're--your mandate,
the requirement, this is not an option. It's expressly stated
was to link residents to job creation. So you want--you want
some real question--you want some real answers as to why did
none of these things occur, and if they didn't occur in the
empowerment zone, the committee group has gone to our council
reps and CDD and asked for that to be addressed in the
transition plan.
So the community is attempting to behavior like the other
key stakeholders. If we were unable to fulfill what is written,
then we're going to request a reprogram and try to make
lemonade out of lemons, and the community is making the same
question, if we were unable to get the jobs that were promised.
We're asking if you're going to reprogram the 108 monies,
you must include our response to the job linkage and creation
piece. I think those would be some key--ask them how are they
teaching microbusinesses and small businesses to utilize the
wage tax credits? Is there any technical assistance or capacity
building apparatus in the City to assist a microlender or a
small bid owner if they even wanted to take advantage of these
so-called incentive.
Chairman Ney. Another real quick observation. It's a matter
of, I think, communication to you, Mr. Merino. You know of
this. I don't know that they would do that or they could
technically, but still an idea of trying to get communication
out there somehow. I understand that maybe we do look at ways
to do that, and Mr. Ybarra, one other thing, too, is you might
be able to find out who you were saying about the crews
contacting the Latino community, through HUD, I would assume,
I'll be checking it, of who, in fact, has the hearings, and you
would then contact them to let them know that you're out there.
Mr. Ybarra. All right. Well, we have found from City
agencies and even foundations very hard to invest in emerging
conditions and organizations. Like Watt Century Organizations.
I mentioned to you before, we are the only Latino organization
in an area that has experiment that bring dramatic changes in
the composition of its population, that brings lots of
challenges, and some of those challenges and various for
Latinos are the language barrier. Not knowing how the system
works, we--we don't know how to process the government
processes work, you know, and foundations and City agencies
rarely want to invest or to risk any investment of funds in
this emerging organizations.
So if there are no resources for us to learn how to work
with the system, how we are going to be able to work with the
system? Something we have to learn, but in order for us to
learn, we need--we need people with--with the know-how to show
us where is the way. You know, how can we get access to those
funds? We have a--a community resource center. You know, we got
it in 1998 out of a class action suit against a Public Housing
Authority of the City of Los Angeles due to the institution of
neglect because of the living conditions for residents in the
public housing in Watts.
Out of those $50,000, we bought a liquor store, a former
liquor store, to convert to a community resource center. The
government--and we got a $50,000 from this class action suit,
and we invested it in this community resource center.
Out of that, we haven't received any--any kind of
assistance from the government, and this is a very particular
situation for a recent immigrants and mono English-speaking
people in Los Angeles and in Watts.
Ms. Waters. Thank you very much, Mr. Chairman.
Let me just say thank you to Chairman Ney for coming to Los
Angeles during his break when he could be in his own district
or taking vacation as many of our fellows are doing. But I made
this request to him, and he listened and we have formed a
bipartisan effort to try and deal with some of the problems of
housing and rural--and in urban communities and, of course,
this CDBG Section 108 which turns out to be large and important
sources of--of funding for our communities.
So I'd like you to know that I would not be able to do this
without him, and it's very important that he's here. Mr.
Chairman, the people that you see before you are extremely
important for a number of reasons. I'd first like to say to Mr.
Merino and Mr. Ybarra, thank you for responding on such short
notice.
I want you to know that as our Washington, D.C., staffs
attempt to work to put this together, it is difficult--and what
normally happens is the--the traditional well-connected
organizations get here, but the new ones don't often get here.
And when we discovered what had happened, we were anxious for
Mr. Ney to hear some new voices about what is and what is not
happening.
And you represent that for us, and I'm very appreciative
for the work that you do. Mr. Merino is an attorney who went
off to school and came back to work in his community and
struggle, like he said, starting with $6,000 nonprofit
donations and fighting the establishment on all of those things
in order to bring some services to his community. I was
recently at Mr. Ybarra's to celebrate ``Cinco de Mayo'' and was
reminded one more time about the struggle of that corner of the
district and lack of--of resources.
Now, Ms. Branch is extremely special because not only does
she understand this game, she is a professional grantsmanship
person who understands the rules, written and unwritten, of
this response to request proposal magnes that all these
nonprofits are caught up trying to access a few dollars. And
her work is such that she's committed to the community, not
only in trying to help them access funds, but trying to make
the establishment do what it's supposed to do and given of her
time to get the kind of oversight that she was so articulate in
describing.
I take her recommendations seriously, and I need to ask you
just briefly, whether or not the $50 million that you point to
that need to be erected toward the supplemental zone or the
zone that was intended under the following insurrection, that's
the same 50 million that you're talking about that Mr. Graves
is talking about, you know, they have a plan, they want $50
million. They said they are going to use that $50 million to do
the same thing that they would have been doing with--with the
money from the Section 108, from the Community Development
Bank. That's what they say. Then the other 4,800 or 46 or so,
they say that they want some flexibility, I think, with that to
be able to not only service the zone, but also to service the
old Section 108 identified areas in the City. I'm a little bit
skeptical of that. Are you all on the same track? Are you
talking about the same thing?
Ms. Branch. We're talking about the same funding, the same
50 million, yes. The same total 46, yes. We're talking about
the same money, yes. But we're not talking about the same uses.
We would support the city's desire to spend some of the 108
funding in low to mod census tracks outside of the zone. We
support some of that because we understand why.
Ms. Waters. Okay.
Ms. Branch. We understand why; however, we will need that
of that--not with that proposal there should be at least 50
million earmarked to continue the job linkage and creation for
lending activity that occurs with whatever's remaining.
Ms. Waters. Now, that's what he claims they want to do with
that 50 million, that first 50 million request. That's what
he's----
Ms. Branch. That's not true. I didn't read that, and I do
have a copy of the city's transition plans because it comes to
my committee for approval. As of last Thursday, it wasn't in my
board meeting, and I raised in the board meeting there.
Today what I heard, the City wants to use 50 million to
continue lending activities with a broader CDBG use. That's
what I heard today.
Ms. Waters. Ah.
Ms. Branch. I did not hear that they want to use that money
to focus on linking residents to job opportunities as a result
of lending from the full portfolio.
Ms. Waters. Okay.
Ms. Branch. I think that's worked in part.
Ms. Waters. All right. Well, that's very good. And let me
suggest to you Miss Branch. You know, they very timely and, you
know, as our maker would have it, we're just at the right point
in time to catch the transition plan before it is given to HUD
by September.
And we may be at the right point in time to pull the
community together to have our own hearings and bring everybody
out and lay this plan out so that we can influence what happens
with it. I am committed to the prop signatures that that money
was intended to be spent in a certain way, and we can't see it
distributed away with some other wishes by the city, so I'm so
glad that you're here. Thank you.
Miss Gay, I want to thank you, and I'd like you to know
that we are focused on predatory lending. As a matter of fact,
as you know, we've had a number of pieces of legislation, and
there's more legislation that is coming forth; and we've got to
try and find a way to make this a bipartisan effort so that we
can get something real. I don't want to be in a fight with my
colleagues about whether or not we have a bill that simply puts
some window dressing on this very, very terrible problem.
Let me just say this to you: And a lot of people don't
understand it, I am so outraged with the predatory lending
practices of our banks and our financial institutions that I do
not allow them to be sanitized for donations to the community.
As a matter of fact, I resent what I call the fifty cents
to the Boy Scouts, in an effort to get CRA credits, and at the
same time, they are taking somebody's grandmother's house. So
what I--and one of the things I want to work with the housing
organizations and--and talk about is getting tougher.
Because what they do, they come to you all, and so many
different ways, and they come to support something or they'll
be at the annual dinner or they will come with us to help paint
a house once a year and the bank get their name all over the
house; and I don't do that stuff.
But what I want to do with the housing groups is, I want to
get tougher on the banks and not let them buy off with this
shell game so that we can force them to do better from, you
know, whatever we're attempting to do with predatory lending.
So I thank you for being here. I know that--I will tell you
the nonprofits that you talk about are doing an extraordinary
job in building capacity. From my own view of things in the
past ten years or so, all of that housing that we have, it's
because of these nonprofits who learn the game and build
capacity and went out there and did it.
Now, you got to stop building so much single homes and
build some more multi-family, for just poor people. I respect
that. They're not here today. You're here. I'm speaking for
them. But we know them all. We know who all the players are.
And they--we--we respect the work that's done, and when I ride
through my district and I see some of that housing, I'm very
thankful for it. So we're glad that you're here.
Again, thank all of you for coming today, and that
concludes my comments.
Chairman Ney. I want to thank the ranking member, my boss
from Ohio, the ranking member of Massachusets, and my name's
Bob Ney. I chair the subcommittee. Our ranking member's Maxine
Waters. I want to thank Congresswoman Waters for having us
here. This is the first hearing of the 108th--first field
hearing. That's right. I've got to say we've had 11--we've had
more activity, both of us, in--and I think in recent history,
we've had 11 hearings within the Capital. This is the first
outside, and so--so happy to be here.
Ms. Waters. He hasn't even been in his own district to a
hearing. Give him a clap.
Chairman Ney. I want to thank Congresswoman Waters, not how
you voted to 2:30 in the morning last week and a long flight
here, and obviously she could be doing also with her time take
a little bit of breather. We're doing a hearing tomorrow. It's
wonderful being here in sunny good weather California. Thank
you.
Ms. Waters. Thank you all so very much.
[Whereupon, at 3:15 p.m., the subcommittee was adjourned.]
A P P E N D I X
June 30, 2003
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