[Congressional Record Volume 145, Number 114 (Thursday, August 5, 1999)]
[Senate]
[Pages S10493-S10494]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. SARBANES (for himself, Mr. Edwards, Mr. Bayh, and Mr. 
        Kerry):
  S. 1565. A bill to license America's Private Investment Companies and 
provide enhanced credit to stimulate private investment in low-income 
communities, and for other purposes; to the Committee on Banking, 
Housing, and Urban Affairs.


             america's private investment companies (apic)

 Mr. SARBANES. Mr. President, I am pleased to introduce today 
legislation to establish ``America's Private Investment Companies,'' or 
APIC. This legislation is part of President Clinton's ``New Markets 
Initiative,'' which I am also pleased to be able to support.
  The New Markets Initiative, of which APIC is a crucial element, is an 
important response to economic problems that persist in many 
neighborhoods and communities in our urban and rural areas. These 
communities have been bypassed by the increased investment, job growth, 
and income increases that have characterized this unprecedented period 
of economic expansion. Indeed, the areas that would benefit from the 
New Markets Initiative are experiencing increased poverty levels, 
increased isolation, and ongoing joblessness and decay.
  Yet, research increasingly shows that most of these areas represent 
good economic opportunities for American business. Michael Porter, a 
renowned business analyst who has written widely on competitiveness at 
both the firm and national levels, has written that a

       . . . major advantage of the inner city as a business 
     location is a large, underserved local market. . . . In fact, 
     inner cities are the largest underserved market in America, 
     with many tens of billions of dollars of unmet consumer and 
     business demand.

  Another group called Social Compact has done intensive studies of 
buying power in a number of communities around the country. These 
studies confirm Porter's earlier work. Social Compact estimated retail 
spending power in two communities in Chicago. Residents in the first 
community have median incomes of over $67,000 million whereas the 
median income in the second community is under $30,000. Yet, on a per 
acre basis, the lower income community has more than twice the spending 
power of the wealthier area.
  Moreover, as labor markets grow tighter and tighter, inner cities 
have the advantage of an ``available, loyal workforce,'' to again quote 
Mr. Porter.
  However, we need a catalyst to encourage business to take advantage 
of these opportunities. The APIC program provides that push. This bill 
gives the Department of Housing and Urban Development (HUD), together 
with the Small Business Administration (SBA), authority to provide low-
cost loans on a matching basis to specially constituted investment 
companies, called APICs, that raise private equity capital for 
investment in businesses in low-income areas.
  Individual APICs will operate in a manner similar to Small Business 
Investment Companies (SBICs), a very successful program that helps fund 
start up small business. APIC will target its investment funds to 
larger businesses that locate in these underserved areas, with 
particular emphasis on those businesses that create good jobs in those 
neighborhoods.
  The APIC program is essentially a private-sector venture in 
partnership with the public sector. The managers of the individual 
APICs will make the investment decisions according to the program goals 
and criteria. They will have their money, and the money of their 
investors, at risk, making the government's loan much more secure.
  This program requires a very small federal investment--just $36 
million in credit subsidy--to create an estimated $1 billion in debt 
financing available. This debt will, in turn, generate $500 million in 
private equity per year, or $7.5 billion over the next five years. 
APICs would use these funds, for example, to help a business establish 
a new back-office facility, factory, or distribution plant in a low 
income area. APICs could invest in the development of multi-tenant 
shopping centers, or in industrial parks. Combined with the New Market 
Tax Credit being introduced by my colleagues Senator Rockefeller and 
Senator Robb, APIC will help create important new economic 
opportunities in parts of America that have not yet been touched by

[[Page S10494]]

the economic prosperity most of us enjoy.
  Mr. President, I ask that letters of support be printed in the 
Record.
  The letters follow:

                                New York City Investment Fund,

                                                   August 2, 1999.
     Senator Paul Sarbanes,
     U.S. Senate,
     Washington, DC.
       Dear Senator Sarbanes: We are writing in support of a new 
     initiative proposed by the Department of Housing and Urban 
     Development and the Small Business Administration, known as 
     America's Private Investment Companies Bill. We have provided 
     input into the proposed legislation and believe that this 
     bill could leverage significant new private capital for 
     investment in communities that are not fully participating in 
     our otherwise thriving national economy.
       We established the New York City Investment Fund in 1996 to 
     stimulate business development and job-generating activities 
     across the five boroughs, with a particular emphasis on low 
     and moderate-income communities. Our investors include many 
     of the city's leading financial institutions, corporations 
     and business leaders, each of whom put up $1 million and 
     committed the resources of their organization to support our 
     work. With $80 million under management, the Fund has already 
     invested some $20 million in projects that will generate more 
     than 4,000 new jobs. Most important, we have mobilized the 
     city's business and financial leadership to become personally 
     involved with our portfolio projects, providing business 
     expertise and strategic alliances that are essential for 
     bringing disadvantaged communities into the economic 
     mainstream.
       Based on our experience, we can confirm that there is a 
     severe shortage of equity and debt financing for largescale 
     projects in low-income areas. Issues associated with site 
     assemblage, brownfields remediation, high construction costs 
     in urban centers, and low property appraisals in the inner 
     city all contribute to the need for federal incentives to 
     stimulate investment in job-generating development projects 
     targeted to these areas. At the same time, many existing 
     businesses operating in these areas cannot attract 
     conventional financing to modernize or expand. We have seen a 
     number of opportunities where our Fund's resources could have 
     been useful, but only if we could leverage additional risk 
     capital from other sources. The APIC program would be a 
     unique source of capital and partial loan guarantees that our 
     Fund could definitely put to work in the inner city 
     communities of New York for new development and retention/
     expansion of businesses that may otherwise disappear.
       We urge you to move this bill forward, in conjunction with 
     the proposed New Markets Tax Credit proposal, and express our 
     willingness to work with the federal government to carry out 
     the mission of APIC once it is enacted.
           Sincerely,
     Henry R. Kravis.
     Kathryn Wylde.
                                  ____

                                                 Local Initiatives


                                          Support Corporation,

                                                    July 30, 1999,
     Hon. Paul Sarbanes,
     U.S. Senate, Senate Committee on Banking and Financial 
         Services, Washington, DC.
       Dear Senator Sarbanes: Local Initiatives Support 
     Corporation strongly supports the proposed America's Private 
     Investment Companies (APICs) legislation and urges you to 
     make its enactment a priority. We believe that APICs, along 
     with their companion New Markets Tax Credits, offer the most 
     exciting opportunity in a generation for the economic 
     development of low-income urban and rural communities.
       LISC is the nation's largest nonprofit resource for low-
     income community development. In almost 20 years, LISC has 
     raised over $3 billion from the private sector to invest in 
     low-income urban and rural areas through nonprofit community 
     development corporations (CDCs). Last year alone, LISC 
     provided over $600 million through 41 local programs and a 
     national rural initiative.
       Each year more distressed communities are becoming ripe for 
     economic development. For example, LISC is involved in 20 
     major retail projects, at a total cost of $250 million, in 
     some of the toughest neighborhoods in America. Smart business 
     leaders are beginning to discover that these untapped markets 
     offer profitable opportunities. The expanding economy is one 
     reason. More important, though, have been the many years of 
     painstaking work rebuilding housing, removing blight, 
     reducing crime, and restoring confidence.
       We know from experience that this progress does not come 
     easily. Assembling land and constructing a modern business 
     facility are costly and time consuming, and arranging the 
     financing is difficult. But the payoff for communities and 
     the nation--in jobs, income, reinvestment, services, and 
     social stability--is well worth it.
       That's why APICs are the right idea at the right time. They 
     would help experienced community developers to mobilize 
     private capital to seize economic development activities. 
     These new instruments reflect what works--markets discipline, 
     private risk taking and decision making, and genuine 
     partnership among communities, business leaders, and 
     government. APICs would have to raise at least one dollar of 
     private equity investment to attract two dollars of federally 
     guaranteed loans. Moreover, the private investors would have 
     to lose their entire stake before any federally guarantee can 
     be called. This structure will generate prudent underwriting 
     without excessive government interference. The APICs 
     structure permits a modest $37 million in credit subsidies to 
     generate $1.5 billion in economic development--a remarkably 
     cost-effective federal investment.
       I hope you will enthusiastically support APICs and the New 
     Markets Tax Credits. We would be pleased to work with you on 
     this exciting agenda.
           Sincerely,
                                                 Michael Rubinger,
                    President and Chief Executive Officer.
                                 ______