Sunday, August 27, 2000

Dueling plans target inner-city

Cincinnati part of federal experiment

By Derrick DePledge
Enquirer Washington Bureau

        WASHINGTON — In a $5 billion social experiment, President Clinton and Republicans in Congress want to test competing paths to urban renewal in neighborhoods like Avondale and Over-the-Rhine.

        On paper, the two philosophies don't appear drastically different, but the outcome could influence the federal government's social policy for the next decade.

        It could also give commu nity activists and city officials some of the resources they need to nudge neighborhoods out of poverty.

        Unable to agree on a single approach, the White House and Congress are taking separate routes within the same renewal package to see which works best.

        Mr. Clinton wants to add nine empowerment zones — such as those already in place in Cincinnati and 30 other cities — and create incentives for investment.

        Businesses would be eligible for wage credits of up to $3,000 per employee if they hire workers from the community and could deduct an additional $35,000 in capital expenses. Only the 11 original empowerment zones now qualify for wage credits.

        Businesses would enjoy a zero tax rate on capital gains, provided the money is rolled over into another investment within the empowerment zone. Investors in inner cities or poor, rural areas could receive a tax credit of up to 30 percent, depending on how long they retain their investment in a community, according to an analysis by Bruce Mulock, of Congressional Research Service.

        Empowerment zones would also have the ability to sell tax-exempt bonds to spur business growth.

        The U.S. Department of Housing and Urban Development and the U.S. Small Business Administration would license two types of private investment firms to provide more than $1 billion in venture capital for redevelopment.

        The Republican alternative would establish 40 “renewal communities” to mirror the 40 empowerment zones. Businesses would receive wage credits of up to $1,500 per employee and would get to deduct an additional $35,000 in capital expenses.

        Businesses would pay no capital gains tax on the sale of property as long as it was held for at least five years. Commercial developers would be eligible for tax breaks, as would owners of rental property who rent to low-income workers and their families.

        The low-income housing tax credit for states, based on population, would rise from $1.25 to $1.75 per resident. That could boost affordable housing by 180,000 units over five years, the Congressional Research Service predicts.

        And faith-based organizations would be able to compete for and administer federal substance-abuse and mental health programs.

        “Our solution in the past has been to throw money at the problem and hope it goes away,” said Rep. Steve Chabot, R-Cincinnati. “I think this is a way to see both things in action to see what works best.”

        The House of Representatives has approved the package, estimated to cost between $5 billion and $7 billion over five years and $20 billion over 10 years. Two similar bills are pending in the Senate, including one that would expand the number of renewal communities to 50 — one for each state — a move that likely would cut Cincinnati's chances of being named because of its uneven record as an empowerment zone.

        Cincinnati was selected for that in January 1999, but has sputtered because of infighting.

        Officials familiar with the program's management say Cincinnati has never been close to losing its federal status, but that could change if HUD does not detect real progress soon.

        City Council has criticized the corporation's 33-member board as cumbersome and ineffective.

        Mr. Clinton intended for each empowerment zone to get $10 million a year for 10 years, but Republicans in Congress have agreed to spend only about $3 million annually. Mr. Chabot said a 10-year grant would prevent lawmakers from holding communities accountable every year.

        But City Manager John Shirey, who serves on the board, said the funding level has forced the board to scale back its original plans.

        “That's been a big disappointment to us,” said Mr. Shirey, who believes management will improve once an executive director is hired, possibly within the next few weeks. “We feel we were misled.”

        Renee Crawford, an independent loan officer who serves on the Walnut Hills Area Council, said she is afraid some businesses and social service groups are acting in self-interest instead of for the good of the neighborhoods.

        “It's a wonderful thing if it ever gets off the ground,” she said. “But it looks like some organizations just want their piece of the pie.”


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