Testimony Before the Subcommittee on Oversight
of the House Committee on Ways and Means

Hearing on the Performance of the Empowerment Zone/Enterprise
Community Program

October 28, 1997

Good morning Chairperson Johnson, Ranking Member Coyne and other distinguished members of the Subcommittee. My name is Howard Glaser, the Acting General Counsel at U.S Department of Housing and Urban Development (HUD). In my previous job as General Deputy Assistant Secretary for Community Planning and Development, I was responsible for the operations of the urban Empowerment Zone/Enterprise Community Initiative (EZ/EC Initiative).

I am pleased to be here on behalf of Secretary Andrew Cuomo to provide the Subcommittee with an update on this 10-year Initiative. Secretary Cuomo has worked very closely with President Clinton and Vice-President Gore to ensure that the EZ/EC Initiative is a success, and the Secretary has asked me to thank you for your support of the Initiative. We welcome this opportunity to update you on our progress.

I want to commend the Ways and Means Committee for its work over the years on the EZ/EC Initiative and for its commitment to improve the quality of life in our nations' communities. In particular, Chairman Archer, Ranking Minority Member Rangel, and other Committee Members played a key role in securing passage of this important Initiative.

Background

In early 1993, the Clinton Administration submitted to the Congress its EZ/EC proposal. It called for a holistic approach to community revitalization that blended the use of tax credits with flexible Federal grant funds. This Committee and the Congress approved that approach by passing landmark legislation, the Omnibus Reconciliation Act of 1993 (the Act). As a result of the Act, President Clinton announced in December, 1994, that 105 distressed communities around the country -- 72 urban and 33 rural -- would receive a combination of tax incentives and flexible block grants to implement 10-year strategic plans to promote economic opportunity and community-wide revitalization.

The EZ/EC Initiative represents the most significant Federal effort in decades on behalf of the nation's distressed inner cities. In an era of tight budgets, the EZ/EC Initiative is notable for its cost-effectiveness. We strongly encourage communities to use their Federal grants as seed money. By combining Federal grants, tax incentives, private sector investment and local government funds, communities are better able to address the problems they encounter. This approach, which is different from previous approaches, fits nicely into the priority President Clinton shares with the Congress -- balancing the Federal budget.

Principles

The EZ/EC Initiative is a ten year effort that is based on a comprehensive plan for revitalization developed by communities in partnership with residents, the private sector, non-profits, local and federal governments. Although designed as a 10-year effort, in just the first 30 months of the program, the EZs and ECs have begun to demonstrate significant success. We have found that when communities adhere to the basic principles of the program, they are more likely to make progress in implementing their strategic plans. Before I discuss the preliminary results being generated by the 10-year EZ/EC program, I want to discuss the basic principles of the program.

Performance Measurement System -- While the EZ/EC program is designed to achieve long-term results, and to be fully evaluated only after ten years, the program's design include an emphasis on results captured by periodic performance reports submitted by the zones and communities. Many Federal programs measure success by process-based measurements or by the level of funds expended. The EZ/EC Initiative is different from many government programs in that it measures results. The original EZ/EC designations were based on the strength of a community-crafted strategic plan. After designation, HUD required each community to develop specific performance benchmarks that, when properly implemented, would provide the blueprint for an entrepreneurial, no-nonsense way to distribute funds and to fulfill commitments. HUD periodically evaluates the progress that each EZ/EC has made in implementing its performance benchmarks. HUD is working closely with the EZs and ECs, the U.S. General Accounting Office (GAO), and others to make sure that the results captured in the performance benchmarks will assist in determining whether or not the urban EZ/EC Initiative is achieving its stated objectives.

Strategic Plan -- The EZ/EC Initiative is based on a community-generated strategic plan that was developed in partnership with residents, the private sector, non-profits and government. Each EZ/EC developed its strategic plan through several months of intensive planning sessions with their local partners. The result was a unique strategic plan that addressed community needs in the areas of economic opportunity, job training, affordable housing, public safety, infrastructure, childcare, family support centers, health care and others. In order to implement their strategic plans, communities developed performance benchmarks to identify the activities required to achieve their goals and the time-frame over which the activities would be completed. The performance benchmarks trigger continued funding of the strategic plan objectives and they help to assure public accountability.

10-year program life -- This principle recognizes that there is no "quick-fix" solution to the problems facing EZs and ECs. It will take time to turn distressed neighborhoods around, and a measured, patient approach is required to combat the decline. Over the ten-year life of the program, communities must implement their strategic plans by using their Federal seed money to leverage other resources, to develop active resident-based governance mechanisms, to develop a strategic partnership with the private sector, and to work with Federal and local governments to improve the delivery of services to residents and business in the distressed neighborhoods. This "sustainable approach" to community revitalization is based on progress over a ten year time frame and not merely on the amount of Federal funds spent on the program.

Bottom-up Approach -- This principle recognizes that the individuals closest to the problems of the community know best how to solve them. Residents in distressed neighborhoods are now directly involved in crafting solutions to the problems they face -- creating a bottom-up relationship between government and community.

Community Based Partnerships -- The road to economic opportunity and community development starts with broad participation by all segments of the community. The EZ/EC Initiative is designed as a partnership between local residents, all levels of local government including states, counties and cities, the private sector, non-profits and the Federal government. Partnerships with these players, particularly the private sector, will help to leverage the Federal EZ/EC seed money and help to sustain the revitalization efforts over the ten-year life of the program.

Mix of Funding Sources -- The EZ/EC Initiative combines tax incentives for business development with performance-oriented flexible block grants. Tax credits are needed to create more economic opportunity in distressed neighborhoods. But we have also learned from the first round that communities need flexible grants to undertake a broad range of revitalization activities including community policing, health care, neighborhood development, support for financing of capital projects, workforce preparation, efforts linked to welfare reform; and financing a range of housing activities. We cannot promote business development and just assume residents will automatically benefit from the creation of new jobs. Before becoming gainfully employed, many EZ/EC residents need job training, daycare, and other services that will assist them in becoming productive workers. We strongly believe that the best way to achieve sustainable community revitalization is to combine the use of tax incentives with flexible grant funding.

Reinventing Government Response -- The EZ/EC Initiative asked local governments to reinvent their programs to improve the delivery of services to distressed communities. The Federal government followed course by creating the Community Empowerment Board (CEB). The CEB consists of over fifteen Federal agencies and organizations working to improve the delivery of services to the EZs and ECs. The CEB encourages the Federal agencies to provide additional funding, technical assistance and to cut government red tape for EZs and ECs. To date, the Federal agencies have waived over 220 burdensome Federal regulations for EZs and ECs. Under Vice-President Gore's leadership, Federal agencies such as HUD have coordinated their efforts to provide Federal funding preferences for EZs and ECs. The Federal government has also worked diligently to improve coordination between programs. A prime example is the Small Business Administration which has established One-Stop Capital Shops in a number of zones. Another example is the EPA and HUD. They are working together with EZs and ECs to coordinate the Federal government response to the Brownfields problem. Led by HUD, the Federal agencies have worked closely with EZs and ECs to provide technical assistance to get revitalization projects completed. In summary, the Federal government has worked to make the EZ/EC program a success and we remain committed to improving the delivery of services to distressed communities.

Assessing the program

The EZ/EC Initiative cannot be completely evaluated until the completion of its ten-year life, but HUD is taking steps to make sure that interim results are captured and lessons learned are used to improve the Initiative. HUD has hired a private consulting firm, Abt Associates, to perform an interim impact assessment that will examine the EZ/EC sites' interim progress toward achieving community revitalization over their first five years of operations. Abt will also perform the long-term impact study to assess program outcomes after ten years. For the interim impact assessment, Abt has designed a research approach that entails two major components; a national analysis that will examine the efficacy of the national program design and measure progress across zones in achieving key outcome measures; and a series of local analyses conducted by local research affiliates that will be customized to the development strategies of the EZ/ECs. The national cross-site analysis will focus on economic indicators, including job creation, business expansion and the employment of zone residents. The local analyses will provide an in-depth examination of a sample of 18 EZ/EC sites, and will address a broader range of outcome measures appropriate to local strategies.

Another independent evaluation of the EZ/EC program worthy of mention is the recently completed U.S. General Accounting Office (GAO) review of the big six empowerment zones. The GAO report identified factors that helped and hindered EZ planning and implementation. We generally agree with their findings and will continue to work closely with the GAO as they continue to study our Initiative.

Performance Evaluation

By statute HUD is required to make periodic determinations as to the progress EZs and ECs make in implementing their strategic plans. In support of this periodic assessment, the Department has considered the following sources of information when evaluating the performance of each EZ/EC:

Preliminary Results

In March 1997, Secretary Cuomo announced the results of the first round of performance evaluations which showed that sixty-seven of the seventy-two urban EZ/EC's are showing good progress. The Secretary stated:

"Our performance reviews show that, at this early stage, the vast majority of Empowerment Zones and Enterprise Communities are already showing real, and in some places, substantial progress. The overall picture we get from these reports is that nationwide, the zones are stimulating billions of dollars in private investment, beginning to revive inner city neighborhoods once given up for dead, creating jobs and helping families move from welfare to work."

Nationally, the vast majority of EZ/EC programs are doing well, and individual examples of success from some of the EZs and ECs help to capture the excitement and successes occurring in many cities across the country. The performance report executive summaries provided to Committee Members contains numerous examples of those successes. In addition, HUD has have published a report on EZ/EC best practices called, "What Works," which is also contained in your background package. In summary, preliminary results show that in the vast majority of cases, the EZ/EC Initiative has been a catalyst for revitalization and has provided real momentum for positive change.

Conclusion

During the first thirty months of the ten-year EZ/EC Initiative, EZs and ECs have evolved from establishing governance structures and performance benchmarks to actively implementing programs that will help to revitalize their communities. It has not always been easy, but we are making progress thanks to a strong partnership between government, the private sector, non-profits and community residents. The EZ/EC Initiative is creating jobs, residents have more opportunities to better their lives, and in general, many communities are improving. But more can be done to revitalize our inner cities.

On June 23, 1997, the President issued the "State of the Cities", report. The Report shows that -- while cities are on the rebound after two decades of decline -- the shift of jobs and people to the suburbs continues. In response to these challenges, the President re-committed Federal efforts to revitalizing inner cities, the hallmark of which was a second round of Empowerment Zones. In August, President Clinton signed into law the Taxpayer Relief Act of 1997 (TRA). The TRA creates 20 new Empowerment Zones (15 urban & 5 rural) which, when designated, will receive various tax incentives. While this is a good first step, the proposed twenty new zones need flexible Federal grant funds to succeed, and flexible funding has yet to materialize. The Department strongly supports direct flexible grant funding to accompany the tax incentives included in the Taxpayer Relief Act of 1997.

The continued success of the urban revitalization efforts begun during the first three years of the EZ/EC program will require a strong commitment on behalf of all federal, state, and local leaders. On behalf of Secretary Cuomo, the Department looks forward to working with the Ways and Means Committee to meet this challenge.