Part Two: The 21st Century Agenda for Cities and Suburbs

New Markets Initiative

NMI components are:

• America's Private Investment Companies (APIC). Jointly administered by HUD and SBA, APIC will fill a major capital gap by providing patient equity and debt capital to new and expanding businesses. The program is modeled after successful programs run by the Small Business Administration (SBA) and successful HUD investment in large-scale development, APIC is a new proposal to encourage major private investment in economically distressed areas. APIC would fund the creation of private investment companies that will, in turn, invest in large businesses seeking to expand or locate in inner cities and distressed rural communities. APIC investments in target businesses will typically range between $5 and $50 million. For FY2000, HUD is requesting $37 million in credit subsidy to cover the cost of providing Federal guarantees on $1 billion in private loans made through APICs. These loans (sold on Wall Street debentures) will leverage an additional $500 million in private equity commitments for new investment partnerships. Under APIC, private investment companies would be competitively selected and licensed. A wide range of projects -- from inner-city retail centers to rural factories -- would be eligible for investment. APIC will encourage substantial community benefits, including quality jobs at good wages.

• New Markets Tax Credit. The Administration's FY2000 budget includes a new tax credit to help spur $6 billion in private investment for business growth in low- and moderate-income communities. Qualified investors could claim a tax credit of 6 percent of the amount of equity invested per year for 5 years. The tax credit would be available to those who invest in organizations whose primary mission is to develop these communities in partnership with the private sector. Eligible entities would include community development financial institutions, community development corporations, America's Private Investment Companies (APICs), and Small Business Investment Companies (SBICs) serving low- and moderate-income communities, as well as other NMI-funded and licensed entities.

• SBICs Targeted to New Markets. Over the past 40 years, SBICs have provided about $20 billion in private equity and debt financing to support the growth and development of 85,000 small businesses. Licensed by SBA, SBICs are private companies with private management and private investors. Equity participation in the businesses they support is typically a significant component of the financial return for SBIC investors. The New Markets Initiative proposes to use this highly successful structure specifically to attract new private investment to low- and moderate-income communities. Various incentives would be adopted to encourage SBICs to invest in small businesses operating in these communities. As part of the initiative, SBICs making these investments will be eligible to issue deferred interest debentures guaranteed by SBA.

• New Markets Venture Capital Companies. SBA proposes to fund New Markets Venture Capital companies that provide a combination of equity venture capital financing and technical assistance to small businesses in low- and moderate-income areas. The program will build upon the work of community development organizations that have already established successful records in venture investing. Such institutions are already playing a major role in the creation and expansion of businesses in distressed areas, but their efforts have been limited by a lack of adequate funding for both investments and technical assistance. NMVCs must be organized as for-profit entities and raise at least $5 million in investment capital, which SBA will leverage with guaranteed debentures. Interest on the SBA-guaranteed funding will be deferred for the first 5 years. NMVCs must also secure commitments to provide at least $1.5 million in technical assistance funding over 5 years. NMVC venture investments will typically range between $50,000 and $300,000.

• Community Development Financial Institutions (CDFI) Fund. CDFIs stimulate investment in and revitalization of low-income communities by providing financial products and services directly to small businesses and individuals. CDFIs include community development banks, credit unions, community development venture capital funds, and microenterprise loan funds. These institutions provide home mortgages for first-time homebuyers, financing for needed community facilities, commercial loans, small businesses financing, and loans to rehabilitate rental housing. In 1994, President Clinton proposed and Congress established the CDFI fund to ensure these institutions will have the capital they need. The FY2000 budget seeks $125 million for CDFIs -- a $30 million increase. Administered by the U.S. Treasury Department, the CDFI fund provides relatively small infusions of capital that leverage private sector investments from banks, foundations, and other funding sources. Every CDFI that receives financial assistance from the fund must provide at least a one-to-one match with funds from non-Federal sources. Since the fund's creation, it has made more than $120 million in awards to community development organizations through its CDFI program. Through the Bank Enterprise Awards program, the CDFI fund has provided another $60 million to traditional banks and thrifts to increase their activities in distressed areas.

• BusinessLINC. This initiative is a partnership between the Federal Government and America's business community to encourage large businesses to work with small business owners and entrepreneurs, especially in central cities and rural areas. BusinessLINC, which stands for learning, information, networking, and collaboration, is designed to stimulate business-to-business mentoring relationships that will produce individualized technical and business assistance for small firms. The Federal Government helps convene the actors, but businesses -- and business interests -- drive the train.

• Microenterprise Lending and Technical Assistance. Microenterprise programs provide access to capital, financial services, and training to entrepreneurs who are traditionally bypassed by the mainstream financial sector. Supporting microenterprises has proven to be a powerful tool for empowering people and promoting economic growth. The Administration's FY2000 budget includes a 159-percent increase in support for domestic microenterprise programs with a significant strengthening of the Administration's commitment to training and technical assistance. The President's plan includes $15 million to support the Program for Investments in Microentrepreneurs (PRIME) Act, which authorizes the Community Development Financial Institutions (CDFI) fund to establish a microenterprise technical assistance and capacity-building program. The Administration proposes to double support for technical assistance provided under the SBA Microloan Program, from $16 million in FY99 to $32 million in FY2000, and to expand direct SBA lending to microenterprises from $3 million in FY99 to $6 million in FY2000. This expanded funding should help leverage more than $75 million in new loans from private sources. To help low-income individuals save for their education, buy a home, or start a business, the Administration proposes to double funding for Individual Development Accounts (IDAs), which offer families matching contributions of $1 to $8 for each dollar they save in an IDA. Last year, President Clinton signed legislation authorizing IDA demonstrations. The President's FY2000 budget increases the IDA budget from $10 million in FY99 to $20 million in FY2000. To further encourage microenterprise development the FY2000 budget will triple funding for SBA's One-Stop Capital Shops, from $3.1 million in FY99 to $10 million in FY2000. Located in Empowerment Zones, the shops provide financial and technical assistance for microenterprise development.

Other key programs that support the New Markets Initiative are HUD's Community Empowerment Fund and Empowerment Zone and Enterprise Community Initiative.

Community Empowerment Fund (CEF)/CEF Trust. CEF will ensure that local governments have the public capital they need to support critical business investment and job creation projects in distressed communities. The FY2000 budget combines $125 million in Economic Development Initiative grants with an estimated $625 million in Section 108 guaranteed private loans to provide a total of $750 million in grants and low-cost loans in these communities. Under the Section 108 program, HUD guarantees repayment of funds that local governments borrow from private sources against the cities' Community Development Block Grants to enhance the financial viability of economic development projects. The program has enabled local governments to provide billions of dollars in loan commitments at a very low default rate for projects that otherwise would not be possible. CEF's public funds are projected to leverage up to five times the guaranteed loan amount in additional private sector financing. Projects funded through CEF will include loans for business expansion and modernization; start-up costs for new, small, and mid-sized businesses; preservation and expansion of existing industrial facilities; and retail and commercial revitalization initiatives.

In FY2000, CEF will emphasize two priorities: ensuring welfare-to-work targeted job creation and connecting central cities to areas of regional economic growth. The Welfare-to-Work Targeted Job Creation Initiative will provide up to $75 million in grants for local programs that support initiatives creating private sector jobs for people who have recently left welfare or who will enter the labor force as welfare reform time limits take effect. Communities competing successfully under this targeted job creation program will combine the HUD incentives for business development with local public and private supports for job training, transportation, housing, childcare, and other services as needed. A second CEF component in FY2000, City-Suburb Business Connections, will provide up to $25 million for local projects that boost economic partnerships between city and suburban firms in a common metropolitan area. The linkages might include joint ventures and first source agreements among suburban firms and suppliers. In this manner, CEF could help local public and private sector leaders create vibrant clusters that include firms in inner cities as well as in more affluent parts of the metro economy. Closer city-suburb relationships are also vital to addressing tight labor markets outside of cities and linking urban residents to expanding job markets.

The CEF Trust, an innovative pilot program, is designed to pool loans and standardize underwriting standards, enabling a fully private secondary market for economic development loans to emerge. The lack of secondary market instruments, which help define America's distinctive housing finance system, traps billions of dollars in capital that could otherwise be used to expand private investments in distressed communities. The CEF Trust will be operated on a pilot basis this year with previously appropriated FY98 funds. The Administration would provide an additional $25 million in FY2000.

Empowerment Zone and Enterprise Community (EZ/EC) Initiative. Launched and spearheaded by Vice President Gore, this initiative is the foundation of the Administration's empowerment agenda for communities with high unemployment and poverty rates. The EZ/EC initiative couples business capital investment with targeted social investment to trigger comprehensive community revitalization. And it exemplifies the power of comprehensive approaches carried out by locally-driven public/private partnerships, not top-down mandates. Under this program, adopted in 1994, investment in targeted communities is promoted in many ways, including tax incentives, flexible block grants, and regulatory waivers. EZs and ECs are also eligible for flexible block grants for housing, job training, daycare, and other purposes. The FY2000 budget proposes guaranteed funding for 10 years for a total commitment of $1.6 billion for urban and rural EZs and ECs.

The FY2000 budget will also expand funding for programs that complement the EZ/EC initiative and capitalize on the energy sparked through the EZ/EC competitions. To enhance the capacity of EZ/ECs to realize the goals of their strategic plans, HUD would provide $10 million in technical assistance to the existing urban EZ/ECs. Selected communities that applied to become an EZ/EC but were not chosen through the competitive process would be designated as Strategic Planning Communities and would have access to $45 million to implement strategic development plans. Another set of communities would be eligible for a share of $10 million which could be used to make a project work or a local goal achievable. Finally, the Administration is requesting $50 million in FY2000 for a Regional Empowerment Zone Initiative, which will award competitive grants to help EZ/ECs link their economic development strategies with the broader economy of the surrounding metropolitan region. Special emphasis will be placed on expanding the strategies to include regional employers and job markets with priority to applicants with well-defined plans to increase employment among EZ/EC youth.

In addition to the New Markets Initiative, the Agenda continues and expands two key economic development programs that are already helping to remake the face of distressed communities across the Nation.

Community Development Block Grants (CDBG). The CDBG program is the Federal Government's most flexible tool for assisting cities, towns, and States to meet local community development priorities and objectives. With its multifaceted eligible uses, the block grant program is routinely used to rehabilitate housing, improve infrastructure, provide job training, finance revolving loan funds, and finance other community-determined projects. The FY2000 budget will increase funding for this linchpin program to $4.775 billion, an increase of $25 million over 1999 enacted levels.

Brownfields Redevelopment. Brownfields are former industrial and commercial properties where reuse is complicated by real or perceived contamination. An estimated 450,000 brownfields exist across the country, many of which are located in urban areas. Brownfields redevelopment is critical to economic development and community revitalization and offers a large untapped resource for land development within already established communities. A recent survey on brownfields in 223 American cities by the U.S. Conference of Mayors estimated that these communities had more than 178,000 acres of brownfields, which if redeveloped could bring in additional tax revenues of $955 million to $2.7 billion and create more than 675,000 jobs.

The Administration's Brownfields National Partnership, announced in May 1997, brings together the resources of more than 20 Federal agencies to address brownfields cleanup and redevelopment issues. As part of the Partnership, HUD provides grants in conjunction with Section 108 loan guarantees to redevelop moderately contaminated industrial or commercial sites. The Administration's FY2000 budget proposes to double HUD's funding for brownfields redevelopment from $25 to $50 million per year for the next 3 years. Other key components of the Clinton-Gore brownfields program include Environmental Protection Agency (EPA) funding for assessment, clean-up, and job training. Last year, EPA received $91 million to make grants to about 100 communities for site assessment and redevelopment planning as well as for capitalizing revolving loan funds to finance cleanup efforts. These grants have been awarded to 250 communities. The FY2000 budget proposes $91 million for EPA.

Another key incentive is the brownfields tax incentive, enacted as part of the Taxpayer Relief Act of 1997. It is projected to leverage another $4 billion in private investment in brownfields cleanup by allowing businesses to deduct certain cleanup costs on environmentally contaminated land.