‘Fair Share’ Policy on Poverty Funds Hit : Urban blight: More affluent areas are often favored when the city distributes the federal money designed to aid poor neighborhoods.

Watts and West Adams are two strikingly different neighborhoods, separated in physical terms by a few miles of freeway, but in human terms by a yawning gap in family income, property values and upward mobility.

Life is upbeat in West Adams, an attractive mid-cities district of red-tiled Spanish homes and neat lawns. White-collar blacks and whites have been busy gentrifying the area since the early 1980s.

By contrast, families are fleeing the economic devastation of Watts, where a 30% unemployment rate among young black men appears all but permanent, and long-neglected streets sag with tawdry homes.

Yet city records show that when the Los Angeles City Council hands out federal funds set aside by Congress to fight neighborhood blight, the more fortunate West Adams district gets the thicker slice of pie.

The council awards such funds under its so-called “fair share” policies--a dizzying tangle of 10-year-old demographic formulas, understood by only a handful of bureaucrats, that determine which neighborhoods get millions of dollars in federal funds earmarked for the disadvantaged.

Embracing a philosophy that the money should be shared citywide, the council is often generous where needs are few. Federal loans helped renovate homes in fashionable Silver Lake and helped finance construction of a $1.3-million YMCA gymnasium in affluent Verdugo Hills at the same time that a respected drug clinic was forced to leave crack-ridden South-Central because, according to a center spokeswoman, city officials said no federal funds could be spared.

Now a group of community leaders are challenging the “fair share” policies, which they say have helped grease the city’s slide into a two-tiered economy of haves and have-nots.

“All you have to do is walk down the street here to see the unequal distribution,” said Mary Lee of the Legal Aid Foundation of South-Central Los Angeles. “If a city spends 15 years ignoring safety code violations and then homes must be torn down . . . well, the city created this mess and they should correct it.”

Led by Legal Aid, the Southern Christian Leadership Conference and Jobs With Peace, community-based groups are launching an intensive lobbying effort this year, first targeting council members Robert Farrell and Joan Milke Flores, who represent poor areas.

Flores in the past has unsuccessfully argued for more funds for the inner city. But, she said, “The problem with (my) arguments has been that the council knows it is politically unwise to take money away from the middle class because the middle class votes, and they’ll take their votes away.”

If the activists are to succeed in their campaign, they will have to educate the council about its own policies first.

The complex “fair share” formulas have not been meaningfully debated in council chambers in nearly a decade, and they remain a mystery to many council members, interviews show.

The policies date from the late 1970s and early ‘80s, when the council, struggling to parcel out diminishing federal funds for the poor, began drawing anti-poverty funds away from South-Central and the Eastside. When the dust settled, the old Model Cities approach of saturating inner-city areas with money had given way to a plan that gave a little bit to everyone.

But because of the complexity of the formulas, funds are sometimes skewed toward the less needy, as illustrated by Watts and West Adams.

Several members of the council still mistakenly believe that they cannot rewrite the formulas until 1992, when the U.S. Census Bureau releases 1990 data on poverty levels. But in truth, Congress has intentionally left virtually all decisions on where to funnel the money up to local government--as long as “bare minimum” standards are met, according to state and federal officials who monitor the funds.

David Bradley, director of the Community Action Foundation in Washington and an expert on anti-poverty programs, said, “If there’s pressure for fair-share dispersal of the funds citywide, it’s coming from the state or the city itself.”

The city’s Community Development Department distributes $115 million a year in federal funds to support three programs: housing rehabilitation, human services and job training.

For now, the community activists are concentrating more on the housing and human services funds than on how the job-training money is disbursed.

Minimal federal thresholds require that housing rehabilitation money be used to renovate run-down housing only in areas where at least 51% of the residents are low- or moderate-income.

The council has designated about 15 areas to get such funds, ranging from West Adams to Watts. Under the “fair share” approach, the council gives the same base allotment of roughly $1 million a year to each area, but tips the scale toward some neighborhoods by creating an extra pot of money for landlords only.

Because Watts is dominated by single-family homes, it lost out on getting those extra funds last year, receiving only $839,000 to fix 59 homes. By contrast, West Adams received $1.5 million to fix 226 homes and apartments.

Federal officials say the council could be far more strict about where the money goes. It could choose to funnel its $31-million housing block grant for 1990 only to extremely poor and blighted neighborhoods.

“They could concentrate all their monies on South-Central or Boyle Heights tomorrow if they so desired, but politically I gather there are too many people out there who want to be satisfied,” said a spokesman for Sen. Alan Cranston (D-Calif.).

Similarly, Congress requires that human service funds provide such things as child care and drug counseling to the needy. But the city could change its formulas, choosing, for example, to saturate a crack-ridden neighborhood with drug programs, according to a state official involved in approving formulas used by cities.

“We don’t try to second-guess a city because they’re the ones on the spot,” said William Campfield of the state Department of Economic Opportunity. “If it’s legal, we’ll approve it.”

But the city has not sought such changes. Instead, it relies on a game plan established in the early 1980s, when--for the purpose of dividing up human services funds--the council carved the city into six geographic “labor markets.”

The question of which “labor market” gets more human services money depends heavily on 10-year-old poverty statistics from the U.S. Census Bureau. But because blacks and Latinos were significantly undercounted in 1980, many city officials believe that South-Central and the Eastside are chronically under-funded.

Despite complaints from some community leaders, Community Development Department officials and many council members say they have directed funds to effective programs, ranging from battered women’s shelters to free health care, and they do not want money taken from one area of the city and given to another.

Ralph Esparza, housing director of the Community Development Department, defended the distribution plan, saying that most of the designated neighborhoods are in areas of real need, such as Central, South-Central or East Los Angeles.

“I’d understand if we had an office in Westwood, but we don’t,” he said.

Flores called the decision to reduce funds to South-Central “gut-wrenching” but said that spreading money citywide is better than helping only the inner-city and barrio areas. She rejects the old Model Cities approach.

“Talk about difficult, telling someone they can’t get child care because they live on the wrong side of the street,” Flores said.

But community leaders point to large amounts of federal funds still flowing to Los Angeles residents who are not exactly in dire need.

For example, in the last five years, the Community Development Department has provided nearly $5 million in rehabilitation loan subsidies to middle-class and even well-to-do homeowners who could have applied for home improvement loans from private banks, records show.

Under federal regulations, the city must lend at least 60% of its renovation money to households that earn less than $30,400 for a family of four. Los Angeles gives about three-fourths of its loans to such families.

According to Esparza, each year the other fourth is lent to homeowners “who can earn any amount they want,” so long as they live in one of the 15 pockets designated as run-down.

Such policies explain, in part, why a largely middle-class area of Silver Lake and Echo Park received 415 subsidized loans from 1985 to 1989, while Watts got only 339 during the same period.

But another factor is the council’s practice of budgeting roughly equal amounts--about $1 million yearly--for homeowners in the 15 pockets.

Esparza said the money does not stretch “nearly as far” in poor areas as it does in nicer areas because the city must subsidize more of the costs in poorer areas.

In areas like West Adams, Esparza noted, “people can afford to pay us higher interest rates.”

“The city has not set aside enough (subsidies) to do the same job in an area like Watts.”

City Councilwoman Gloria Molina, a critic of the Community Development Department, said another problem is that poor people “simply do not know they can get these loans.” She holds workshops to spread the word.

“I represent poor people in Cypress, Cypress is on the list,” and no one in Cypress knows about it, Molina said.

According to some state officials, including state Sen. David A. Roberti (D-Los Angeles), the city’s lukewarm efforts in South-Central, combined with longtime redlining by private banks, paved the way for a community tragedy of massive proportions.

During the last three years, nearly 1,000 South-Central homeowners have lost their homes to unscrupulous door-to-door lenders who preyed on people desperate for home-repair loans.

Julius Butler, an attorney for Bet Tzedek Legal Services, representing the victims, said the “fine print” included balloon payments that poor homeowners could not pay, forcing them into foreclosure.

Mary Lee from Legal Aid said that if federal funds had been available for loans, those homeowners would not have been forced to turn to door-to-door lenders.

Esparza said the losses were “unfortunate,” and said his division is improving its marketing of loans in the area so people “at least know they can come to us.”

Critics also question the the Community Development Department’s human services program.

Human Services Director Sue Flores said about 70% of her yearly $12-million allotment goes to the poor, through private service agencies in the six “labor markets.” Another $5 million goes for capital improvements to community facilities.

But Parker Anderson, Community Development Department general manager, conceded that the funds are not distributed in direct proportion to poverty. If they were, he said “clearly, South-Central would get more.”

For example, human services funds helped build the YMCA gym in a neighborhood where family incomes average $42,000. The area has become so upscale that it no longer qualifies for federal funds.

Said one angry Community Development Department employee, who asked not to be named: “They had no right to build something for ranchers in Sunland.”

Whatever the outcome of the activists’ challenge, such reminders of the region’s increasingly two-tiered economy promise to be a focal point of the debate.

Lee, of Legal Aid, pointed to Kazi House, a 40-bed drug treatment center that closed on Manchester Avenue after losing its lease. It had been denied a loan by a well-known bank--a bank that accepted the center’s payroll deposits for 14 years. Then, city officials turned down the center’s request for federal help, she said.

“Where we once had a drug center, there is now rental storage where you can store your things--in a neighborhood where people can’t even find shelter,” Lee said.

Contrasting Communities Two neighborhoods offer a pointed example of how the City Council sometimes helps the middle class but shorts the poor when dividing up its federal funds earmarked to fight blight and poverty. Last year, with subsidized loans from the city, 226 dwellings were rehabilitated in the West Adams district. In badly dilapidated Watts, just 59 homes were fixed. West Adams West Adams, Pop. 30,500 Average home sale price: $149,400 Average household income: $22,500 Largest segment of work force: 52% white collar Households with nobody working: 18% Watts Watts, Pop. 30,478 Average home sale price: $105,000 Average household income: $16,100 Largest segment of work force: 39% blue collar Households with nobody working: 44% Source: Los Angeles Times Marketing Research Dept.; TRW Real Estate Information Services