Senate Enterprise Zone Bill Excludes L.A., Kemp Claims : Legislation: But a key Democrat dismisses HUD secretary’s assertion and calls it political posturing.

Housing Secretary Jack Kemp touched off a political uproar Friday by charging that the Senate version of a pending urban aid bill would bar riot-battered Los Angeles from being selected quickly as the site of a tax-favored enterprise zone.

Sen. Lloyd M. Bentsen (D-Tex.), chairman of the Senate Finance Committee that approved the urban aid bill this week, dismissed Kemp’s statement as political posturing. Bentsen’s aides said the measure does not signal a threat to the designation of an enterprise zone in Los Angeles.

Bentsen said Kemp’s “blatant misrepresentation” stemmed from the housing secretary’s unhappiness that the legislation did not include lower capital gains tax rates for enterprise zone investors--a provision included in an earlier House-approved bill.

In a prepared statement, the fiery Kemp insisted that criteria in the bill--which was passed without objections from Republicans on the panel--would prevent Los Angeles from having an enterprise zone before 1998 and send a “drop dead” message to the city. His statement did not explain why Los Angeles would not be eligible sooner and he could not be reached for comment.

Kemp’s statement went on to say that “any worthwhile enterprise zone bill must eliminate the capital gains tax for those who live, work or invest in poverty-stricken communities and lower the tax rate on low-income men and women who want to move from welfare to work.”

Kemp urged President Bush to veto the bill unless it is revised before final congressional passage.

The attack reflected a confrontational approach taken by Kemp and fellow conservatives who believe that the President and other advisers, such as Treasury Secretary Nicholas F. Brady and Budget Director Richard G. Darman, have been too willing to compromise with the Democratic-controlled Congress.

The unusually harsh condemnation may complicate the prompt passage of the $21-billion tax bill and its urban aid provisions. But the bill appeared likely to get through the Senate without major change, as Congress approached its mid-August recess.

The legislation does not name the 15 cities, eight rural areas and two Indian reservations that would be selected as enterprise zones, where special tax breaks would be given to business firms that employ residents of the zones. Rather, it sets out a series of standards for the housing secretary to consider in making his selection.

The bill would require that in order to designate an area an enterprise zone, 35% of the people living in 80% of the census tracts must be below the government-set poverty line. In the remaining 20% of the census tracts, 25% of the people must be living in poverty.

An aide to Bentsen said those standards were less restrictive than the Administration’s proposal.

Bentsen noted that Los Angeles Mayor Tom Bradley has endorsed his approach and Republican senators have gone along with it.

“The only way Los Angeles would be denied quick approval for an enterprise zone is if the HUD (Housing and Urban Development) secretary, for reasons of his own, turns them down,” the Texas lawmaker said.

Since Congress started work on the urban aid provisions after the Los Angeles riots more than three months ago, virtually everyone in Washington expected that one of the zones would be in South-Central Los Angeles.

Kemp also favors designating a larger number of zones--300 compared to the 50 authorized in the House legislation and 25 in the bill approved by the Senate committee.

Bentsen argued that it would be better to concentrate the funds on fewer, larger zones and provide tax benefits in the form of credits toward wages and spending on buildings or equipment that would have a more immediate effect than capital gains treatment.

The House bill was passed with Bush’s support even though he did not get all he wanted on the capital gains issue. But the White House has said that it has problems with the enterprise zone provisions in the Senate committee bill.

Even if the Senate approves the urban aid package passed by the committee, there will be room for negotiations between the White House and Congress during a Senate-House conference to work out their differences on the legislation.

Bush faces a dilemma if he vetoes the final version of the bill over the issue of enterprise zones because it will include many proposals he has long advocated, such as a tax credit for first-time home buyers, expanded Individual Retirement Accounts and tax relief for corporations and real estate developers.

Bentsen, who intends to condemn Kemp when the tax bill reaches the floor Tuesday, said the measure includes most of Bush’s economic initiatives.

“If an all-or-nothing spoiler succeeds in promoting an orgy of bickering that derails our (bill), the American people will know who to blame for this do-nothing dithering,” Bentsen said.