L.A. Left Out of Urban Aid Program, U.S. Officials Say

Los Angeles will not be included in a lucrative new federal program it has been counting on to help rebuild neighborhoods scarred in the 1992 riots but instead will receive a less generous package of loans and grants, senior Clinton Administration officials said Monday night.

Los Angeles was passed over Monday when the Administration’s Community Enterprise Board, chaired by Vice President Al Gore, met to designate six urban and three rural “empowerment zones” that will each receive a package of tax breaks and direct federal grants worth as much as $375 million over the next five years, officials said.

Several federal officials criticized Los Angeles’ application for the program as too vague about how the city would spend the federal aid. Local officials were warned at least twice that their application was short on details of how they would use the money and how nonprofit and private-sector groups would participate in the empowerment program.

Federal officials indicated Monday that the city and county are likely to receive between $200 million and $250 million in loan guarantees and grants from a smaller pool of money that the Administration has established as a consolation prize for the last cities weeded out. Another large city denied designation as an empowerment zone is to receive a similar package, officials said.

“It is an effort to make the seventh and eighth cities feel as if they are super (empowerment) zone winners,” said one high-ranking Administration official. “Whether they will feel that way, I can’t say.”

One senior Los Angeles official said Monday night that the city had not been formally notified that its application was rejected. “We’re positive that we’re still fighting and it is still in play,” the official said.

The Administration is expected to announce the empowerment zone winners Wednesday, and their identities were not available Monday. It will also designate dozens of “empowerment communities” that will receive much smaller packages of federal aid. One official said California would receive seven such designations, the most of any state.

Los Angeles officials have told the Department of Housing and Urban Development that they would use the consolation funds for capital in a multibillion-dollar community development bank that could fund housing and commercial projects in depressed L.A. neighborhoods. Eventually, the bank, modeled on the South Shore Development Bank in Chicago, could fund social services, the city contends in its application.

But city and state officials made clear that they consider that alternative distinctly second-best--especially since the 1992 Los Angeles riots provided the initial impetus for legislation that created the empowerment zone program.

“L.A. would get some other grant funds and loans and that’s very nice, but it doesn’t compare to the empowerment zone designation,” said Sen. Barbara Boxer (D-Calif.). “It’s nice to be a bridesmaid: You get a pretty dress, a lot of attention, you hope you get a nice groom, but we should be the bride.”

In addition to the loans and grants, Administration officials said Los Angeles would be given the same “priority status” as the six cities with designated empowerment zones for distribution of other federal aid.

And they noted that under the alternative program Los Angeles could receive more in direct federal grants than the $100 million that will be provided to each empowerment zone--although the city would not be eligible for the tax breaks intended to attract private employers to depressed inner-city neighborhoods. City officials estimated that those tax breaks could be worth about $277 million over the five-year life of the program.

Those alternative funds appeared unlikely to satisfy California officials who had fiercely lobbied for Los Angeles’ designation in the coveted program.

Given the Administration’s priority on fortifying its political position in California--which with 54 electoral votes is the single largest prize in the 1996 presidential campaign--most observers have long thought that Los Angeles was virtually guaranteed selection as one of the empowerment zones. One White House official said Monday night that the prospect of denying a zone to Los Angeles had generated strong disagreement within the Administration.

But Administration officials said that a combination of weakness in the city’s application and constraints in the law itself had clouded Los Angeles’ prospects.

“The fact that Los Angeles was not an easy winner showed the process was not (politically) rigged,” one White House official said Monday night.

The 1993 legislation established several strict criteria for the designation of the empowerment zones that have narrowed the Administration’s flexibility. Although the bill provides funds to create empowerment zones in six cities, the statute specifies that one must have a population of less than 500,000 and another must straddle the borders of two states. Los Angeles is eligible for neither of those slots, leaving only four available.

Moreover, Administration officials argued, the bill makes it virtually impossible for the Administration to award zones to each of the nation’s three largest cities--New York, Los Angeles and Chicago. To ensure that resources are carefully targeted, the law mandates that the six urban empowerment zones have a cumulative population of 750,000 or less.

New York, Los Angeles and Chicago each proposed establishing zones in neighborhoods with populations of about 200,000. If all three cities were designated, other communities would have to scale back their proposed zones to remain under the legislation’s population cap, one Administration official said. As a result, the Administration has made clear that “there are effectively two slots” for the three largest cities, a Los Angeles official said.

In that competition, an Administration official said, Los Angeles’ “application was not as strong as it might be.” The official described the Los Angeles application as “weak in two key areas:” the level of commitment from the private sector to invest in the empowerment zone, and details on how the city would spend the federal aid.

Los Angeles officials got their first inkling of that only weeks before the June 30 deadline to apply. HUD officials reviewed a draft of Los Angeles’ application and told city staffers that it was lacking in detail and not competitive. The North Hollywood-based consulting firm of Hamilton, Rabinowitz & Alschuler Inc.--hired to prepare the application at a cost of up to $300,000--was sent scrambling to rewrite it.

After making last-minute adjustments to address the HUD concerns, city and county officials submitted their joint application for an empowerment zone that would have included neighborhoods in Pacoima, South-Central and Watts.

But last week, HUD again told city officials that the application was not specific enough. Two days later, HUD representative Wendy Guel met with Mayor Richard Riordan and City Council members to outline alternative grants if the application failed.

Local officials contend that they purposely left the application vague so that they could hold public hearings to get community input on how to spend the money once it was approved.

“We made a decision early on not to be specific,” said Corde Carrillo, director of economic development for the county’s Community Development Commission. “We felt this should be a grass-roots-generated application and so the city emphasized the kinds of programs that would be involved and the grass-roots infrastructure that would be set in place. I suppose we can be second-guessed, but it was very much in the spirit of the application materials and the fact that this was supposed to be a community-generated project.”

“It’s a real loss to the city,” said Linda Griego, president and chief executive officer of RLA, a riot recovery agency that was called in recently to help buttress the application with information from the private sector. Griego said she has heard that applications submitted by other cities included specific private-sector collaborations aimed at further invigorating the neighborhoods targeted for federal funding.

“I heard one application had a major medical school that committed to providing free prenatal care to anyone who lived in the zone,” she said. Another, she said, named a college that already had ongoing training programs with nearby businesses.

“I understand some cities did a pretty incredible job,” she said. “We might have missed the mark.”

Before the Administration meeting Monday, city officials and Boxer also blamed California Gov. Pete Wilson for not providing more support. City officials lobbying the Clinton Administration have argued that Los Angeles should not be penalized for the failure of the fiscally strapped state government to commit matching funds or bonds to leverage the federal aid.

The senior Administration official said Monday night that there was discussion of seeking legislation that would formally designate Los Angeles and the other missed finalist as empowerment zones--and thus make them eligible to provide tax incentives for business. But the official acknowledged that any effort to expand the program would face an extremely uncertain prospect in the Republican-controlled Congress.

Contributing to this story were Times staff writers James Bornemeier and Elizabeth Shogren in Washington and Hugo Martin, Carla Rivera, John Schwada and Paul Feldman in Los Angeles.