Faced with California officials' anger over the Administration's decision to exclude Los Angeles from the urban "empowerment zone" program, President Clinton will ask Congress today to enlarge the lucrative new anti-poverty initiative to include Los Angeles and another city, senior Administration officials said.
Officials acknowledged Tuesday that Los Angeles will not be among the six cities to receive the multimillion-dollar package of federal grants and tax breaks aimed at redeveloping depressed urban areas.
After the city's 1992 riots helped spawn the new urban renewal effort, it was widely presumed Los Angeles would be at the head of the line when packages of grants and business tax breaks worth hundreds of millions of dollars were doled out.
But in an embarrassing blow, Los Angeles finished out of the running this week in the intense competition for so-called empowerment zones after other cities, which federal officials said drafted far clearer and financially richer blueprints to breathe new life into troubled neighborhoods.
As a consolation prize, Los Angeles had been offered a package of other assistance, and on Monday night, Clinton decided to ask Congress to create two more empowerment zones at a cost of $500 million--enough to include Los Angeles and Cleveland, the last two cities dropped from the list, officials said.
Congressional sources said that the six cities to be officially designated as empowerment zones today will be New York, Chicago, Baltimore, Atlanta, Detroit and the combined urban center of Camden, N.J., and Philadelphia.
In the San Fernando Valley, more than $700,000 was sought for six projects within a 1.8-square-mile empowerment zone including Pacoima and part of Lake View Terrace. Proponents, including City Councilman Richard Alarcon, said they would simply seek other sources of funding for the projects.
It is far from certain that the new Republican Congress, which is seeking massive cuts in social programs, will agree to expand the program, already scheduled to cost more than $3.5 billion over the next five years.
But Administration and California officials expressed guarded optimism Monday that Republicans would support the addition of Los Angeles and Cleveland because the funds would be used to provide tax credits to businesses that hire workers in depressed urban areas.
"The promise of tax benefits is much better than nothing and we will do whatever we have to do to get them passed," said Sen. Barbara Boxer (D-Calif). "It's going to be difficult."
California Rep. Jerry Lewis (R-Redlands), who will chair an appropriations subcommittee overseeing urban development programs, was even more cautious:
"I must say that tax incentives that create jobs would probably have a pretty positive reaction. But sometimes a special additive to a tax package makes the other folks (who aren't in line to get it) wonder about it."
Clinton has spoken for weeks of expanding the empowerment zone program and officials portrayed his decision to seek the legislation as reflecting his belief that all eight of the top finishers deserved inclusion.
But many in California and elsewhere saw the promise to seek additional benefits as an effort to control the political damage to the Administration in a state indispensable to Clinton's hopes for reelection in 1996.
"The political people (in the Administration) are frightened," said one ranking Los Angeles city official. "They see this as a problem, that there is going to be a backlash. Even if in reality the package is going to be fairly beneficial there is a sense (from the decision to exclude Los Angeles) that there is a lack of full confidence in the city."
Indeed, Boxer said Tuesday night that the decision to pass over Los Angeles for the program had generated an "outpouring of emotion, anger and outrage."
In a sign of White House sensitivity over the program--which generated a frenzy of lobbying from cities around the country--Clinton is expected at a news conference today to label 12 cities as empowerment zones. But the statute only allows the Administration to designate six cities to receive the full range of benefits from the program, which includes $100 million each for social services, and tax incentives worth about $277 million over the next five years.
The other six cities will receive grants from another pot of money that the Administration has established as an alternative source of assistance to cities denied inclusion in the empowerment zone project.
Los Angeles will receive by far the most funds in that group: a grant of $125 million and $300 million in federal loan guarantees that the city has indicated it intends to use to capitalize a community development bank. That bank, modeled in part on the South Shore Development Bank in Chicago, would make loans to support housing and commercial development in depressed areas of the city.
Other cities on the list to receive funds from this consolation pool of money include Cleveland, Oakland, Boston, Houston and Kansas City.
In addition to providing these funds, sources said, Clinton decided at a meeting Monday night in the Cabinet room to ask Congress to make Los Angeles and Cleveland full participants in the program. That would mean allocating another $500 million so that both cities also could offer the tax credits now available only to the six cities formally designated as empowerment zones.
Beyond the fiscal constraints, ideological differences may complicate the progress of that proposal in Congress. While Republicans such as former Housing and Urban Development Secretary Jack Kemp initially pushed the empowerment zone idea, many conservatives have opposed the Administration's version.
Republicans dislike the large social spending grants included in Clinton's program and the structure of its tax breaks. While the Clinton program provides tax credits to employers to offset 20% of the cost of hiring new employees, Republicans prefer to offer capital gains reductions to entrepreneurs.
Los Angeles Deputy Mayor Mary Leslie, Mayor Richard Riordan's adviser on economic development issues, was cautiously optimistic about Tuesday's developments.
"We had a competitive application, and we were disheartened that we were not (initially) given full zone status. However, if the Clinton Administration aggressively supports an extension of wage and tax credits to Los Angeles we would support that effort," Leslie said.
But the extension of empowerment zone status to Los Angeles would require congressional approval, and "there is uncertainty whether a Republican-controlled Congress would do that," Leslie said.
Others familiar with Los Angeles' application focused on what had gone amiss in the first place.
A series of glaring weaknesses and leadership fumbling apparently hurt the bid when measured against other cities', interviews indicate. "There's no way in a comparative reading (of Los Angeles' bid) that it comes off favorably . . . no way to get (a sense) that this street corner or this neighborhood will look any different," said a Clinton Administration official familiar with the selection process.
Some contended that Los Angeles' bid was delayed and hobbled by one of City Hall's chronic ailments--the difficulty of arriving at a consensus on disbursing funds over a vast and diverse political landscape. It took months just to decide where the new zone--covering parts of Pacoima, South-Central Los Angeles and the Eastside--would be located and the funds would be targeted.
"For months, the dispute was over boundaries," said Michelle Banks, an aide to Councilwoman Rita Walters who worked with Mayor Richard Riordan's office on the application.
"We said we needed to address the application as a whole . . . but it was so hard to get the boundary issues settled. Everyone wanted their community to benefit from the tax credits and social service programs."
Deputy Mayor Robin Kramer acknowledged that was a tough, time-consuming hurdle. "It was like putting together a puzzle with an abundance of need," she said. "We had 1.1 million residents and more than 170 square miles that were eligible, but we had to limit it to 200,000 residents and 20 square miles. So how do you achieve a consensus about what areas are going to be in the zone? It was very difficult work."
Officials in Washington who were evaluating the bids took note of the delays and political tug of wars.
"They were the last major city to decide on the boundaries," said a Clinton Administration official. "You have to do that before (you) can figure out anything else. . . . Other cities had no problem deciding (and) getting people behind it."
In a first of a series of warnings of trouble ahead for Los Angeles, Housing and Urban Development Assistant Secretary Andrew M. Cuomo cautioned state officials June 20, 10 days before the application was due, that questions about the state's role were hampering the city's chances. At issue was a 5% administrative fee the state was planning to charge to process the funding under the empowerment zone program.
Also, unlike other states such as New York, which was offering a $100-million matching grant for New York City's empowerment zone bid, California was offering no money of its own.
Cuomo said that various states and cities were making "difficult choices about where to find the funds necessary to make their applications as competitive as possible."
Charlene Meeks, the state official who was coordinating the applications from Sacramento, said the state offered no matching money for Los Angeles or other cities because it had none to give.
James Bornemeier and Elizabeth Shogren in Washington, Rich Connell and Hugo Martin in Los Angeles and Dan Morain in Sacramento contributed to this article.