Mayor Snubs President Over L.A. Loss of Grant : Finances: Riordan refuses to join ceremony. He says city will work with $350-million consolation package.

Mayor Richard Riordan, bitterly disappointed that Washington denied Los Angeles’ bid to be designated an empowerment zone, snubbed President Clinton Wednesday but said Los Angeles would try to make the best of the $350-million consolation package the federal government is offering instead.

Riordan made his pique known by refusing to participate in a conference call Wednesday as Clinton told leaders of other U.S. cities how they had fared in the empowerment zone competition.

“I decided it would have been disingenuous on my part,” Riordan told reporters in Los Angeles, “to make it look like I was happy about what had happened.”

In Washington, winners of the Administration’s $3.5-billion empowerment zone competition were announced with fanfare and unstinting self-congratulation. Los Angeles may have boycotted Clinton’s conference call, but Atlanta and Philadelphia hooked in not only their mayors but cheering sections that included organizations that will be part of the blight-removal effort.

New York Mayor Rudolph Giuliani got on the phone with his Democratic predecessor and onetime rival David Dinkins and liberal Rep. Charles Rangel (D-New York) to rhapsodize about the bipartisan spirit that had enabled them to submit a winning application.

The President tried to put the best face on Los Angeles’ absence. After most of the mayors had spoken, Clinton said: “I also want to send our congratulations to Los Angeles, which could not be on the telephone call today, but we are very proud of them, and looking forward to working with them, and all the other communities.”

Los Angeles’ failure to win empowerment zone status is an acute embarrassment to the city, particularly because the 1992 riots helped inspire Clinton’s economic development program.

“We are very angry, very disappointed,” Riordan said Wednesday in his first public comments on the matter.

The mayor also put his outrage in writing, issuing a strongly worded joint statement with City Councilman Mike Hernandez. “The Title XX Empowerment Zone program was created in the aftermath of the Los Angeles riots of 1992,” it said. “That devastating event established the political environment for Congress to pass it. This makes the decision to not include our city all the more unbelievable.”

The designation would have been worth $300 million to $600 million per year to Los Angeles, “so not receiving it cannot be shrugged off as a minor setback,” the statement said.

Federal officials, however, have said the urban aid application submitted by the city and county of Los Angeles was weak--short on specific, innovative programs and lacking in support from state government and the private sector. City officials have acknowledged that the application process was hindered by time-consuming turf battles over which neighborhoods would benefit from the designation.

Riordan defended the bid, which would have showered special entitlements throughout a three-part zone covering segments of Pacoima, South-Central Los Angeles and the Eastside. “Our application was actually very good,” the mayor said.

Although it missed the grand prize, Los Angeles--along with Cleveland, the other runner-up--was designated an “economic development initiative empowerment zone.”

Under this secondary program, Los Angeles will receive about $350 million in federal aid that it can loan or grant to inner-city businesses and nonprofit enterprises for a wide array of economic development projects, including land and equipment purchases, plant construction and infrastructure development.

But the “substantive difference,” as Riordan pointed out in his press release, is that Los Angeles will not enjoy the wage tax credits that come with being part of a full-fledged empowerment zone, nor will the city obtain the $100 million in social service funding that is to go to the other cities.

“We had such high expectations about the $100 million,” said Mary Leslie, the mayor’s chief economic development adviser. “We had hundreds of community-based organizations involved. It was a hard and bloody process to come up with our consensus document and then not to get it.”

Clinton pledged Wednesday to seek congressional approval to extend the valuable wage tax credits to Los Angeles.

When his anger subsided, Riordan told reporters that he was an optimist and promised “to make the most of what we can get” from Washington.

In fact, others--including city Chief Legislative Analyst Ron Deaton and U.S. Housing and Urban Development officials--speculated that the city, if it can secure the wage tax credits from Congress, might actually be better off with secondary status.

The funding that Los Angeles will get can be used flexibly for economic development projects, Deaton said. “If economic development is your goal (as opposed to providing social services), this might be better,” he said.

Roy Priest, director of economic development for HUD, also said that the new Republican-controlled Congress may seek to trim back the full empowerment zones, making the social service dollars their target. “It’s possible Los Angeles could come out ahead (of the cities that won the empowerment zone designation), depending on what happens in Congress,” Priest said.

The bad news for the city is that congressional approval of wage tax credits is far from certain, Leslie said. The good news is that Republicans have generally supported such credits, she said. “We will very aggressively go after these credits,” Leslie said. “And we’re not ingrates--$350 million creates big opportunities for us.”

Under the program announced Wednesday by Clinton, Los Angeles and Cleveland will be in the second tier of empowerment zones while the full-fledged zone participants will be New York, Detroit, Baltimore, Chicago, Philadelphia-Camden and Atlanta.

Riordan said the criteria used by the federal government to assess the city’s application were biased in favor of East Coast cities.

“There’s no question that the empowerment zone guidelines favored East Coast cities in which blighted areas are encompassed in significantly smaller geographic zones (than in Los Angeles),” Riordan’s statement said. “The federal bureaucrats did not consider this from their offices 3,000 miles and three time zones away.”

But HUD’s Priest denied any bias. The Los Angeles application was vague compared to what other cities provided, Priest said. “It was not specific enough as to the kinds of activities they wanted to fund,” he said.

Also missing, according to Priest, one of three members of HUD’s application review panel, was evidence that Los Angeles would be able to tap other resources, private or public, to enhance the federal government’s funding.

Other states, Priest noted, were ready to match the federal government’s grants with funds of their own. In California, by contrast, the state actually proposed charging the city a 5% fee for administering the federal grant--a demand that it later dropped at the request of the Riordan Administration.

Leslie said the federal aid will be particularly useful in “allowing us to make direct grants and low-interest loans to individuals in the zones that have little or no access now to working capital.”

Leslie, a former top Small Business Administration official, said studies show that three-quarters of the nation’s businesses are capitalized with less than $10,000. “What we should be doing now is getting capital into the hands of small minority businesses.”

In its zone application, Los Angeles told federal officials that it planned to use the social service dollars to fund parenting, drug prevention, anti-gang and job training programs as well as a soccer field near USC, a community garden in Pacoima and a music academy for at-risk youths on the Eastside.

But a review of the application shows that in several cases, officials appear to have inaccurately portrayed the feasibility of some programs for which they sought funds.

For example, under a listing for recreation facilities for youths, the application asks for $940,000 to “improve and expand recreation facilities” at a vacant lot next to railroad tracks on 33rd Street and Hooper Avenue in South Los Angeles.

The application states that the Santa Monica Mountains Conservancy had agreed to pay $2 million to purchase the lot from the Metropolitan Transportation Authority and develop it as a soccer field.

In fact, the conservancy had considered buying the lot for open space but the idea never got off the ground and the MTA now has no prospective buyer for the land, according to MTA and conservancy officials.

The application also asks for $25,000 to support a music academy and a job training facility at the proposed Mariachi Plaza near Downtown Los Angeles.

However, the construction of the plaza has been delayed because of plans to build it as part of a Metro Rail Red Line subway station. The station and the plaza are not expected to be completed until after 2000, according to city officials.

That appears to run counter to a requirement that the federal funds go for programs that would be running within 18 months.

In the San Fernando Valley, where $730,000 was sought for a 1.8-square-mile area including parts of Pacoima and Lake View Terrace, proposals for using the social service empowerment zone funds were hastily assembled.

One proposed use involved $100,000 to “expand” a child-care center in Pacoima that has not yet opened and whose demand has yet to be measured. In another, $250,000 was sought for a computer lab at a yet-to-be-built library and affordable-housing complex in Lake View Terrace.

Councilman Richard Alarcon, who represents the area, said his staff was originally told that the use of the federal funds could be flexible and meted out to “various schemes” once a lump sum was awarded.

Only during the last week of the application process was his office told to come up with specific projects, Alarcon said. “We had to basically scramble together a list,” he said.

So they chose four projects already in some stage of development though far from complete: the Lake View Terrace library; a recently begun regional park at Hansen Dam; a proposed “community arts village” offering gallery space, housing and training in graphic arts; and a business “incubator” providing shared copying machines, health insurance and secretarial services to fledgling firms.

All four plans will still go forward in some form, Alarcon said. “I intend to pursue all these projects though the loss of the (federal) funds will obviously make it harder,” he said. Two of the proposals--the expanded child-care center and a community garden and food cooperative--arose from public meetings in which residents were asked how they would like the money spent in their neighborhoods, Alarcon said.

Schwada reported from Los Angeles, Richter from Washington. Times staff writers Hugo Martin and Leslie Berger also contributed to this story.