Exclusion From Funds Stuns Local Activists : Empowerment: Officials from social service agencies and economic improvement groups express shock that Los Angeles was not selected for federal grant and tax-incentive program.

The news from Washington left stunned neighborhood activists in Los Angeles using words like tragic, shocked and bitter.

This reaction followed the rejection last week of Los Angeles’ application to become one of six urban zones designated to receive a special $100-million federal grant and tax breaks worth hundreds of millions of dollars. For many local activists, the rejection was unbelievable in light of the 1992 riots and the earthquake last January.

“I’m crying the blues, man,” said Frank Villalobos, president of Barrio Planners Inc. in East Los Angeles, one of many community groups that pushed for a zone. “That’s a real slap in the face.”

Many activists remained upset even after the Clinton Administration announced that a consolation package could provide about $350 million for economic development in Los Angeles. That secondary package does not include lucrative wage tax credits for businesses or the $100 million for social services that are part of the federal government’s empowerment zone program.

C. David Henry, a consultant and former board member for the Dunbar Economic Development Corp. in South-Central, called the city’s exclusion from the main empowerment zone program tragic.

“Los Angeles was your prototype,” he said. “I was boasting and bragging back in September that Los Angeles was going to get it. It is tragic.”

A joint application by city and county officials called for a zone that would have included neighborhoods in South-Central, the Eastside and Pacoima.

Under federal guidelines, the city would have been able to spend $100 million for programs ranging from child care to job training. In addition, business incentives would have included tax breaks of as much as 20% on the wages of workers living in the zone, and owners could have claimed purchased machinery as a tax loss immediately rather than having to wait several years.

The program was supposed to lure private employers to poor neighborhoods.

John F. Whitney, co-owner of Genes Plating in East Los Angeles, said the federal tax incentives also would have helped businesses like his grow by allowing them to keep more profits. The chrome-plating business has about 150 employees, and the majority live in the neighborhood, he said.

“It’s awfully darn tough to grow a business and then have 40% of your profit taken away through taxes,” Whitney said. “We never count on anything like (a government break), but we had hoped (for one).”

Whitney said less-lucrative local and state incentives remain available in the area, but nothing as significant as the federal zones.

Federal authorities described the proposal from Los Angeles as too vague, instead selecting applications from New York, Chicago, Baltimore, Atlanta, Detroit and the Philadelphia-Camden, N.J., area.

Councilman Mike Hernandez, who headed the city committee that oversaw drafting of the application, said the $350-million pledge by the Clinton Administration may turn out to be as good or better than empowerment zone status. More economic development could be generated quickly with the larger amount of upfront grant money, he said.

Clinton also pledged to ask Congress to extend the wage tax credits to Los Angeles, although congressional approval is far from certain.

Hernandez said he was upset initially but now believes Los Angeles will be able to generate improvements as an empowerment zone runner-up.

“All of California was ignored. The consolation prize is tremendous,” Hernandez said. “We got a good chunk of money.”

However, a consolation prize was not immediately convincing to activists and residents who believed the empowerment zone would be the most significant economic development program in Los Angeles in decades.

“You have the second-largest city in the country, and you’re going to give it a consolation prize? Give me a break,” Villalobos said. “You had the biggest riot. I think everyone in L.A. should be angry. I’m kind of bitter.”

Henry said the federal tax incentive for businesses was a key part of the application. The Central City area, for example, is perfect for developing large industrial parks if a good enough deal is available, he said.

“Now how do you attract industries to this area?” he said.

Some activists said poor communities, especially those neighborhoods with primarily Latino or black residents, were bound to feel slighted by Washington decision makers and by local officials who should have done a better job.

“I’m disappointed we didn’t have that opportunity to make more of a difference in Los Angeles,” said Gladys M. Lewis, executive director of the nonprofit Coalition of Neighborhood Developers. The 61 member organizations of the group focus on developing housing, jobs and improvements citywide. “We still will be working to make a difference in those neighborhoods.”

Henry said the episode is another painful lesson for Los Angeles. Local officials, who were warned more than once that the application was too vague, should have immediately given federal officials all the details they wanted on how the money would be spent rather than taking a chance on blowing what nearly everyone thought was a done deal, he said.

“You’re not just a virtual slam dunk. Don’t take it for granted,” Henry said, admitting again, “I’m surprised, shocked and amazed. I really am.”