Empowering Los Angeles With a Consolation Prize : Federal aid: The $125 million for economic development must go directly to job-needy neighborhoods.

We seem to live from disaster to disaster in Los Angeles, but one thing that is about to happen may have a greater impact on the city--perhaps all cities--than the riots, the earthquake, even the rain. Los Angeles failed to win a federal empowerment-zone designation, but we did get a consolation prize from the Clinton Administration of $125 million for economic development.

That money may turn out to be a greater opportunity than the original proposal: It is more secure because we get it all now, and the new Congress--less friendly to the cities--may cut the second year of the original program, or it may eliminate the 10-year tax credits somewhere down the line.

The challenge is there, and many believe it is critical that we meet it. This may be the last best chance to prove that something can be done to help the cities, because there is not going to be much more money coming from Washington for a long time. If money can make a difference, this is our shot at it.

The plans for the $125 million are to create a community development bank, leveraging that to get an additional $300 million from the federal government, and--according to George Mihlsten, a lawyer-lobbyist heading the planning process--leveraging that to an additional $1 billion or $2 billion total from the private sector. All of it to go to small- and medium-sized business ventures in the inner city. All of it to go to people who do not have the ability to raise funding from traditional sources.

Community development banks are not new, but they are based on different criteria and can operate without the restraints imposed by state law or the Small Business Administration. Loans are made to people who stand a reasonable chance of paying them back, but they can be based on character and other criteria that are more like the kind of self-funding seen in many Asian communities--funding that enabled Korean immigrants, for instance, to establish themselves so quickly in small businesses soon after their arrival.

The solution, of course, is not just money. It will require the expertise and support of many individuals and organizations beyond bankers and financiers: Linda Griego, president of Rebuild L.A., of course, but also people like Pat Wong, who heads the business conversion project at the Korean Youth and Community Center; the Urban League, the Central City Assn.; the California Community Foundation, and all the other philanthropic foundations in the city--a host of institutions from the universities to the neighborhood--groups that the empowerment zone people didn’t contact until the eleventh hour, if at all.

What we need most seriously is the political skill to encourage these efforts. The mayor has the ability, but he has to be directly involved to make it work.

We need to make sure that the funds are targeted directly for jobs and job creation. According to those in Washington who back the project, that means not spending it on support services that are indirectly tied to jobs--child care, drug-treatment programs or capital expenditures for nonprofit organizations. Good and important projects--but not with this money.

We have the ability to make this work. We have the know-how, the sense of purpose and now we have the beginning of the funding. What we missed in the last round was knowing how to gain access to our own resources and knowing specifically what we wanted to do.

It is going to be hard, but we have learned a lot in the last few years about where our strengths lie and what our weaknesses are, especially for this kind of a venture. It is hard to bring the bits and pieces of the political structure together. It is hard to identify leaders and find cohesion among them in neighborhoods that are constantly changing. Big industries are not going to settle here--or anywhere, perhaps--but Los Angeles’ economic vitality is based on small businesses, and that is just exactly the population we can help.

The biggest hurdle is bringing the different sectors together in a way that fits: small-business expertise, not the Fortune 500 crowd; the nonprofit institutions and even those outside the city who have shown an interest, like Muriel Siebert, president of Muriel Siebert & Co., New York, who just announced another round of low-fee loans to women entrepreneurs (bringing to 37 the number of loans she has made to victims of the riot and earthquake who do not qualify for normal funding).

Henry Cisneros, secretary of housing and urban development, who spearheaded this program, will be in Los Angeles this week. It is a good opportunity to mend fences, to strengthen our ties to those we are going to need in the future and to embark together on what may turn out to be the real turning around of Los Angeles’ economy.