Assault on Clinton’s Urban Agenda Belies GOP Rhetoric on Aiding Poor

As they prepare for an eventual legislative assault on affirmative action, congressional Republicans are busily developing lists of alternative ways to increase opportunities for minorities and stabilize troubled neighborhoods.

That exercise might be more persuasive if the Republican Congress were not simultaneously dismantling the Clinton Administration’s most innovative efforts to do just that.

With little public attention, President Clinton has launched an integrated series of programs intended to widen the flow of private investment into poor and working-class urban neighborhoods historically parched for capital and credit. Those initiatives try to jump-start development by alternately encouraging and bludgeoning banks, pension funds and private investors into channeling funds toward small businesses and aspiring homeowners in depressed areas.

In almost all respects, Clinton’s efforts reflect conservative themes: They emphasize self-help, stress the role of the private and not the public sector in creating opportunity, reward work over idleness and bolster community by increasing local ownership.

“In the ‘60s what you had were transfer payments,” says Treasury Secretary Robert E. Rubin. “Now you have programs that are designed to give people an opportunity to function in the free-enterprise system. You would think these programs would have broad bipartisan support.”

In another time, they might. But in today’s political culture of perpetual polarization, almost all of these ideas now find themselves under fire from conservatives in Congress.

Clinton’s urban investment agenda has spiraled out in half a dozen directions. At the center is the empowerment zone program that combines social service grants with tax incentives for employers who invest in depressed communities in six major cities: Atlanta, Baltimore, Chicago, Detroit, New York and Philadelphia. Los Angeles and Cleveland, which lost out in the competition for the main grants, received a different but still substantial package of aid.

Clinton last year also won $500 million in congressional funding to capitalize a nationwide network of community development banks that could ultimately funnel billions of dollars in new credit to low-income neighborhoods. The Administration has invigorated enforcement of the laws barring racial discrimination in lending. And earlier this year, the White House unveiled new regulations both streamlining and stiffening application of the Community Reinvestment Act, a 1977 law that requires banks to make credit available in low-income neighborhoods. In the same spirit, the Labor Department has encouraged pension fund managers to invest more assets in “economically targeted investments,” such as affordable housing and urban redevelopment.

It’s too early to judge most of these efforts, but the evidence from a two-day White House conference last week is that cities are steadily advancing on their empowerment zone plans. Los Angeles, for one, has already incorporated a new community lending institution funded with its federal empowerment grant and expects to begin making business loans in low-income neighborhoods late this year, says Deputy Mayor Mary Leslie.

And early results suggest that the banking industry has heard the Administration’s clear signal on the anti-discrimination laws. Federal figures show that the number of home mortgages granted to blacks, Latinos and low-income borrowers all skyrocketed in 1994. Likewise, Leslie thinks the Administration’s focus on the Community Reinvestment Act helps explain why so many commercial banks in Los Angeles have rushed to commit funds to the city’s new community development bank.

Virtually every element of this agenda is now on the congressional chopping block. Republicans have passed over the empowerment zone plan because the Administration already obligated the funds to the winning cities. But the recently passed rescission bill cut by more than half this year’s funding for community development banks; the House this week is expected to eliminate all future funding for the program. The rescission bill also flattened a $50-million program the Administration had established to build affordable housing with nonprofit organizations inside the empowerment zones.

The House Economic and Educational Opportunities Committee recently voted to bar the Labor Department from nudging pension managers toward economically targeted investments. The House Banking Committee last month voted to eviscerate enforcement of the Community Reinvestment Act by barring regulators from considering a bank’s low-income lending record when deciding on applications for new branches. And a House Banking subcommittee passed legislation prohibiting the Justice Department from initiating any new investigations under fair lending laws. The full committee later rejected that proposal, but the effort still sent a chilling shot across Justice’s bow.

What explains this offensive? Rep. James M. Talent (R-Mo.), a rising second-termer who’s co-chairing a House GOP task force on minority issues, says that compelling banks to lend in poor neighborhoods is wrong because it amounts to “appropriating private money for state ends.”

Stuart Butler, the chief domestic policy thinker at the Heritage Foundation, says Clinton’s agenda to direct investment into the cities constitutes a form of “industrial policy” that assumes “somewhere in Washington they can . . . figure out what resources should be [allocated] where.”

Except at the level of reflexive opposition to government, these objections don’t hold up. Banks receive a lucrative public subsidy in the form of federal deposit insurance; it hardly qualifies as “appropriation” to ask in return that they serve all communities in their orbit. And even conservative versions of empowerment zones--such as the plan Republican Sen. Spencer Abraham of Michigan unveiled last week to cut capital-gains taxes and regulations in depressed areas--attempt to target private resources into specific neighborhoods.

The fact that most banks loathe the community reinvestment and fair lending laws explains the congressional assault on their enforcement more than these ideological arguments. And at least some of the Republican antipathy toward the community development bank program is rooted in the desire to efface Clinton’s signature ideas.

But mostly, this escalating congressional drive against Clinton’s urban agenda shows how lonely the center has become in Washington. No one in the Administration pretends that Clinton’s approach alone is sufficient to reverse the tides of decay, disorganization and disinvestment that have submerged poor neighborhoods. If Republicans wanted to build on Clinton’s foundation, they could easily find common ground--and do some good.

Targeted capital-gains tax reductions and reform of occupational licensing laws that inhibit small business development, as Republicans like Talent advocate, can’t hurt depressed urban areas. But they can’t replace effective enforcement of the Community Redevelopment Act, which has generated $4 billion to $6 billion annually in bank loans for low-income neighborhoods. As Rubin notes, capital-gains reductions wouldn’t help small businesses or aspiring homeowners who need access to dependable credit, not equity investments.

As long as Republicans wage war against Clinton’s various urban investment initiatives, critics will deservedly question the sincerity of the GOP’s mounting rhetorical commitment to the isolated inner-city poor. Andrew Cuomo, an assistant secretary of Housing and Urban Development, says that while Republicans insist they are contesting “the means” of helping the poor, their implacable hostility toward Clinton’s ideas suggests “that they really oppose the end . . . of helping these people and helping these places.”

So far, congressional Republicans seem bent on validating his indictment.

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Borrowers Benefit

As the Clinton Administration stiffened enforcement of fair lending and community reinvestment laws, home mortgage commitments to minority and low-income borrowers soared from 1993 to 1994. The increase, argues Allen Fishbein, general counsel of the Center for Community Change, “was a direct result of increased attention to those laws.”

Percent increase in conventional home mortgages from 1993 to 1994 by race and income of borrowers: White: 15.7% Latino: 42.0% African American: 54.% Low income: 27.0% Moderate income*: 19.1% Total: 17.9% * Low income borrowers include families at 79% or less of the median income in any given metropolitan area. Moderates-income families are from 80% to 99%.

Source: Federal Financial Institutions Examination Council