L.A. Officials Are Dismayed by Renewal Plan Delay

Snubbed three years ago when federal officials handed out tax breaks to revitalize inner cities, Los Angeles rejoiced when it appeared that the new budget accord would deliver such aid to its poorest neighborhoods. But closer reading of the bill has revealed a longer wait than anticipated--the program will not kick in until 2000.

The delay means the tax incentives the city planned to use to help create jobs will sit frozen even as some of Los Angeles’s urban poor are soon forced off the welfare rolls under federal reforms.

It also should make the already difficult task of coaxing businesses into economically risky parts of the core city all the more difficult, once entrepreneurs learn the payoff they expected is more than two years away.

“How do you have a big coming-out party and then say, ‘By the way, the guts of this thing is being put off to the year 2000,’ ” complained a city official who frequently deals with Washington. “How are we supposed to sell that?”

City officials had hoped that the tax breaks--provided through the creation of so-called “empowerment zones”--could take effect as early as next year. By some estimates, the recently discovered delay in implementing the financial incentives translates to about $100 million in lost benefits for Los Angeles-area businesses.

The proposed empowerment zone for Los Angeles is a 20-square-mile patchwork that takes in South-Central, Watts, East Los Angeles and Pacoima. The median poverty level for the zone is 35%, but goes as high as 50% in some areas.

City leaders and California lawmakers are now scrambling to amend parts of the budget accord so Los Angeles can be designated as an empowerment zone and take advantage of the attending tax benefits much more quickly.

In a letter they are preparing to send the Senate Finance Committee chairman, Sens. Dianne Feinstein and Barbara Boxer, both California Democrats, argue that the delay will “undermine the city’s outreach effort” in its poorest and most blighted neighborhoods.

“The Los Angeles empowerment zone has long been recognized as encompassing some of the nation’s most distressed communities. The zone, hard-hit by poverty and unemployment, has an immediate need for tax incentives. . . ,” says the letter to Sen. William Roth (R-Del.), whose committee handles the legislation that funds the new zones.

Empowerment zones have been a touchy subject among Los Angeles officials since their creation. The zones were set up with Los Angeles in mind after the city’s devastating 1992 riots.

But when six cities were designated to take advantage of the tax breaks that are the heart of the program, Los Angeles was not among them. Some federal officials said it was because the city’s grant application was found wanting.

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To quiet the political fury, Los Angeles was given a consolation prize in the form of a federally funded Community Development Bank, which provides loans and other financial aid to blighted areas. But this program has never been considered far-reaching enough to attack the entrenched poverty found in the neighborhoods that comprise Los Angeles’ empowerment zone.

Under pressure from Los Angeles Mayor Richard Riordan, President Clinton sought without success in three consecutive budgets the authority to create more empowerment zones. Then this summer, the authority to create more zones was passed as part of the massive agreement that aims to balance the federal budget by 2002.

Riordan was in Russia last month when Vice President Al Gore called to give him the good news that more zones would be set up. Although it was not certain that Los Angeles would be picked, it was common knowledge that the nation’s second-largest city was first in line.

Then the other shoe dropped, as myriad details in the massive legislation were scrutinized. City officials initially had focused on the fact that the zones could be designated within six months of the measure’s signing by Clinton in early August. But upon examining the fine print, they learned that the actual benefits were delayed until 2000.

The postponement was no error, but a function of budgeteers trying to stretch limited funds by holding off on the biggest tax credits.

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“I can’t accept that the tax credits will start in two years,” said Rocky Delgadillo, deputy mayor for economic development. “I could accept maybe 12 months, because it will take time to get out to people and convince them to expand or to move into the city. People can see 12 months on the horizon. But two years is a problem.”

The tax incentives include credits for hiring zone residents, write-offs for capital investments and tax-exempt bonds that city leaders hope will keep existing businesses in the area and attract new ones.

As part of the effort to accelerate the tax breaks, Riordan plans to meet later this month with Housing and Urban Development Secretary Andrew Cuomo, whose department will pick the new empowerment zones. Members of the state’s House delegation also are circulating letters of their own seeking a revision of the budget bill.

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Still, the city and congressional leaders are in something of a tough spot as they proceed with their lobbying effort. Because Los Angeles has not yet been designated an empowerment zone, officials do not want to be seen as criticizing a gift before it’s even unwrapped.

According to an internal city memo, the city’s legislative strategy is to regard the postponement of the tax breaks as an oversight that can be fixed with a technical amendment when Congress makes other corrections to the tax legislation.