Santa Ana Hopes U.S. Funds Can Help Revive Poor Areas

You’d think $100 million in free federal money would solve a host of problems for any economically battered area.

Santa Ana officials certainly hope so as they set out to revitalize three of the city’s most beleaguered neighborhoods through a federal urban empowerment zone--one of 15 awarded nationwide this year. Over the next decade, they plan to combine the federal funds with $2.5 billion in local private and public programs to turn the neighborhoods around.

But if the experiences of other empowerment zones are any indication, getting the money is no guarantee of success. In city after city, the programs have been dogged by mismanagement, misinformation, infighting and ineffectiveness that have cast shadows over touted victories.

And just as Santa Ana gets its zone underway, public policy experts are debating whether such programs can ever spark the tidal changes necessary to solve one of the nation’s most stubborn problems: Resurrecting urban cores in an era of suburban sprawl.

“One hundred million dollars sounds like a lot of money, but in the scheme of what money flows in and out of neighborhoods, it’s not that much . . . when we’re talking billions of dollars a year of disinvestment over 50 years,” said Daniel Immergluck, vice president of The Woodstock Institute, a nonprofit research and policy analysis organization that studied job creation in Chicago’s empowerment zone.

Patterned after urban revitalization programs in England in the 1960s and enacted in the United States after the 1992 Los Angeles riots, empowerment zones are supposed to revive downtrodden neighborhoods using tax incentives, grants and low-interest loans to entice business investment. Although the program calls for $10 million a year over 10 years, Congress approved only $3 million this year for each of the current group of cities. The Clinton administration is expected to ask for the remaining $97 million later this year.

The programs have had some successes, particularly in Detroit and Baltimore. Zone funding and tax breaks in Detroit led to the development of several medium-sized businesses within the sprawling 18-square-mile zone. And zone funds have helped improve everything from day-care service to low-income housing, although critics wonder how much of the change would have happened anyway, given the resurgence of Detroit’s auto industry.

Nationwide, though, much of the work has stumbled at the gate.

Perhaps most inauspicious was the empowerment zone that wasn’t.

Although the zones were created as a response to the 1992 Los Angeles riots, the city was stunned and embarrassed when it failed in its initial bid to win the federal designation because of a poorly prepared proposal.

Almost as a consolation prize, the federal government pledged $115 million in grants and $315 million in loan guarantees for a community bank that would lend money to businesses and encourage them to employ poor Los Angeles residents.

The areas targeted for loans include South-Central Los Angeles, Watts, East Los Angeles, Pacoima and downtown Los Angeles. Last year, with much fanfare and a visit from Vice President Al Gore, the city finally was awarded official empowerment status.

In addition to money already awarded to the Community Development Bank, Los Angeles businesses can receive up to $600 million annually for 10 years in federal tax credits for hiring employees who live and work inside the zone. Those tax benefits will kick in Jan. 1.

But the outcome of this federal largess remains to be seen. In Pacoima, officials could not identify a single business that has moved to the area--or plans to because of the incentives.

And the Community Development Bank is suffering its own woes. Recently its largest borrower, a South Los Angeles dairy with $18 million in bank commitments, announced it would close. Earlier this year, a review by the Los Angeles Times found that more than a third of the bank’s major borrowers had gone out of business or fallen in arrears on their loans, while investments had created only 132 jobs for poor residents.

Earlier this year, FBI agents in Philadelphia opened an investigation into the empowerment zone after reports that a local agency approved $2 million in loans for projects that involved two board members. And an audit last year by the U.S. Office of the Inspector General found a pattern of problems in Atlanta, Chicago and Philadelphia, as well as Detroit--the only empowerment zones audited.

The root difficulty: lack of oversight both by local officials and by the Department of Housing and Urban Development, the federal agency entrusted to administer and monitor the money.

Of particular concern was HUD’s reluctance to correct problems within those four programs dating back to 1997 and its inability to discover that cities were sometimes overstating their accomplishments, said Catherine Kuhl-Inclan, assistant inspector general for audits.

HUD officials deny they have lost oversight for the empowerment zones, but acknowledge they need to more closely examine reports from local zone officials.

The problems have led to repercussions in some cities. In Atlanta, the mayor fired 18 of the initial 22 staff members two years ago and replaced the executive director, reinventing the program when it should have been hitting its stride.

Atlanta’s empowerment zone application called for using the $100 million in federal money to augment $700 million in local private and public funds to revitalize neighborhoods through a mix of housing, social intervention and economic development programs.

But the zone’s administrative staff focused primarily on big-ticket economic development efforts, infuriating neighborhood leaders who felt administrators were abandoning the zone’s premise.

Little work has been done within the zone’s 9.29 square miles, and the initial plans to create a series of “urban villages” remain unrealized.

Santa Ana’s zone, at four square miles, is among the smallest, yet the amount of local investment--$2.5 billion--dwarfs that in most other zones. And while living conditions aren’t as dire as in the urban hearts of Detroit, Atlanta and elsewhere, the need seems obvious.

“Principally, we need to ensure that our children are safe, so they can go to and from school free without any problems and feel safe here in our neighborhood,” said Alfonso Guerrero, 37, a resident of Minnie Street, one of the poorest areas in Orange County.

Santa Ana’s empowerment zone addresses many of those problems, drawing together and expanding existing city-run programs that mix adult education, youth tutoring, after-school sports and a reading-readiness program for preschoolers to reduce dropout rates and improve family stability.

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Times staff writer David Reyes contributed to this story.