Creating Jobs, Helping Entrepreneurs and Building Communities The Clinton/Gore Community Development Plan Governor Bill Clinton today announced a national community development plan that aims to create jobs, provide new capital for small businesses and empower communities. The plan will aid communities and small businesses across the country, particularly those inner cities and rural areas hardest hit by the Reagan-Bush economic failures. The plan -- already paid for in Governor Clinton's economic strategy, Putting People First -- will: * Create a national network of 100 community development banks and 1,000 micro-enterprise programs to provide capital and technical assistance to individuals who want to start or expand small businesses and help revitalize communities. * Establish Individual Development Accounts to help low-income Americans save, and create new private sector opportunities. * Create 75-125 comprehensive enterprise zones which combine capital incentives and new Community Development Block Grants to help revive economically disadvantaged areas. * Rewrite the Community Reinvestment Act to emphasize performance over paperwork and stop the practice of "redlining" in economically disadvantaged communities. "Our plan will give everybody -- business people, home owners and community groups -- the capital and tools they need to create new private sector opportunities," Governor Clinton said. "Neither handouts nor empty promises will work. Our communities need new solutions that bypass the old orthodoxies, liberal and conservative." "This is what putting people first is all about," he added. "We want to put capital in the hands of Americans who have the vision, energy and innovation to put it to work." Clinton noted that in the 1980s the Reagan and Bush Administrations believed that putting more capital in the hands of the wealthy few would create economic growth. Those policies failed, he said. "Since George Bush took office, we haven't added a single private sector job to the American economy," he said. "I've got a new vision of economic growth that will create jobs by putting capital in the hands of the people who have been denied it for too long." The Clinton plan for community development will invest $1.5 billion in a series of initiatives to create jobs, spur small business development and make capital more available. It is part of a broader program, outlined in Putting People First, that will revive communities by fighting crime, supporting low-income housing, improving schools and ending welfare as we know it. COMMUNITY DEVELOPMENT BANKS AND MICRO- ENTERPRISE PROGRAMS Small businesses are the key to vital communities -- creating jobs, stimulating growth, and creating hope. But the Bush years have been a disaster for small businesses. In the first three years of the Bush Administration, the number of new business incorporations declined for the first time since 1945; since 1988 bankruptcies have outnumbered new jobs by a 3-1 margin. The lack of credit is the central problem faced by small businesses. To ease the credit crunch, Bill Clinton will establish a national network of community development banks and micro-enterprise programs. Community Development Banks There are several models for community development banks. Those currently operating are generally holding companies consisting of several subsidiaries, including a federal depository institution providing traditional banking services, a for-profit real estate development company, an SBA-approved small business development investment company, and one or more non-profits that provide development services such as business counseling or job training. Community development banks attract investment from public and private sources, which they then use for several purposes: To lend to new, expanding, or troubled small businesses To provide financial, marketing, and technical assistance. To lend for the community's housing and commercial space needs. The Clinton/Gore Plan Create a national network of 100 Community Development Banks On a competitive basis, distribute enough grants to adequately capitalize 100 community development banks. Each bank will be required to provide a match from funds raised by the bank through charitable donations or equity investments. Provide technical assistance to help in setting up the banks through intensive business counseling, marketing, and training. Allow commercial banks to fulfill a small portion of their Community Reinvestment Act requirements by depositing money directly in community development banks. Explore other ways to capitalize community development banks, including regulatory, secondary market, and other incentives. Microenterprise programs Microenterprises are "small" small businesses -- five or fewer employees, with owners that have incomes no higher than twice the poverty level. Microenterprise loans are not profitable for commercial banks because they are small and don't net big gains. But they are profitable for people especially for people on welfare who are trying to fulfill the American Dream and start a business. The Clinton/Gore Plan Develop 1000 Microenterprise Programs Set up competitive grants for states to develop community-based microenterprise systems every year. Competitors will have to show that they can distribute credit, provide technical assistance, and set up peer groups effectively. Make sure that self-employment training is offered in federal job training programs like Aid to Families with Dependent Children-JOBS and the Job Training Partnership Act. INDIVIDUAL DEVELOPMENT ACCOUNTS The welfare system discourages savings and fosters dependence. Last week Bill Clinton announced his plan to end welfare as we know it. This week he extends that plan to encourage savings -- the first necessary step to economic self-sufficiency. The federal government spends billions to provide middle- and upper- income Americans with incentives to save -- through home mortgage interest deductions and tax deductions for pension accounts, for example. Individual Development Accounts will provide the same incentives to low-income Americans. Individual Development Accounts encourage welfare recipients to save fora first-home purchase, post-secondary education, business development, or retirement. They also encourage the values of thrift and hard-work which the welfare system has too long undermined. The Clinton/Gore Plan Establish Individual Development Accounts Set up Individual Development Accounts (IDAs) for low-income Americans. IDAs are optional accounts, held in banks for specific purposes: first-home purchases; post-secondary education; business development; and retirement. There will be penalties for withdrawing IDA money for non-designated purposes. Provide federal matching funds for limited amounts of money saved in IDAs. The matching ratio will vary depending on the individual's income. The poorest people will have an incentive to save small amounts to achieve large matches. Through competitive bidding, establish a five-year demonstration project for IDAs to begin. If the IDAs show immediate success in increasing self-sufficiency, commit much further resources to them. Raise the asset limit for AFDC recipients from $1,000 to $10,000. People should not be penalized for trying to improve their lives. COMPREHENSIVE ENTERPRISE ZONES Enterprise zones provide tax incentives and regulatory relief to businesses located in distressed communities. They create jobs and stimulate growth in neighborhoods which would not otherwise receive it. However, as currently conceived, enterprise zones do not generate real growth in distressed communities. Unless they are coordinated with other improvements -- in infrastructure, in work force skills, and in public safety -- their effects are limited. In fact, a 1988 study by the GAO indicated that these additional factors are at least as important as tax incentives when businesses decide where to locate. The Bush approach is also faulty because it allows businesses to earn profits without creating any jobs for local residents. Properly executed, enterprise zones will generate local jobs and empower communities to take control of their future. The Clinton/Gore Plan Create 75 to 125 urban and rural enterprise zones to attract businesses to distressed communities across the country. Require businesses to make jobs for local residents a top priority if they are to receive the benefits of enterprise zones. Coordinate infrastructure improvements, job training, and police protection with enterprise zones. Bill Clinton will expand Community Development Block Grants and aid to local law enforcement and target additional funding to enterprise zones. This comprehensive approach will increase incentives for businesses to locate in distressed areas. Permanently extend the Low Income Housing Tax Credit and expand the targeted jobs tax credit to create affordable housing and create jobs across the country. Encourage the growth of Community Development Corporations inside and outside enterprise zones. CDCs combine indigenous leadership with technical know-how and private sector assistance, and have created 90,000 jobs and 300,000 housing units to date. CREATE A MORE PROGRESSIVE COMMUNITY REINVESTMENT ACT Capital is the lifeline of a neighborhood, and banks are the key to capital. The Community Reinvestment Act (CRA) was enacted in 1979 to prevent "redlining" -- banks' practice of refusing to lend in minority and/or low- income parts of the communities they serve. Despite some success, CRA has failed to fulfill its mission. Enforcement remains inadequate, regulators fail to provide banks with adequate assistance in developing solid community lending programs, and the CRA paper trail burdens banks and still fails to promote adequate community lending. The Clinton/Gore Plan Support a more progressive Community Reinvestment Act. Emphasize performance over paperwork. The current system puts a premium on banks' ability to produce a glossy brochure. A revised CRA will require banks to show real evidence of actual lending to home buyers and entrepreneurs, consistent with safe and sound lending practices, but reduce needless form-filing. Hire and train regulators who are skilled in enforcing CRA. Allow banks to fulfill a small portion of their CRA requirements by depositing money directly in community development banks. In partly fulfilling their CRA requirements, conventional banks will also help develop and sustain innovative lending institutions which are acutely attuned to neighborhood needs. Instruct financial regulators to assist banks in developing sound community lending programs. For too long, regulators have condoned poor lending efforts but provided no direction for improvement. Regulators should act as clearinghouses for information and catalysts for community development. Utilize other means of ensuring that banks meet their affirmative obligations to the local communities in which they are chartered. CUTTING AID TO COMMUNITIES THE BUSH RECORD STATE & LOCAL AID CUT DURING 1980'S Between 1980 and 1991, aid to state and local governments was cut by 26% (measured as a percentage of total budget outlays). Measured as a percentage of GDP, aid to state and local governments has declined by 32% under Reagan-Bush. [House Budget Committee] Bush's FY 1993 budget would cut funds for major urban aid programs by $929 million (3%) and $3.1 billion (11%) below the inflationary baseline. [House Budget Committee] Then Commerce Secretary Robert Mosbacher rejected a revision to the 1990 census to compensate for 5 million uncounted Americans, mostly minority urban residents. The decision affects Congressional representation and $116 billion in federal spending. [Roll Call, 1/13/92; NYT, 1/11/92] LOSING THE FIGHT AGAINST CRIME The violent crime rate set a new all-time high last year and continued a 4 year climb. Violent crime has now risen 33% under the Republicans and 25.4% under Bush alone. [FBI Uniform Crime Index; WP, 4/27/92] Bush proposed cutting law enforcement aid to localities by $100 million (20%) in his FY 1992 budget and by $117 million (16.5%) in his FY 1993 budget. [NYT, 3/14/91; Senate Judiciary Committee] NEGLECTED URBAN POLICY After the L.A. Riots, a frustrated Kemp told Newsweek, "Everything I say goes down a black hole." Kemp also wrote the White House in July, 1990 about Bush's failure to adopt an effective plan for America's cities and accused the Administration of "bureaucratizing the effort and sending it to oblivion." [Newsweek, 6/8/92; NYT, 5/7/92] "[I] cannot certify to the American people that we have tried the new ideas that might make urban America better, might give better opportunity for everybody." [NYT, 5/7/92] WEAKENING COMMUNITIES A 1991 Federal Reserve study showed that even at equal income levels, in 1990 blacks were twice as likely as whites to be rejected for home mortgage loans. Today the Wall Street Journal reports that "Banks Don't Expect To Find Rise in Minority Loans" for 1991. [WSJ, 9/16/92] Bush vetoed the Tax Fairness and Economic Growth Acceleration Act --including its enterprise zone provisions-- because it raised taxes on the richest 1% of Americans. [LAT, 5/13/92] Bush's Budget Director Darman dropped enterprise zones from his economic recovery package to make room for a repeal of the luxury tax on yachts. [Business Week, 5/25/92] His Credit Availability and Regulatory Act would exempt banks that receive high ratings from further requirements -- in spite of grade inflation. [Senate Banking Committee] SMALL BUSINESSES ARE SUFFERING In 1991, 944,000 individuals and businesses filed for bankruptcy -- the most since the current bankruptcy code took effect in 1979. [Administrative Office of the U.S. Courts] During the first three years of the Bush Administration, the number of new business incorporations declined -- 3.3 percent annually -- for the first time since 1945. [Conference Board] INNER CITIES IN DECLINE The poverty rate increased from 13.0 percent in 1988 to 14.2 percent in 1991 -- representing 4 million more people below the poverty line. [U.S. Census Bureau] One-third of all homeless are families and the number of homeless in increasing by 32% yearly. [U.S. Conference of Mayors, 1991] More than 550,000 students in grades 8-12 drop out of school each year leaving over 4 million youths age 16-24 not in school without a diploma. More than 20% of American students drop out of high school -- almost 50% in many of our inner cities. [CRS, 3/14/90]