Federal Policies for Economic Development of Cities: The Speaker's Saving America's Cities Working Group
28 Jun 2005 - LISC
Statement of Benson F. Roberts, Senior Vice President for Policy and Program Development
Billions of dollars of private investment each year to revitalize urban (and rural) areas depend on federal policies that are now in flux. Complementary tax incentives, spending programs, and financing requirements have generated successful partnerships with the private sector, cities and states, and nonprofit community developers. Many development projects require a combination of these policy tools. Yet, no single Congressional committee or executive agency oversees the whole constellation of policies. Indeed, unrelated imperatives are separately driving changes affecting various individual policies. As a result, many policies may undergo important changes with little explicit attention to how they will affect the overall system of economic revitalization.
- As part of an effort to cut domestic spending, the Bush Administration has proposed eliminating Community Development Block Grants and 17 other programs and replacing them with a still unspecified new program at the Commerce Department that could change missions and eliminate important tools and resources. The House Appropriations Committee has maintained most of these programs and funding, but consideration of program changes still lies ahead. Proposed changes to Section 8 Housing Choice Vouchers could also undermine the participation of private lenders, investors, and landlords.
- Pending legislation to strengthen the regulation of Fannie Mae and Freddie Mac could help communities by aligning the GSEs' affordable housing goals with CRA and by creating a new Affordable Housing Fund that could generate up to $500 million or more annually - provided that the GSEs' housing mission is also strengthened.
- Congress is planning to consider major tax reforms that a Presidential commission is now preparing to recommend. Tax reform could threaten targeted investment incentives that have been crucial to cities, including the Low Income Housing Tax Credit, New Markets Tax Credits, historic rehabilitation tax credits, and tax-exempt bonds. Alternatively, tax reform could be the vehicle to refine these incentives and enact promising new incentives for home ownership, brownfields remediation, and affordable housing preservation. In 2000, the Speaker, working with Reps. J.C. Watts and Jim Talent and President Clinton, led the enactment of the Community Renewal Act, which comprised several important tax incentives, including New Markets Tax Credits, Renewal Communities, and expansion of the Low Income Housing Tax Credit and private activity bonds. Perhaps it is time to assemble a second Community Renewal package. Note that the last major tax reform bill in 1986 created the Low Income Housing Tax Credit.
- Four executive agencies have been revising rules implementing the Community Reinvestment Act. After a year of apparent fragmentation, three of these agencies - the Federal Reserve Board, Comptroller of the Currency, and the FDIC - have agreed on a compromise proposal for intermediate small banks with assets of $250 million to $1 billion. Unfortunately, the Office of Thrift Supervision has unilaterally issued a final rule that allows thrift institutions of all sizes to forsake responsibilities for investment and services in low-income areas, a policy it never formally proposed for comment.
- Investment of private capital is fundamental to rebuilding urban (and rural) communities. Only private investment can build assets and wealth on a sustainable economic basis. A principal role for the federal government is to stimulate this investment.
- Cities and their neighborhoods must compete successfully for business and residents within regional markets. As cities and neighborhoods grow stronger, they can also contribute more to their regions and the nation as a whole.
- Investors seek communities that can succeed. Communities with practical strategies based on assets, entrepreneurship and expanded choice attract more investments than those based on liabilities, bureaucracy, and protection from market discipline.
- Strong communities are the foundation for individual empowerment. Weak communities discourage individual initiative. Communities that take responsibility for their own revival are more likely to attract outside investors and support strong families and businesses, as well to sustain progress. Federal policy must support capable community institutions.
- The federal government must be a reliable partner to attract the private sector and community partners. Cities did not decline over night; they are reviving based on multiple investments over many years. A sequence of tangible results often begins with rental housing, and extends through homeownership and business development. Private investors and nonprofit community developers are more confident and active today because the federal government has earned their trust as a reliable partner. But this momentum can stall or reverse if the federal partner falters.
- Most effective federal policies are administered locally, and are flexible enough to accommodate various local conditions, priorities and opportunities. Federal policies must not be excessively narrow, rigid, or indifferent to the institutional needs and capacities of private and community partners. Block grants - including allocated tax credits as well as spending programs - must be sufficient in volume to allow efficient systems to develop.
Article Type: Policy Alert