FROM THE OFFICE OF PUBLIC AFFAIRS

I appreciate the opportunity to speak with you today. I would like to thank Reverend Jackson for this invitation and applaud him for his leadership on the issue of fostering opportunity in America's economically distressed areas. I know Reverend Jackson has been enormously focused on this project. Since I spoke at the first Wall Street project last year, he has held meetings around the country with experts in finance, investors, bankers, and community leaders to find practical ways to attract more capital to low income communities.

We meet at a time of tremendous strength in the U.S. economy. December marked the 93rd month of the current expansion, making it the longest peacetime expansion in history. Inflation is low. The unemployment rate is the lowest in a generation and more Americans are working than ever before with 131 million Americans working in December. The economy has created more than 17 million net new jobs since January 1993.

And incomes are rising -- at all income levels. Economic expansion has not always helped those at the low end of the pay scale. Low-wage workers were left behind in the expansion of the 1980; in fact, their income actually fell during the decade and a half before President Clinton took office, and income inequality grew. But during the current expansion that trend may have started to reverse. Families in all income groups have seen gains in income since 1993 and families in the bottom fifth of the income scale have experienced the largest increases in income in recent years.

Moreover, this strong economy has greatly benefitted America's cities. Unemployment in the fifty largest cities is down to 5.1 percent from 8.4 percent in 1992. And crime is down substantially.

But, while these developments are important, the reality remains that there is an enormous amount to do to promote growth and opportunity in America's urban and rural economically distressed areas, places fraught with poverty and economic duress. I have long held the belief -- and more importantly, President Clinton deeply believes -- that this country will fall far short of its full economic potential for all Americans, unless our least well off have a real opportunity to join the economic mainstream. Providing this opportunity is not simply a social issue or a moral issue, but an economic issue of great personal importance to each of us, no matter what our income may be or where we may reside. Just think of the difference it would make in terms of higher productivity and reduced social costs if we can bring the residents of these areas into the economic mainstream.

From the beginning of his Administration, President Clinton has made promoting growth in distressed areas a high priority. One of the most important steps we can take for our inner cities and other distressed areas is to continue to pursue the economic strategy of fiscal discipline, opening markets and investing in people that has proved so successful for our economy as a whole. The foundation for a successful strategy of promoting growth in distressed areas is strong economic growth, which in turn creates a tighter labor market, as we have now, and thereby increases the availability of jobs and tends to increase incomes at all levels. Too often, those who believe in the importance of fostering opportunity in distressed areas underemphasize the importance of a strong national economy in that pursuit, while those who do focus on a strong economy too often neglect all else that is require for fostering growth in distressed areas.

Beyond economic growth, this Administration has focused on three key areas -- three areas that are mutually reinforcing -- to promote opportunity and growth in the inner cities and other distressed areas: first, investing in people through education and training so they will have the tools to succeed in the modern economy; second, improving public safety, by putting 100,000 new police on the streets, enacting tougher gun laws and other measures, in part because safe communities are an obvious prerequisite to attracting business; and third -- an area we are intensely focused on at Treasury -- expanding access to capital. Let me now focus on that third area for a few moments.

Despite the fact that financial markets in the United States are today the most innovative, the broadest and deepest in the world, we still have a severe shortage of financial institutions and credit to create housing and jobs in our inner cities and distressed rural communities. Treasury has been bringing its broad expertise in capital markets to address these problems.

As a reflection of the importance we place on these issues, we have established, for the first time in the history of the Treasury Department, an office specializing in these issues, as well as on tax incentives for development in distressed areas, the Office of Community Development Policy.

Through that office which has accomplished a lot in its relatively brief life we are focusing on three fundamental challenges going forward.

First, we must protect the Community Reinvestment Act, which expands access to capital from mainstream financial institutions. We have greatly improved CRA by streamlining its regulations so that they focus on performance, not paperwork. CRA has been an enormous success. Over the last six years, according to non-profit community groups, banks and thrifts have made commitments to provide over $1 trillion in capital to low income communities. Home Mortgage Disclosure Act data shows that since 1993, home loans to African-Americans have increased by 58 percent, to Hispanics by 62 percent, to Asians by 29 percent and to low and moderate income borrowers by 38 percent, all well above the overall market. CRA is working. We believe strongly that it is important to maintain CRA and we are opposed to any efforts to weaken CRA.

Second, we must strengthen the Community Development Financial Institutions Fund, or CDFI Fund. We will ask Congress this year for $125 million for the CDFI Fund in the new budget to give this critical program the necessary resources to continue its success. Over the last several years we have implemented President Clinton's vision of a CDFI fund, which gives funding to small, community development organizations. Through their local knowledge and expertise, CDFIs are expanding the reach of the private sector marketplace, helping to demonstrate how to make effective loans and investments in low income communities, and drawing in mainstream institutions in partnership. We are also encouraging more banks to get involved through Bank Enterprise Awards, which are awarded to mainstream financial institutions that are active in distressed areas.

At the same time, under the Vice President's leadership, we have started BusinessLinc to connect local businesses with larger businesses, because access to capital is most effective when married to access to business expertise and technical assistance. Those of you in the business community can be of enormous assistance to smaller firms, particularly firms in the inner cities, that may be cut off from mainstream business networks. At the same time, experience suggests that these BusinessLinc strategies are good for the larger firms' bottom line as well. The Administration is seeking $3 million in SBA's budget to move this initiative forward and would like to work with you to expand BusinessLinc strategies across the country.

Third, we must build on our efforts to encourage economic growth in low income communities through tax incentives for business investment. Over the last several years, we have enacted a number of incentives, from the so-called brownfields tax incentive to spur the clean up and redevelopment of thousands of abandoned, environmentally contaminated sites in under-served communities to two rounds of Empowerment Zones. We made the low income housing tax credit permanent, and we are now proposing to expand it by 40 percent.

Building on these efforts, the President announced today a proposal for a new tax incentive to spur the private sector to make equity investments to help grow businesses in our nation's cities and rural communities. This New Markets Tax Credit could help foster $6 billion in new equity investment in low-income communities over the next five years. A community development investment fund, if selected, would be able to offer potential investors a 6 percent tax credit for five years, cutting the investors' cost of capital by 25 percent.

To provide flexibility and attract a range of investors, the tax incentive would be available for investments in a broad array of community development investment vehicles, from CDFIs and rural venture capital funds, to Community Development Corporations that set up partnerships to attract new retailers in low income communities. You heard this morning that SBA is creating two new programs: New Market Entrepreneur Funds and America's Private Investment Companies to invest in businesses in these communities. Investors in these funds will also be able to obtain the tax credit.

I remember from my time on Wall Street that there really had been no practical means, even for professional investors, to invest in inner cities even if they wished to do so. Hopefully, the creation of the CDFI Fund and other vehicles, and this new tax credit, will interact to make investment opportunity more readily available and to provide incentive for such investment. And that is not only good for the inner cities and rural areas, it is a good for investors and for the country. In the past few years, in Los Angeles, Boston, Chicago, and the Bronx, I have seen firsthand the positive effects these community development institutions can have in economically rejuvenating distressed neighborhoods.

This past year has been a year of significant crisis in the global economy, a crisis that has affected hundreds of millions of people around the globe, in nearly every country, including our own. While we must be and have been intensely focused on this crisis, because our own economic well being is integrally related to the well being of the global economy, we must also remain focused on being strong at home, and making sure the residents of our distressed areas have a real opportunity to enter the economic mainstream.

The current strength of the U.S. economy provides an enormous opportunity to make progress in promoting growth in our nation's communities. The President's announcements today build on successful programs such as CRA, the CDFI fund and a host of tax initiatives in a strong effort to make real progress in bringing all Americans into the economic mainstream. And we at Treasury look forward to continuing to work with you on a bipartisan basis on these critical issues as we move ahead. Thank you very much.