FROM THE OFFICE OF PUBLIC AFFAIRS

What I would like to do today is to discuss what I think is an absolutely key domestic issue in this country faces, an issue which I think will profoundly affect all of us; and, that is, bringing the residents of the inner cities into the economic mainstream. This is a subject that I've care an enormous amount about for a long time and in my view it is a subject which will take on a special urgency in the next few months, because it is closely related to the debate over welfare reform.

As you well know, the President signed the welfare reform bill this fall, but at the same time said the bill contains serious flaws, but those flaws he will do everything possible to fix. And let me say right now, that conventional wisdom notwithstanding, we do not accept the notion that because of the nature of Congress this bill cannot be fixed. President will fight with every ounce of energy he has, and all of us will fight with him, to try to fix this bill. And if I may add as a practical political fact, that in the give and take of all the things that are going to wind up in Congress, there will be a lot of opportunity, I believe, to try to do things to make this welfare bill a better bill. As you know, the welfare reform bill was not simply a welfare reform bill, it was also a bill that dealt with legal immigrants and it was a bill that dealt with food stamps. And it is in those two areas that the critical problems arose, and it is those two areas that we need to address, redressing this legislation.

Having said that, there is a great deal more that we need to do to make welfare reform really work, other than simply fixing this bill. What we need to do is to put in place the programs that will have the effect of providing jobs for those who move from welfare to work. And that, in turn, is part of a larger issue of economic development in the inner cities, and moving the residents of the inner cities into the economic mainstream. And that in my view, and it is a view I've had for a long time, is a matter of fundamental importance for all of us, no matter what are incomes may be, or where we may live. As some of you know, I worked at a major investment banking firm for 26 years. When I did so I worked on the kinds of things I now deal with as Secretary of the Treasury: taxes, the economy, markets, level of the dollar, Glass-Steagal, international trade, banking and the like. But I also developed the view a long time ago, and it was largely the result of reading a very influential book about fifteen years ago, that until we bring the residents of the inner cities into the economic mainstream, all of us -- no matter where we live or what our incomes may be -- would be powerfully disadvantaged; that we lose tremendously the potential for our economy and in a worsening of our social conditions because of these tremendous problems that have historically not been dealt with in this country. Just think of the enormous difference in costs that are borne by the taxpayers, and think of the enormous differences in productivity, and in the quality of life for all of us, if we can break the cycle of poverty and equip the urban poor to join the economic mainstream.

Being in the White House for two years, and now at Treasury for two years, has given me an extraordinary and rare opportunity to act on these issues, but all of us, no matter where we are or what we are doing, can contribute in a meaningfully way. Our Chief of Staff at the Treasury, for example, tutors an inner city school kid, a trader I know on Wall Street acts as a big brother to two kids, and others help rehabilitate houses, mentor small businesses, volunteer in medical clinics. Ben Nye has led the effort at Treasury to work with two local high schools to bring kids in as interns to the Treasury Department. The possibilities are endless, and if all of us really cared and acted, in my judgement, the aggregate effect could be enormous.

And that is exactly what we need: a true marshaling of national will and effort, and one of the things I have hoped and tried to do is to have some effect on that, that is to say, the unexpected fact of a Secretary of the Treasury discussing the inner cities as a critical aspect of the economic life of this country, I hope will reinforce those who are involved, and maybe spark an interest on the part of some of those who are not involved.

There are programs that work, contrary to some popular conceptions -- federal, state and local. But in an era of tightly constrained budgetary resources, we must choose rigorously and then once we've made our choices, we must have the will to bring these programs to critical mass. There are also very interesting things happening around the country, and some of you know a great deal more

about them then I do, in which local community groups have worked with the government programs to create environments in which businesses are making economic choices to come back into the inner cities. I was in Los Angeles not too long ago and met a woman named Juanita Tate, who was working with a community development corporation, which I think was called Concerned Citizens for South Central L.A. What they have done is they have taken a brownfields site, environmentally contaminated site. They have used a program to get that back into some kind of shape. They set up a selection and training program for inner city residents, and by creating this environment, they have now gotten commitments from developers and manufacturing businesses such that they were going to have an industrial park, and it was fully leased, and all of this was from businesses that have made purely economic decisions to locate in the inner city, instead of going elsewhere. Those are the kinds of programs that we at Treasury are trying for, results we are trying to understand, because if you can figure out how that sort of thing worked, then you can try to replicate it around the country.

To start with however, success with our inner cities requires sustained economic growth that creates jobs and through a high level economic activity, increases standards of living, because of the demand for labor that accompanies a high level of growth. I think too often those focused on the issues of the inner city, issues of the poor do not focus adequately on the imperative of a good economy for their purposes. Conversely, I also think that too often those who are focused on creating a good economy do not adequately recognize all else that is needed to overcome poverty.

Today, America is in the midst of a sustained economic recovery and has the best conditions we have seen in at least 30 years: strong job creation, low unemployment, low interest rates, low inflation. Moreover, even in the central cities, the effect is being felt in terms of falling unemployment, and to some extent, increasing standards of living. Having said al that, it is all too apparent that too many people and too many places in our inner cities are in trouble and are not being reached -- or are being reached far too little -- and that far too many people are still caught up in the cycle of poverty that I mentioned before.

The statistics tell us what we already know. The Committee for Economic Development, a respected business policy group, tells us that one third of the neighborhoods in our 100 largest cities are distressed or in danger. The Organization for Economic Cooperation and Development, the OECD, ranks us number one, at the top, of a list of 16 industrialized nations in income disparity. That same study shows that poor U.S. children are poorer than the children in most other Western industrialized nations. This is not a prescription for a healthy economy or a healthy society for any of us.

These are urgent problems. With the welfare bill now law, we must even more urgently ask and answer these questions: Where will the jobs for the poor come from? How do you produce the economic conditions necessary to create them? How do you equip the poor to be job-ready, so that they have the training and social skills to take the jobs once you have figured out how to make the jobs available?

I tend to think of the requisites for moving forward fall into three categories.

The first, and probably most important, is what could, broadly speaking, be called investment in people. And that includes education and training at all levels, not only skill training but social skill training, Head Start, to adult skill and technical training. It includes decent housing, and it includes health care.

The second category is public safety, and the President has made this a high priority through the Brady Bill, the assault weapons ban and the program to put police back on the streets. Public safety is a precondition to economic activity.

The third is access to private sector capital and other measures to create economic activity in the inner cities. This has received relatively little public attention, but is critical to revitalizing America's distressed cities.

The last two decades have seen enormous innovations in finance and in the financial markets. Ideas that were unknown on Wall Street have now become commonplace. Financial markets in the United States are today the most innovative, the broadest and deepest in the world.

But, having said all that, we still have a severe shortage of financial institutions and a shortage of credit to create housing and jobs in the inner city. Robert Kennedy once said, "To ignore the potential contribution of private enterprise is to fight the war on poverty with a single platoon, while great armies are left to stand aside."

The Treasury Department has been deeply and energetically involved in bringing its broad-based experience in capital markets and financial services to bear on the inner city, and we have pursued action, not rhetoric, on an eight point program which I'd like to very briefly discuss with you.

Step one was to reform and thereby make more effective the Community Reinvestment Act, which encourages banks to provide capital throughout the community to creditworthy borrowers. After having reformed this program, we then had to fight off a serious congressional effort to eviscerate or undermine the CRA.

The second step was to make the Low Income Housing Tax Credit permanent. And then to defend that credit against congressional efforts to eliminate it.

The third step is to follow through on President Clinton's call in 1992 for a nationwide network of community development banks. We have now put in place a community development bank program. We have begun the first grants to institutions around the country. I think it is an enormously promising program. We are fighting to increase the funding, and last year, we had to stave off a congressional effort to defund the community development bank program.

The fourth is an idea we borrowed from abroad. The first lady came back with this idea when she traveled to Asia and that is expand micro-enterprise loans. Those are very small loans to people who want to set up very small private businesses in the inner cities. We think it is a very promising idea and we are promoting it through our community development bank program.

The fifth step is a proposed new tax incentive to clean up abandoned industrial properties in economically distressed areas -- so called brownfields tax incentives. When we've ask mayors, "What would you most like us to do?" this has tended to be the number one item on their lists, to provide the tax incentives to put environmentally contaminated areas in the inner cities back into productive use. We have proposed a $2 billion dollar program. We estimate that would give us $10 billion in private leverage, and that we can resurrect 30,000 brownfields sites around the country.

Sixth, we've introduced legislation for 100 new Empowerment Zones and Enterprise Communities. Let me add one comment on that program, if I may. When we started out on that program, I discussed it with the Vice-President. I said, "I wonder how much good this is really going to do." He said, "In addition to all else, one of the things that you will see it do, is you will see it draw together the various components of these communities as they apply for these grants. And it will have enormous effect, even on the communities that lose." I was skeptical. He turned out to be right, and that has been one of the great by-products of this program.

Seventh, something that I have personally gotten myself quite involved in, is to try to increase the involvement of the private sector in mentoring private business. It is all well and good to have access to capital, all well and good to try to better enable the residents of the inner cities, or those who want to come into the inner cities to do business to set up small businesses, although we all know the failure rate of small businesses is fairly high under the best of circumstances, and these are not necessarily the best of circumstances. Therefore, it seemed to us, that what we should do is to encourage business to provide on a pro-bono basis mentoring for these small businesses. There is a lot of that going on around the country, and we want there to be more going on around the country.

Number eight is still very much a work in progress. I'm not sure that this is something we can figure out how to do. But we are making a joint Treasury and Commerce effort to see if we can create secondary markets for the loans to the inner cities that are on the books of public and private institutions. For if we can do that, they we can enable these institutions to sell those loans, receive cash back, and take that cash and lend it once again into the inner cities. In other words, we can recycle the capital that is available for inner cities, and by doing so substantially increase the available capital for inner cities. Intellectually and practically this is a very tough challenge. We have not yet figured it out, but I hope that with the fullness of time, we will get an effective program in place.

Most of these programs have been under attack by some in Congress, as I mentioned a moment ago, including efforts to eviscerate CRA and to eliminate the low income housing tax credit and the community development bank program. We have fought vigorously against those efforts and successfully. My hope is that as we go forward now, there will be much more of an effort to reach common ground, between ourselves and the Republican majority, and

that as consequence we will move constructively on balanced budget and other areas and the efforts to undermine these kinds of programs will be a thing of the past. In any event, I believe we must do all possible both to defend these programs, and for the programs that work, to expand them.

Let me also mention a recent piece of legislation that has not attracted any attention, but could have significant economic and social effects. Last year, Congress, in an effort to save money, ordered, and I think rightly, that all federal payments (except tax refunds) be made electronically by 1999. However, and here is the nub of the problem, there are approximately 10 million Americans who receive Social Security, veterans, or other government checks and don't have bank accounts. So, we at Treasury have to figure out how to arrange for electronic funds transfer for those ten million people, the 10 million "unbanked." Many of whom, by the way, today use expensive check cashing services to get hold of cash, which is in itself a disadvantage to them. If we can figure out a way to get them into the banking system for the first time, not only will it give them a more efficient way to cash checks and access to other financial services, but it may also encourage people to save, to plan financially, and therefore, to improve their economic life over time. It is, we think, a real opportunity to have an effect on a very large number of people in the inner city through the implementation of the electronic funds transfer legislation of last year.

Let me conclude, if I may, by returning to where I began. The President, as I said, is going to be fighting to complete the job of welfare reform: to fix critical elements of the welfare bill and to implement his welfare-to-work jobs initiative. And more broadly, we will all be working together in the administration to move forward on the programs that equip the residents of the inner city for the economic mainstream, that improve public safety, and that increase access to capital. If you take all this together and bring it to critical mass, I believe it is a strategy that does give us the opportunity to make a real break from the past and truly bring America's distressed communities into the economic mainstream.

These tasks are urgent and now, when America is enjoying a durable economic recovery, is the time to address these tasks in a vigorous way. The adage is right -- fix the roof when the sun is shining.

If we make the right decisions in our public and private sectors, in my view, and those right decisions include dealing with what I described a moment ago as the very central problem of our domestic society, I believe this country, with its many economic strengths, can have a robust economic future for as far in the years ahead as one can see. But to realize that potential, we must, for all of our sakes, band together to overcome a historical legacy, the problems of our inner cities and to bring the residents of the inner cities into the economic mainstream. It won't be easy; it won't be quick; but it can be done, and it must be done, again, for the benefit of all of us.

Thank you.