FROM THE OFFICE OF PUBLIC AFFAIRS

We re here this morning to discuss the inner cities, a subject that I know you care a great deal about, and I do too.

I d like to start with a few personal comments, and then I ll outline the Administration s approach to the inner cities, with a special focus on Treasury s capital access programs. Following that, I ll respond to questions or comments on anything you d like.

As some of you know, I worked at a major investment banking firm for 26 years, on a Treasury Secretary s traditional portfolio of issues: the economy, markets, international trade, banking and the like. But today I m here to speak about a different matter -- the imperative to bring the residents of the inner city into the economic mainstream.

I developed the view long ago that, unless we succeed in that endeavor, all of us -- no matter where we live or what our incomes -- would be powerfully affected, in lost potential for our economy and in a worsening of the conditions in which we live. Just think of the enormous difference in costs borne by taxpayers, in productivity, and in quality of life for all of us, if we can break the inter-generational cycle of poverty and equip the urban poor to join the economic mainstream.

Being in the White House, and now serving as Secretary of the Treasury, has given me a rare opportunity to act on these issues, but all of us, no matter what we do, can contribute meaningfully to this vital endeavor. 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, and the list of possibilities is endless.

Moreover, in addition to whatever else you do, your involvement is urgently needed to provide political support for programs that help the inner city, at a time when all of these programs -- Head Start, Job Corps, CRA, EITC, and all the rest --are under strenuous attack by too many in Congress.

We need a true marshaling of national will and effort, and my hope -- as I speak here and elsewhere on these issues -- is that the unexpected fact of a Secretary of the Treasury discussing the inner cities as a critical economic concern for all of us, will reinforce those already involved and light a spark that gets others involved.

Community leaders here in L.A., like Juanita Tate of Concerned Citizens for South Central L.A., know what it takes to rebuild our communities -- investing in people to create a productive workforce, safe streets and neighborhoods, and access to capital.

There are programs -- federal, state and local -- that work, but we must choose rigorously in this era of scarce public resources and then apply effective programs on a scale commensurate with the problem.

To start, however, success with our inner cities requires sustained economic growth that creates jobs and through a high level of demand for labor, increases incomes. Too often I think that those focused on the 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 strongest fundamentals and best conditions we have seen in at least 30 years. The economy has created ten million net new jobs, and the unemployment rate has dropped from 7.3 percent to 5.3 percent over the past three and a half years. The average rate of growth during this period is 50 percent higher than during the prior four years, the rate of inflation substantially lower, and the rate of the new private sector investment that will increase future productivity and growth vastly higher.

And all of this is no accident. While many factors have contributed, the key and indispensable factor was President Clinton s deficit reduction program enacted in 1993 that has now cut the deficit by more than 50 percent, which, in turn, catalyzed the lower interest rates that drove and sustained the recovery.

That stronger national economy has reached into urban America, and to low and moderate income workers. Unemployment has dropped in America s ten largest central cities, including Los Angeles, and 1994 data -- the latest available -- shows real incomes of the lowest paid Americans have had some recent improvement.

All of this is true. But what is also true, as all of you here today know too well, is that there are too many people and too many places in our inner cities that are in trouble and that are not reached -- or reached far too little -- by our improved economy.

The statistics tell us what we intuitively know. The Committee for Economic Development, a well-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 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. These are urgent problems. And no matter what happens in the current debate over welfare reform, we must ask and answer these questions: Where will the jobs come from, and how do you produce the economic conditions necessary to create them?

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

The first, and probably most important, is what could, broadly speaking, be called investment in people. This includes education at all levels, from Head Start to adult skills and technical training, decent housing, health care somewhere other than in the emergency room, and the earned income tax credit and a higher minimum wage, so that work will lift workers above the poverty line and enable them to better care for the next generation. An important objective in the President s great budget battles of this year and last has been to prioritize these areas within the context of going to a balanced budget, rather than cutting significantly in these areas to fund large tax cuts that disproportionately favor the most affluent, as did the vetoed budget of the congressional majority.

The second category is public safety, and, there too, there have been great political battles, this time around the President s successful push to enact the Brady gun control law and the assault weapons ban and our on-going fight against efforts to repeal the assault weapons ban.

The third is access to private sector capital. This has received relatively little public attention, but is critical to revitalizing America s distressed communities.

The last two decades have seen enormous innovations in finance. Information technology and globalization are dramatically changing financial services. Ideas unknown on Wall Street a generation ago are now commonly used to fuel everything from high tech firms to housing in the suburbs. Our financial markets are today the broadest and deepest in the world.

But we still have a shortage of financial institutions and a shortage of credit for the creation of 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 Department of the Treasury has been deeply and energetically involved in bringing its broad-based experience and expertise in capital markets to bear on the inner city, and we have pursued an eight point program which I d like to review with you.

Step one involves helping capital flow from mainstream financial institutions to creditworthy borrowers. The Community Reinvestment Act, or CRA, was put in place in 1977, to encourage regulated banking institutions to serve creditworthy borrowers in all parts of their communities.

In May 1995, with Treasury s leadership, the banking regulators released new CRA regulations that eased the paperwork burden on banks while better promoting the results all of us want -- more investment capital to distressed communities.

During the last three years, according to nonprofit groups, financial institutions have pledged over $96 billion to community development lending over the next decade. That's more than two-thirds of all commitments made since CRA was enacted in 1977. While these are commitments, not loans made, this is a good indication of what can happen when the private sector sees investment opportunities in America's distressed communities.

During the last year, some in Congress have repeatedly tried to nullify CRA, in whole or in part. That effort has been defeated thus far, with a vigorous defense, but the battle will, I suspect, be ongoing.

Tomorrow, the latest study under the Home Mortgage Disclosure Act is being released in Washington. And for the second year in a row, lending to African-American, Hispanic, and low-income borrowers is rising. In fact, since 1993, lending to African Americans is up nearly 70 percent. Lending to Hispanics is up nearly 48 percent. And lending in low- and moderate-income neighborhoods is up over 25 percent. Much more needs to be done. But CRA, fair lending, a committed Administration and a sound economy are making a real difference.

Step two. The President's 1993 economic plan made permanent the Low Income Housing Tax Credit. As part of their budget last year, the congressional majority tried to repeal this credit. That was explicitly listed as one reason for the President's veto of their budget. The National Council of State Housing Agencies has estimated that the tax credit helps create over 100,000 units of affordable housing every year by encouraging private sector investment in low-income neighborhoods.

The third step is following through on President Clinton s call in 1992 for a nationwide network of community development banks. Two years later, his plan became law. Since then, Treasury has been hard at work bringing that plan to life.

Within Treasury, we now have a community development fund, called CDFI, that will provide seed and expansion capital to community-based banks, credit unions, community loan funds, micro-enterprise lenders, even community venture capital.

Later this week, CDFI will make its first awards. Community-based financial institutions nationwide will receive about $35.5 million to put capital into their communities, creating jobs and growth. We'll also announce that mainstream financial institutions have joined a $15 million program to increase their lending and support to community development institutions.

Over the next six years, the President's budget contains nearly $1.7 billion for CDFI funding, fully paid for, because of the great promise it holds for empowering communities. But again, even the limited funding so far has required a great struggle in the Congress, including last year vetoing the congressional majority's budget bill, which would have provided no funding for CDFI. We must all work together to realize the great potential for CDFI in the years ahead.

The fourth step is expanding micro-enterprise loans. Micro-enterprise lenders make very small loans -- for example, to a tailor for a sewing machine or to a mechanic to buy specialized tools. This spring, the First Lady and I launched a new Presidential Award for Micro-Enterprise Development, to be awarded this fall.

The fifth step is a new tax incentive to clean up abandoned industrial properties in economically distressed areas and put them back into productive use.

In his State of the Union Address, President Clinton called for adoption of what is called the brownfields tax incentive. This $2 billion proposal, fully paid for in our budget, has been estimated to induce over $10 billion in private sector investment to help clean up 30,000 brownfields sites.

Later today, to highlight the importance of expediting the revitalization of these properties, I will be going to the Lancer site along the Alameda Corridor in South Central L.A. There, the Irvine Foundation will announce a $2 million grant to set up a new community-based organization in Los Angeles called the California Center for Land Recycling -- "See Clear" -- to help communities link with the private sector to clean up brownfields.

Sixth, we've introduced legislation for a new round of Empowerment Zones and Enterprise Communities, also fully paid for in the President's budget. The proposal contains new tax incentives to bolster business investment and growth in 100 more distressed areas, with the brownfields incentive, additional expensing for small businesses and new tax-exempt bonds.

These initiatives all work together. L.A.'s community development bank was born out of your Empowerment Zone, with $430 million from HUD, $210 million from the private sector, and a strong partnership with the city and county of L.A. The bank is scheduled to open tomorrow, which is great news for the city.

These six programs have great power to rebuild housing, create jobs, and boost economic activity. But the cost of progress is constant vigilance. We need to work vigorously to advance these programs, to pass legislation where it s needed, and to protect these programs from on-going attack. I want to tell you about two other areas -- steps seven and eight -- where I think we can also make a real difference going forward.

Seventh, while access to capital is critical, it often needs to be married with advice and mentoring on matters ranging from building markets to managing a balance sheet. The private sector can make an enormous contribution here, by linking up on a pro bono basis with lenders, non-profit, and communities to help inner city small businesses with accounting, business plans, marketing, and the like.

Many businesses are already involved, with real results. Just ask John Bryant of Operation Hope, an organization dedicated to catalyzing business investment and mentoring here in Los Angeles. This is a critically important area that I will be personally involved in pursuing over the coming years.

And number eight, which is still very much a work in progress: If we are able to pool community development loans and resell them to private investors, we can, in effect, recycle a portion of available capital back into inner city community development. After decades, that now happens in our housing markets. Imagine, looking forward some years, what a secondary market for community development lending would mean in terms of increased capital for growth and job creation in our inner cities. Now, this is a tough intellectual and practical challenge, but a joint Treasury/Commerce effort is underway. We hope for some progress in the short term, and then to build on this in the years ahead, even if limited to private placements for loans. If, over the long haul, we can overcome these challenges, it would represent a true breakthrough for community development.

So, in sum, equipping people for the mainstream economy, public safety, and increasing access to capital, taken together, can help 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 right time to move vigorously ahead. The adage is right -- fix the roof when the sun is shining.

Now, let me close where I started. If we make the right decisions in our public and private sectors, this country, with all of its many strengths, should have a robust economic future. But to realize that potential, we must, for all of our sakes, band together to overcome 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.