FROM THE OFFICE OF PUBLIC AFFAIRS

It is a pleasure to speak with you today. Let me begin by thanking John Taylor and Gene Ortega of the NCRC for inviting me to speak today, and more importantly, for their continued leadership on an issue that I believe is of immense importance to our society and our economy as we approach the 21st century: giving every American the opportunity to join and succeed in the economic mainstream.

To be sure, this is a social and moral issue, but it is also an economic issue. I have long held the belief that this country will fall far short of its full economic potential for all Americans, unless we make the opportunity our country offers a reality for all of our people.

And that is important to each of us, no matter what our income may be or where we may live. Just think of the difference it will make in terms of reduced social costs and increased productivity if we succeed in fostering growth and prosperity in our country's economically distressed communities.

Pursuing the goal of an economy that works for all of us has been a high priority for President Clinton. Today, I'd like to discuss what the Clinton Administration, and more specifically, the Treasury Department is doing to revitalize economically distressed communities.

First, let's start with the economy, because the prerequisite for addressing issues of real economic opportunity for all is a strong national economy, which creates jobs and raises standards of living.

When President Clinton came to office, unemployment was 7.3 percent, budget deficits kept interest rates high and confidence low, and job creation was slow. Today, after putting our fiscal house in order, which has been central to bringing interest rates down and increasing confidence, unemployment is 4.6 percent and has been under 6 percent for the last three years. The economy has generated 15 million new jobs over the last five years, inflation has remained low and real median wages are beginning to rise, although there is still much to be done to advance the poorest segments of our economy,

There are also some hopeful signs of renewal in America's cities, areas too often fraught with poverty and economic duress. Unemployment in the fifty largest cities is down to 6.5 percent from 9 percent in 1992. And crime is down substantially.

Having said all that, too many Americans are still not participating, or are not participating fully, in the economic well-being that most are enjoying. Just last week, for example, Second Harvest -- a network of food banks -- reported that more than 21 million people used emergency food programs in 1997, and nearly 40 percent of those seeking aid came from working households.

However, these problems are not insoluble and with sufficient will we can bring residents of the inner cities and other distressed areas into the economic mainstream. The key is to identify strategies and replicate them in sufficient scale on a sustained basis around the country. Our strategy involves a three pronged approach:

The first is strengthening public safety. In addition to the human costs, high crime rates are a significant barrier to economic activity. The President has made this a high priority through the Brady Bill, the assault weapons ban, both of which Treasury is deeply involved in, and his program to put 100,000 police on the streets.

Second, is investing in people, through education and training, from pre-school to adults, through improving the "job readiness" of the least advantaged and connecting them to the workforce. At Treasury we are deeply involved in these issues in the development and advocacy of the President's budget.

Third is increasing access to private sector capital, and other measures to create economic activity in the inner cities. 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 of credit to create housing and jobs in the inner city and in rural communities. At Treasury, we have been involved in bringing our broad expertise on capital markets to bear on these problems of capital access.

We have taken strong action to increase capital availability in economically distressed neighborhoods and help restore healthy market activity. We made permanent the low income housing tax credit, and we are now calling on Congress in the current budget to expand it by 40 percent -- over $1.5 billion -- over the next five years. We have introduced a new tax incentive to clean up abandoned industrial properties in economically distressed areas -- so called brownfields -- and we created new Empowerment Zones.

I think one of the most significant things we've done is help make our financial system work better for communities long left behind. We have strengthened the Community Reinvestment Act, fought for its survival, and launched the Community Development Financial Institutions Fund. Let me focus on these two items for a moment.

When President Clinton came into office in 1993, he was determined to strengthen CRA regulations to encourage mainstream financial institutions to lend to creditworthy borrowers throughout their community. The regulators have done just that, focusing CRA on performance, not paperwork. And as you well know, Gene Ludwig, our Comptroller of the Currency, provided very strong leadership on this issue. And since taking office we have repeatedly fought efforts to undermine CRA. Now in its 20th year, CRA has had a greatly increased impact over the last few years.

The NCRC report being released today shows the depth of the changes I am talking about. It reports that there have now been $397 billion in loan pledges to low income areas since CRA was enacted 20 years ago. Under this Administration over the past five years, loan pledges have totaled $355 billion, 89.3 percent of all loan pledges made since 1977. Now, that's pledges, and not loans yet made, so we need to be sure those pledges become reality. Having said that, progress has been impressive and congratulations to you for your work in helping to make this possible.

Over the last five years, in part because of these changes, private sector lending in distressed areas has increased enormously. In 1996 alone, large commercial banks made $18 billion in community development loans -- funds used to produce affordable housing, finance small business, and develop retail and commercial revitalization projects.

In the last four years, national banks have invested four times as much in community development as they did in the previous thirty years.

Moreover, Home Mortgage Disclosure Act data for 1996 showed that since 1993, private sector conventional home mortgage lending to African Americans has increased by 67.2 percent, lending to Hispanics has risen 48.5 percent, and lending in low and moderate income areas is up 37.9 percent. All this, in a period in which the entire market grew only 18 percent. This data shows real progress, but much work still needs to be done.

To cite just one example, since 1990, Bank of America in San Francisco has profitably lent more than $10 billion as part of its Neighborhood Advantage program, a system of low and moderate income home loans, to borrowers in communities across the western United States. And Bank of America is hardly alone. With the prompting provided by the CRA and the Home Mortgage Disclosure Act, mainstream banks across the country have developed -- and made money from -- similar initiatives to serve low income markets.

As we work to modernize our financial system, we need to make sure modernization works for communities. By requiring financial services to be provided only through bank holding company affiliates, the current financial modernization bill would cause a large transfer of financial resources outside of the reach of the CRA.

Let me turn now to the CDFI Fund, another important focus for us at Treasury, and, in many respects, a complement to CRA. As many of you know, John Taylor has provided valuable assistance to us by serving on CDFI's Advisory Board. The goal of the CDFI Fund is to build a nationwide network of community development financial institutions to expand access to credit and financial services in lower income urban, rural and Native American communities. Often, CDFIs are the pioneers in their marketplaces, making the leading edge investments based on superior local knowledge, and thereby demonstrating to traditional lenders that these are viable markets. Banks, in turn, are looking for these opportunities, partly as a result of CRA. Once they become involved, many of these mainstream institutions are staying at the table as they come to understand these markets and see the available opportunities.

The CDFI Fund has two main programs: the CDFI program, which is designed to assist specialized community development financial institutions, and the Bank Enterprise Award program, which rewards financial institutions that are increasing their lending and providing more financial services in distressed communities. Both programs pursue strategies designed to meet local needs to help each community deal with its particular circumstances, whether it is helping people buy a house, or start a business. They help foster partnerships between mainstream financial institutions and local communities.

As with any new organization there have been some growing pains at CDFI. I believe we have dealt with the problems at the CDFI Fund effectively and we will continue to improve procedures as this program grows and matures. In fact, the Fund was recently given an unqualified audit for its activities since inception.

We are moving this program forward with the new leadership of Ellen Lazar, who I believe brings to the job the dedication, experience and energy needed to implement the CDFI Fund's important work in the years ahead. Most importantly, we have a vision that makes sense, a program that is up and running, and money that has begun to flow to communities and make a difference in people's lives.

Now we must build on these successes. We are asking Congress for $125 million for CDFI. And we are working with Congress on the re-authorization that is required for this most useful program to continue. Our legislation will make improvements to the CDFI and BEA programs, and we're going to seek to launch a new capital access program at CDFI, working with the states to fund loan loss reserves that enable banks and CDFIs to make more difficult small business loans to budding entrepreneurs. I think this is an exciting new initiative for communities. We will be pushing forward with both appropriations for CDFI in the Veterans Affairs/HUD Subcommittees and reauthorization through the banking committees in the weeks ahead. We look forward to working with Congress to pass these bills on a bipartisan basis.

In conclusion, let me mention a conversation I had when I was still at the National Economic Council with a reporter from a well respected European weekly who was interviewing me. At the end of the interview, which was about the state of the U.S. and the global economy, he said that the US economy was doing very well but that ten or twenty years from now we'd be a second tier economy. I asked why he thought that, and he said the answer was our public schools and our inner cities. My own view, now that I've spent five years focusing on our economy and economies around the world, is that we have tremendous strengths and a great potential in a global economy, but we can and must deal more effectively with the critical issues that reporter identified if we are to fully realize that potential.

And that is why the Clinton Administration is pursuing the strategy I discussed today to foster growth in economically distressed areas. It is a strategy geared towards helping people today, and preparing our country for the future. It is a strategy grounded in a new, more market-driven approach. And it is one that, in many respects, represents the forefront of a quiet revolution in the approach taken to create jobs and promote growth. By working together -- government, business, community groups, and non-profit organizations -- we can make progress on these economic problems, which, as I said at the beginning, affect all of us. Thank you very much.