FROM THE OFFICE OF PUBLIC AFFAIRS

As I travel around the country speaking to business people and to the media, I am often called upon to address a traditional portfolio of Treasury Secretary issues: the markets, the dollar, financial institutions, trade. But I almost always include another issue: the fate of our cities. I think an absolutely key domestic issue this country faces is how to revitalize our cities and bring the residents of our inner cities into the economic mainstream. This is a subject that I've cared an enormous amount about for a long time.

As some of you know, I worked at a major investment banking firm for 26 years. I developed the view a long time 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 -- will remain powerfully disadvantaged; that we lose tremendously by virtue of the lost potential of our economy and a worsening of our social conditions. Just think of the enormous costs that are currently borne by taxpayers, in productivity, and in quality of life. Contrast that with the great benefits that we could reap, if we could break the cycle of poverty and equip the urban poor to join in 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 in government and the private sector, no matter where we are or what we are doing, can contribute in a meaningfully way.

We need a true marshaling of national will and effort. One of the things I have tried to do to further that cause is to speak out on this issue. It is my hope that the example of a Secretary of the Treasury discussing the cities as a critical aspect of the economic life of this country will provide reinforcement for those who are already involved, and perhaps, spark an interest in those who are not yet active.

There are programs that work,- federal, state and local -- contrary to some popular conceptions. But in an era of tightly constrained budgetary resources, we must choose rigorously and then once we've made our choices, we must sustain the will to bring these programs to critical mass.

I'd like to talk for a moment about welfare. As you well know, the President signed the welfare bill this fall, but at the same time said the bill contains serious shortcomings, shortcomings that he will do everything he can to fix. As you also know, the bill was not simply a welfare reform bill. It was in addition a bill that dealt with legal immigrants and with food stamps. It was primarily in those two areas that critical problems arose that we need to address. And with the welfare bill now law, we must even more urgently ask and answer these questions: Where will the jobs 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 necessary to work?

Solving the problem of our inner cities will require a great deal more than simply addressing the shortcomings of the welfare bill. What we need to do is to put in place initiatives that will have the effect of providing jobs for those who move from welfare to work. And that, in turn, is part of the larger issue of economic development in our inner cities and the larger task of moving the disadvantaged in our inner cities into the economic mainstream. That is a challenge that you mayors face every day. We can help, and we will. But the additional tools we provide will only be a partial answer, and we must work together with you to make sure that our limited resources are most affectively used.

And you'll need to work closely with the private sector and with nonprofits. The President recently met with senior corporate executives who saw it as in their long-term business self-interest to ensure that welfare recipients are trained and get jobs. And all around the country, local community groups are working with the private sector and with government to create environments in which businesses will choose to come back to the inner cities. These CDCs are training inner city residents and placing them in productive jobs. I encourage you to think about these community based efforts and the important role of private companies as you work to move families from welfare to work and the businesses of the inner cities more generally.

But to start with, success with our cities requires sustained economic growth that creates jobs and increases standards of living. I think too often those focused on cities and in particular on the conditions of the poor do not focus adequately on the imperative that we build a strong economy to provide the economic underpinnings for development efforts. Conversely, I also think that too often those who are focused on creating a good economy do not adequately recognize the other components needed to overcome poverty.

That said, I believe the requisites for moving forward fall into three categories.

First, and probably most importantly, we must invest in people. That includes, for example, education and training efforts such as Head Start, adult skills training and technical training efforts. It includes providing 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 witnessed enormous innovations in finance and in the financial markets. Ideas that were once unknown on Wall Street have become commonplace. Financial markets in the United States are today the most innovative, the broadest and deepest in the world.

But, we still have a severe shortage of credit and of financial institutions willing to provide credit to build housing and create jobs in the inner city. And this shortage, in some ways, dwarfs the shortcomings of traditional public efforts. 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 describe today.

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.

Step two was to make the Low Income Housing Tax Credit permanent.

The third step is to follow through on President Clinton's call in 1992 for a nationwide network of community development banks. The fourth step is to expand micro-enterprise loans.

The fifth step is a proposed new tax incentive to clean up abandoned industrial properties in economically distressed areas -- so called brownfields. This is an issue you know very well, and your efforts led us to introduce this proposal. We have proposed a $2 billion tax incentive. We estimate this would give us $10 billion in private leverage enough resources to resurrect 30,000 brownfields sites around the country.

Sixth, we've introduced legislation for 100 new Empowerment Zones and Enterprise Communities.

The seventh step, something that I am personally getting involved in, is to try to increase the involvement of the private sector in mentoring private business.

Eighth and still a work in progress, is a joint Treasury and Commerce effort to see if we can create secondary markets for community and economic development loans to the inner cities that are on the books of public and private institutions. Let me also mention that we are engaged in a major effort to reach out to the 10 million Americans who receive Social Security, veterans, or other government checks but don't have bank accounts. We are currently working on a means to integrate this group into the financial system. If we can figure out a way to move them into the banking system for the first time, not only will it give them a better way to access services, but it may also encourage them to save, to plan financially, and thus, to improve their economic life over time.

Most of the programs I just discussed have been under attack by some in Congress. Efforts were made to eviscerate CRA and to eliminate the low income housing tax credit as well as the community development bank program. We have fought vigorously and, so far, successfully against those efforts. My hope is that as we go forward now, we will see more of an effort to find common ground, between the Administration and the Republican majority. If we can move constructively toward consensus on a balanced budget and other areas, then, the efforts to undermine these kinds of programs may well diminish. In any event, I believe we must continue to do everything possible both to defend these programs, and to expand the programs that work.

We have a new opportunity to work together with Congress in helping to revitalize our Nation's capital. As you know, we've just announced a multi-faceted effort to restructure the federal relationship with the District of Columbia and to take on a number of tasks that states play with respect to your cities. We are also going to be coming up with some economic development tools to meet the unique needs of our Capital.

Let me say in regard to the budget more broadly, that we are going to work hard to get a balanced budget, reached the right way -- with the investments we need for our future -- not the wrong way. And we are going to be fighting hard to prevent passage of a constitutional Balanced Budget Amendment that would enshrine fiscal policy in the constitution and straightjacket our economy.

I testified in Congress earlier this morning against the Balanced Budget Amendment because I strongly believe that the proposal would subject the nation to unacceptable economic risks for perpetuity. It could turn slowdowns into recessions, prevent us from dealing with emergencies such as natural disasters or military threats. It would seriously increase the risk of default on our national debt. And it poses immense enforcement problems.

Let me conclude: My hope is that we can all work together to invest in the people of the inner city, to improve public safety, and to increase access to capital to create jobs. If you take all this together and bring it to critical mass, I believe it is a strategy that gives us the opportunity to make a real break from the past and bring America's distressed communities and the residents of these communities into the economic mainstream.

These tasks are urgent. Today, at a moment when America is enjoying durable economic growth, and when many cities are on the road to recovery, is the time to address them in a vigorous way. The old adage -- fix the roof when the sun is shining -- applies. It won't be easy; it won't be quick; but it can be done, and it must be done for the benefit of all Americans.

Thank you.