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Federal Facilities and Land Parcels

The General Services Administration (GSA), responsible for the disposition of government- owned buildings and land, announced that it signed a memorandum of understanding (MOU) with the EPA to help identify federal properties for brownfields redevelopment. GSA Program Director for Brownfields John Martin said, "Working in partnership with other agencies, GSA is identifying federal-owned properties that can be put back into productive use under our brownfields initiative."

As part of its commitment to brownfields redevelopment, GSA will:

• review more than 1,000 properties; provide $1 million to fund environmental baseline surveys to expedite brownfields cleanup; and
• identify potential properties for redevelopment by looking at the relationship between these properties to other urban redevelopment initiatives such as the federal Empowerment Zone and Enterprise Community (EZ/EC) program.

Department of Defense

The Office of Economic Adjustment (OEA), one of the Department of Defense's (DoD) programs under the auspices of the Office of Base Closure and Community Reinvestment that assists communities adversely affected by military downsizing, received a slight funding increase for a total of $40 million for FY98. These funds are also used to fund the activities of the Base Closure and Transition Office (BCTO).

OEA helps communities, regions and states impacted by base closures and realignments by funding activities such as problem assessment, identification of possible solutions, identification of resource requirements and sources, and development of strategic and action plans.

The BCTO carries out base closure implementation policy, oversight, and management activities. The BCTO monitors the Base Closure and Realignment (BRAC) program by evaluating the progress of 101 of the major closure and realignment bases. The four phases that are evaluated are: closure, cleanup, reuse and disposal.

More Base Closures and Realignments?

Defense Secretary William Cohen called for two more rounds of closures when he announced the results of the Quadrennial Defense Review in July. The review, outlining DoD's strategy for the next 10 to 15 years, called for less spending on infrastructure, such as military bases, and more on procurement of new technology to modernize our national defense forces.

DoD began circulating draft base closure legislation among executive branch officials and had hoped to find supporters in Congress to introduce a bill. Prior to the release of the review, DoD had stressed the role of Congress in determining when and how future base closures should occur. A DoD spokesperson said that Congress would need to determine whether more closures are necessary, how those bases would be identified, and what procedures DoD and local communities would need to follow to implement closures.

In a pre-emptive shot at the review, House National Security Chair Floyd Spence (R-SC) issued a report in April on the status of the military. In Military Readiness 1997: Rhetoric and Reality, Spence emphasized the impact that spending cuts would have on training, equipment maintenance and the quality of life for military personnel. Spence said, "We have been told that the services are on the Ôrazor's edge' of readiness. But the fact is that you cannot sit on a razor without bleeding, and military readiness is beginning to hemorrhage."

So far, there have been four rounds of base closures, in 1988, 1991, 1993 and 1995. These BRAC rounds have resulted in an 18 percent downsizing of the military base structure. In comparison, during this same period, the size of the force has been reduced by one-third, and procurement spending has shrunk by almost 70 percent from its peak before the end of the Cold War. One way to keep infrastructure, or spending on bases, on par with spending in other areas is to have another BRAC round.

In November, Secretary Cohen released his Defense Reform Initiative, calling for two new rounds of closures in 2001 and 2005. In defense of these proposed closures, Deputy Defense Secretary John Hamre said, "We don't have any option but to shrink our infrastructure in order to generate savings so we can protect the combat capability we're all going to need three years from now, or five years from now or 10 years from now."

Hamre continued by saying, "You need to have this extra purchasing power if we are going to guarantee a defense department that 10 years from now can carry out its mission."

The National Defense Panel, a Congressionally-authorized, independent panel, also came out in favor of new rounds of closures in its report Transferring Defense: National Security in the 21st Century. To "restore integrity" to a process some have said has been politicized, the panel urged Congress and DoD to conduct an inventory and evaluation of all facilities and installations in the continental United States prior to any new closures and use this a basis for a long-term master plan.

The panel also suggested a new, devolved base concept. If personnel were paid more, they would be able to get services such as housing, health care, entertainment and family support services off-base. This would allow a reduction in the military's on-base investment and better integration of military personnel with the local community, thus improving military-civilian relations.

The Controversy over Kelly and McClellan

The president's failure to realign workers at Kelly Air Force Base in San Antonio, Texas and McClellan Air Force Base in Sacramento, California, despite the recommendations of the 1995 BRAC Commission created more skeptics of the base closure process. Critics have suggested that the president politicized the process by opting for privatization of maintenance work to keep those jobs in Texas and California, rather than moving the work to other military depots. Controversy surrounding depot privatization delayed passage of the defense authorization bill and put plans for FY98 BRAC funds on ice, as lawmakers argued over an appropriate course of action.

Rep. Tillie Fowler (R-FL), who sits on the National Security Subcommittee on Military Installations and Facilities, said "when the president chose to inject politics into the base closure process just to get California votes, that offended lots of us." She warned, "Until these bases are closed the way they were supposed to be closed under the 1995 recommendations, we're not about to grant the administration authority to undertake future rounds." Fowler is joined in her opposition by members from Georgia, Oklahoma and Utah, states that have defense depots in line to receive workloads from Kelly and McClellan.

Sen. James Inhofe (R-OK), who sits on the Armed Services Committee, proposed an amendment to the Senate authorization bill to bar privatization. Sen. Barbara Boxer (D-CA) and Sen. Phil Gramm (R-TX) both opposed the amendment. The Senate did not include this provision in its version of the authorization bill, although the House version did include a provision barring privatization at Kelly and McClellan.

In the end, Congress included a provision in the FY98 defense spending bill which would allow for public-private competition for maintenance work at Kelly and McClellan. Although Secretary Cohen found the provision "not ideal," the president decided to sign the spending bill. New provisions for public-private bidding as outlined in the Defense Authorization bill enacted in November include:

• Identification of fair-market value of any land, plant or equipment from a former military facility used by private contractors;
• Identification of the estimated direct and indirect costs incurred by DoD; and
• Provision of identical treatment in evaluating public- and private-sector bid proposals.

Also included in the Defense Authorization bill is a change to the so-called 60-40 rule. The 60- 40 rule limited the amount of outsourcing in aircraft and other maintenance work that DoD can do to 40 percent. Secretary Cohen had said that this limits his ability to choose the lowest cost option to conduct such activities. The new standard is 50 percent.

With the misstep over Kelly and McClellan, FY98 funding for more BRAC rounds was rejected by Congress. However, future rounds of base closures as called for by DoD are generally considered inevitable, and the groundwork is already being laid for consideration of more BRAC rounds.

Better Tracking of BRAC Process

In March, the House National Security Subcommittee on Military Installations and Facilities held a hearing on the base closure and realignment process. One of the key issues discussed was the impact on total savings of environmental cleanup costs. Additionally, tracking the BRAC budget has been found to be problematic. Congressional Budget Office (CBO) National Security Divisions Deputy Assistant Director Neil Singer expressed concern over the inability to track the BRAC budget. He said, "CBO believes that it is important to resolve that uncertainty to judge the merits of suture base closures. The Congress should consider instructing DoD to audit a sample of bases included in BRAC IV to provide empirical information on costs and savings."

Sen. Byron Dorgan (D-ND) sponsored an amendment requiring DoD to complete a study on the cost savings associated with base closures as a prerequisite to further rounds. The amendment's co-sponsor, Senate Majority Leader Trent Lott (R-MS), locked up support of the amendment by circulating among colleagues a letter with the names of approximately 100 bases in 35 states being "eyed closely" by DoD. Critics of the contents of this letter have said that it merely contains the names of bases circulated, and rejected, during previous BRAC rounds.

As enacted, Section 2824 of the 1998 authorization bill stipulates that the Secretary of Defense submit a report on the costs and savings attributable to base closures and realignments and on the need, if any, on additional rounds. Among those items included in this report will be:

• A statement of the actual and estimated costs and savings attributable to the closures and realignments;
• A list of military installations at which there is authorized to be employed 300 or more civilian personnel;
• An estimate of the current excess capacity at military installations;
• An assessment of the effects of previous base closure rounds on military capabilities and the implementation of the National Military Strategy;
• A description of the types of military installations that would be recommended for closure or realignment if there were future BRAC rounds; and
• The criteria and methodology that would be used to identify and evaluate installations for closure and realignment.

Leaseback Final Rule Published

On December 19, DoD published the final rule on leasebacks in the Federal Register. Leaseback refers to federal agencies that lease property at closed bases from local redevelopment authorities (LRAs). In a leaseback situation, when property is transferred to the LRA at closure, it is understood that LRAs will lease the property to federal agencies at no cost. This activity is supported in the National Defense Authorization Act for FY96, Section 2837, and the final rule is intended to more clearly define leaseback procedure.

The final rule touches on eight broad categories:

• Federal Tenant Procurement Authority and Federal tenants must only pay for those services that are a requirement of the federal government, and so to pay LRAs a "common area maintenance fee" might result in the federal tenant paying for services that are above and beyond what is required. Additionally, services that are needed by the federal tenant must be acquired using existing procurement laws and regulations;
• Leaseback Transfer Approval/Rejection Authority and The "right of first refusal" given to federal departments and agencies by the Federal Property and Administrative Services Act of 1949 is still in effect. Therefore DoD does not have the legal authority to require a federal department or agency to give up the right of ownership in favor of a leasehold interest. However, if a leaseback is requested by an LRA, federal agencies are urged to consider leasing the property from the LRA instead of pursuing ownership through federal-to-federal transfer;
• Process for Securing Another Federal Tenant and More guidance is given to the General Services Administration (GSA) as to how a property is to be used if a federal tenant no longer needs it but time still remains on the lease. Additionally, GSA now has only 60 days in which to find a new tenant;
• Valuation and Consideration and The value of the property cannot be preset through regulation. However, payment terms are now more flexible. Consideration can be in cash or in kind and can be paid up front, over time or when the federal tenant leaves. Under an economic development conveyance (EDC), leaseback property will be valued per existing EDC procedures. Property conveyed as a stand-alone leaseback will be valued on the basis of proposed reuse;
• Federal Tenant Improvements and Before alterations such as repairs, improvements and maintenance of the property are made at the expense of the federal tenant, the LRA should be consulted;
• Insurance and Federal tenants do not need to obtain insurance because the federal government is self-insured;
• Leaseback Compatibility with Other Conveyance Regulations and DoD does not need to consult with a federal agency, for example, one sponsoring a public benefit transfer (PBT), for compatibility of property use even if the leaseback property is located adjacent to or within the PBT property; and
• Legality of a Lease/Leaseback Arrangement and A lease in furtherance of conveyance/leaseback transaction is allowable if a deed transfer to an LRA cannot be made yet. This allows a federal agency access to a property before a deed can be issued.

Base Reuse Implementation Manual, Second Edition

At the end of the year, DoD published a second edition of the Base Reuse Implementation Manual (BRIM) with key process improvements and policy modifications for carrying out base closures in a manner that supports rapid redevelopment and job creation. The new manual includes many of the closure and reuse provisions included in the National Defense Authorization Acts for FY96 and FY97 and DoD's regulatory activities since 1995.

Highlights of the major changes include:

• Updated language on environmental cleanup and additional guidance regarding consideration of similar state analysis;
• Removed requirement for Office of the Secretary of Defense (OSD) approval of no-cost transfers to DoD components;
• Removed five-year limitation on interim lease terms;
• Changed the process for LRA subleasing under a master lease;
• Removed requirement for OSD approval to extend the initial maintenance period or the time period for provision of utilities;
• Revised the process for determining eligibility for a rural, no-cost EDC; and
• Established timing and clarified the focus of a military department's appraisal for EDCs.

Department of Labor

The Job Training Partnership Act programs saw a funding increase. FY98 appropriations were $5 billion, compared with $4.5 billion for FY97. These funds are used to provide training, job search assistance and other services through adult training grants, dislocated worker assistance, youth training grants and summer youth employment and training programs.

Remaining level with FY97 funding, the Youth Job Training program was allocated $130 million and the Summer Youth program received $871 million. The Youth Job Training formula grant program provides funds to communities to help train economically disadvantaged youth. The Summer Youth program provides low-income youth with the opportunity to get a first job, apply learned skills in school and give them a head-start in the workplace.

The Adult Training formula grant program offers employment and training assistance to economically disadvantaged adults, many of whom are welfare recipients. The FY98 level is $955 million, a $60 million increase over FY97 funding, but less than the $1. 1 billion requested by the president. Also targeting adults is the Dislocated Worker grant program which assists in retraining and adjustment services to laid-off workers. The program was funded for FY98 at $1.4 billion, level with the president's request and $64.3 million above what the program received for FY97. Some of these funds can be used for a new demonstration program to assist incumbent workers and new entrants to the workforce.

The Job Corps program will be funded near the President's requested level, $1.1 billion for operations and $118.5 million for construction of new facilities. The operating budget represents an increase over the $1.1 billion received last year. Job Corps provides intensive skill training, academic and social education and support to an estimated 69,700 participants at 119 centers.

The School-to-Work program, administered jointly with the Department of Education, received level funding of $200 million for FY98, consistent with the president's request. This initiative links education and employment to help youth acquire the knowledge, skills and labor market information necessary to make a smooth transition into the workforce, or for further education and training.

Work Opportunity Tax Credit

The Work Opportunity Tax Credit (WOTC) has been extended until July 1 by the Taxpayer Relief Act of 1997. By offering as much as $2,400 per new hire, WOTC encourages employers to hire targeted groups of job seekers. Those seeking employment benefit from on-the-job experience and have the opportunity to move towards economic self-sufficiency. The Department of Labor was funded at $20 million for FY98 to administer this tax credit program.

There are various categories of people from which the hires may come: welfare recipients; 18-24- year-old food stamp recipients; veterans who are members of families that receive food stamps; vocational rehabilitation referrals; 18-24-year-old Empowerment Zone/Enterprise Community (EZ/EC) residents; 16-17-year-old EZ/EC residents hired as Summer Youth Employees; ex- felons who are members of a low-income family; and Supplemental Security Income (SSI) recipients.

The credit for new hires who work a minimum of 400 hours is 40 percent of qualified wages for the first year of employment. A new provision of this program is that a credit of 25 percent of qualified wages may be earned by employers for new hires who work between 120 and 400 hours. The cap of qualified wages is $6,000 for all groups except Summer Youth program participants, whose wages are capped at $3,000.

Labor's New Welfare-to-Work Initiatives

According to Labor Secretary Alexis Herman, labor market intermediaries who can link employers with recipients are a key element to making welfare reform work. Job readiness and the "work first" approach are emphasized in the Labor Department's welfare-to-work grant program, representing a shift away from the traditional focus on training. Instead, a program that mixes training with job readiness and job creation is what the Labor Department is encouraging.

In the tax bill, Congress created a new Welfare-to-Work tax credit, allocating $3 billion over three years to help communities with job creation, pre-employment services, on-the-job training, and post-employment counseling in order to move long-term aid recipients into the workforce. Like the WOTC program, the Welfare-to-Work tax credit allows employers to earn tax credits for targeted hiring. The program uses the same certification process as established by the Small Business Job Protection Act of 1996 for WOTC.

The new tax credit, effective for employment begun any time after December 31, 1997 and before May 1, 1999, differs from the WOTC in the size of the maximum benefit to employers from a single hire and $8,500 compared to $24,000. Also, the qualified annual wage cap is higher at $10,000. Wages for new hires who work a minimum 400 hours or 180 days qualify for a 35 percent credit the first year, and a 50 percent credit the second.

Included in the Balanced Budget agreement was a $3 billion welfare-to-work grant program that will be administered by the Department of Labor with funds used by states and localities. Funds from this program can be used for job creation, job placement and job retention efforts such as wage subsidies for private-sector employers. Seventy-five percent of the program will be distributed on a formula basis, while the remaining 25 percent will be awarded on a competitive basis. The funds will target areas with high concentrations of poverty and long-term welfare recipients.

Department of the Treasury

Community Development Financial Institutions Fund

The Community Development Financial Institutions (CDFI) Fund awarded 48 community organizations a total of $38.3 million in financial and technical assistance in the second round of the CDFI program. Created in 1994, this program is designed to expand the availability of credit, investment capital and financial services in distressed urban and rural communities. CDFIs can help facilitate investments in home purchases and rehabilitation, multi-family and special needs housing, microenterprise development, small business and agriculture enterprises, community facilities such as child care and health care centers, and provide financial services such as checking and savings accounts.

The Fund's other major initiative, the Bank Enterprise Award (BEA) program also made incentive grants in its second-round competition. BEA awarded 55 insured depository institutions $16.9 million to encourage them to invest in CDFIs and to increase lending and financial services in distressed communities. In addition to making loans, equity investments and grants to CDFIs, BEA winners have financed a variety of projects, including construction of new health clinics, a senior care facility, a homeless shelter and a home for people with AIDS.

The final FY98 budget agreement for the Fund came in at $80 million, down from the president's request of $125 million, which was also the House-passed level. This was, however, an increase over the $50 million that the program received for FY97.

Dogged by Congressional inquiries into the fairness of the CDFI Fund's first-round selection process, the CDFI Fund underwent intense scrutiny earlier in the year that threatened to cut the program budget back severely. Allegations of mismanagement of applicant files and "nepotism" in favor of those institutions connected to the First Couple cast doubts upon this Fund's ability to select those institutions truly deserving of federal funding. In response to questions about the implementation of the program, language was included in the final report requiring the General Accounting Office (GAO) to conduct a review of the CDFI program and report to Congress on the implementation and effectiveness of the program in achieving its goals and objectives.

Department of Energy

Since the end of the Cold War, the Department of Energy (DoE) has adjusted or downsized 22 of its nuclear weapons facilities. Similar to the effects of military base closures and realignments, the downsizing of DoE facilities has had a profound affect on many of the communities surrounding these sites. To mitigate the impact upon communities, DoE provides funding to community reuse organizations (CROs). These are voluntary organizations with the mission of determining and sponsoring the actions that the community may take to offset the local consequences of downsizing. The CRO coordinates all local economic development planning efforts that address DoE-related effects.

DoE provides funding to CROs through its Office of Worker and Community Transition (OWT), which helps communities impacted by defense adjustment. For FY98, OWT was allocated $61.2 million which was a slight decrease from the previous year's $62.5 million. Of the FY98 total, $57.7 million will go to programs, and the remaining $3.5 million will be used for administrative purposes.

The OWT program seeks to mitigate the effects on workers and on the community caused by departmental changes. Displaced workers can receive benefits through this program such as preferential hiring by the department for new positions, retraining for the Environmental Restoration and Waste Management program, and assistance in finding other employment. To ensure that the Department of Energy carries out its mission effectively, the program assists in identifying and retaining the skills, knowledge and capabilities needed to meet its workforce requirements.

CRO Survey

CUED conducted a survey of CROs in the spring of 1997 to help CROs evaluate their own programs and learn from the experiences of others. Among the major activity findings were:

• Entrpreneurial Development and many CROs are encouraging small business development through such activities as business incubators and business management, financing and technical assistance programs. Dislocated workers at DoE sites are often highly trained in technical and non-technical fields, and have severance packages that can help provide working capital;
• Financing Programs and existing businesses can also benefit from gap financing provided by CRO programs. Examples of these include venture capital funds, debt financing and loan guarantees;
• Reuse of Assets and strategic reuse of real property can be based upon the site's distance to population centers, degree of contamination, and the fitness for alternative use;
• Community and Industrial Marketing and several CROs are using direct marketing strategies to advertise the region to relocating or expanding businesses;
• Workforce Retraining and DoE has a workforce skilled in sophisticated technologies and quality control systems, so one of the challenges was to re-employ dislocated workers, many of whom made career changes involuntarily. Much of the workforce retraining efforts are performed through contractors and CROs. Retraining funds have also been used as business incentives; and Research and Development Assistance and many CROs have made a focused effort to transfer their research and development achievements to the private sector. Programs such as manufacturing technology centers have been successful.

Department of Justice

The Department of Justice's Weed and Seed budget for FY98 was enacted at $33.5 million, an increase over the FY97 level of $28.5 million. Operation Weed and Seed brings together the resources of several agencies to help "weed" out violent crime, gang activity, drug use and drug trafficking in designated neighborhoods and "seeds" these areas for social and economic revitalization. The program revolves around four elements: law enforcement, community policing, neighborhood restoration, and prevention, intervention and treatment. The number of sites in this program increased from approximately 120 to 160.

Within the Weed and Seed program is the JustServe initiative, a national service program. Economic development training is provided to the participants at the 11 JustServe sites. Training includes: assessment of the economic development strengths, needs and opportunities; customized technical assistance including writing business plans or establishing business incubators; and recruitment of additional Weed and Seed Steering Committee economic development subcommittee members.

Other Legislative Activities

Transportation

Reauthorization of the Intermodal Surface Transportation Efficiency Act (ISTEA), which expired in September, started off as a politically charged issue and remained so throughout the session. The imperative to reauthorize the program before it expired waned in the final months of the session, as it became clear that no single proposal could gather enough consensus to win passage. In the end, a six-month extension was passed to keep surface transportation funding, and debate over how it should be continued, going until early 1998.

ISTEA was originally passed in 1991 as a more comprehensive approach to transportation planning that incorporated the ideas of a wider range of beneficiaries into the decision-making process. Instead of focusing on new highway construction, ISTEA balanced the need for transit systems, road maintenance, and protection of the environment with the need for road investments. In addition, it sought to provide funding flexibility and innovation and to increase local decision-making and public participation.

The $122 billion spent during the first five years of the program was used to promote intermodalism, or the integration of multiple modes of transportation. Among the major funding categories were: the Congestion Mitigation and Air Quality (CMAQ) program, the Transportation Enhancements program, and the Surface Transportation program.

From Many, Two Bills Emerge as Front Runners

The number of bills introduced and the vehement stance taken by many inside and out of Congress presaged a bitter, uphill battle for reauthorization. Some wanted ISTEA to continue as is, others wanted modifications to the funding formula, and still others supported a "turning back" of transportation funding and responsibility to the individual states.

Some of the major bills on ISTEA reauthorization were:

• H.R. 1268 and S. 468, or the National Economic Crossroads Transportation Efficiency
• Act of 1997 (NEXTEA): Sponsored by House Transportation and Infrastructure (T&I)
• Committee Chair Bud Shuster (R-PA) and Senate Environment and Public Works Chair
• John Chafee (R-RI), this bill is based on the administration's proposal. It calls for $135.8 billion over six years. NEXTEA preserves the federal-state-local partnership, decreases spending on transit, increases flexible funding, preserves most of the elements of ISTEA regarding transit and highway investment, retains the suballocations, and maintains the federal share of most highway and transit projects;
• H.R. 674 and S. 335, or the Streamlined Transportation Efficiency Program for the 21st Century (STEP 21): Sponsored in the House by Majority Whip Tom DeLay (R-TX) and Senate Environment and Public Works Subcommittee on Surface Transportation and Infrastructure Chair John Warner (R-VA), this bill would modify the ISTEA funding formula so that states would receive a 95 percent return on their payments into the Highway Trust Fund. It would also streamline the program by eliminating CMAQ, folding the Bridge and Interstate Maintenance programs into the National Highway program, and reducing the Surface Transportation program. The funding formula approach used the "donor-donee" argument, in which states that were getting less than they put into the Highway Trust Fund were considered "donors" and states getting more back were called "donees;"
• H.R. 1470 and S. 667, or the Transportation Empowerment Act (TEA II): Sponsored by House Budget Committee Chair John Kasich (R-OH) and Sen. Connie Mack (R-FL), this bill would eliminate most of the federal role in transportation taxation and spending, turning most of the authority over to the states. This approach is referred to as "devolution" or a turn-back of authority to states; and
• H.R. 2337 and S. 532, or the Surface Transportation Authorization and Regulatory Streamlining Act for the Next Century (STARS 2000): Sponsored by Rep. Rick Hill (R- MT) and Senate Environment and Public Works Committee Ranking Minority Member Max Baucus (D-MT), this bill would cut the CMAQ program by two-thirds, provides no funds for the Interstate Maintenance program, shifts Transportation Enhancements funds to the National Highway System (NHS), and reduces money going to the municipal planning organizations (MPOs). Additionally, this legislation would shift spending so that 60 percent is being spent on the NHS instead of the current 40 percent.

Two strong proposed reauthorization plans emerged near the end of the session: H.R. 2400, the Building Efficient Surface Transportation and Equity Act of 1997, popularly known as BESTEA, in the House and S. 1173, or ISTEA II, in the Senate.

BESTEA, sponsored by Rep. Shuster, would reauthorize ISTEA for three years and raise annual highway funding to $32 billion and the annual transit funding to $6 billion by the year 2000. The CMAQ program would be maintained, but states would be allowed to transfer up to half of the increase over the previous year's CMAQ apportionment to any other funding category. One of the main strikes against this bill is that it would place surface transportation spending well above the level agreed upon in the balanced budget agreement.

ISTEA II, sponsored by Sen. Warner, would reauthorize ISTEA for six years and would keep it within the parameters of the balanced budget agreement at $145 billion. The bill represents a compromise between the chief sponsors of separate ISTEA bills, namely Sen. Warner, Sen. Baucus, and Sen. Chafee. ISTEA II would consolidate the NHS, the Interstate Maintenance program and the Bridge program into one funding category and leave the CMAQ and Surface Transportation programs in separate categories. The bill was passed by the Environment and Public Works Committee and considered in the Senate, but not voted upon.

Temporary Fix for ISTEA

In November, when it became clear that a multi-year reauthorization would not be agreed upon, Sen. Christopher Bond (R-MO) introduced an ISTEA extension bill that quickly passed the Senate and House and was signed by the president. Among other things, the six-month extension of the program:

• Makes $5.5 billion available from the Highway Trust Fund from November 16, 1997, through January 31, 1998, to states using the FY97 ratios for the Federal-aid highway program. These funds would be used by states to fund specified items according to the FY97 distribution for such items as the NHS, the Interstate Maintenance program, the Bridge program, the Surface Transportation program, and CMAQ;
• Allows a state to transfer any unobligated funds granted to it for an alcohol traffic safety program, a commercial motor vehicle safety program, or apportioned to it for the surface transportation program, CMAQ, the National Highway System, the Interstate System, the highway bridge replacement and rehabilitation program, or the highway safety program to any other such program. After ISTEA has been reauthorized, these transferred funds must be restored to their proper program category; and
• Amends ISTEA to reauthorize, until March 31, 1998, appropriations for the federal lands highway program, the national recreational trails program, highway-use tax evasion projects, the scenic byways program, and the intelligent transportation systems program. It also includes appropriations for the National Highway Transportation and Safety Administration highway safety programs, alcohol traffic safety programs, the National Driver Register, the motor carrier safety program, and federal transit programs (including fixed guideway modernization programs and certain other mass transit programs).

Technology Transfer

The Small Business Innovation Research (SBIR) program, a joint federal program with the participation on 11 agencies, received administrative funding for FY98 of $100 million, down from a requested level of $125 million, as part of the National Aeronautics and Space Administration (NASA) budget. Each year, agencies with extramural budgets exceeding $100 million set aside no less than two and a half percent of this budget to fund awards to small businesses. Over 90 percent of SBIR funds come from the Department of Defense, NASA, the Department of Health and Human Services (and particularly its National Institute of Health), the Department of Energy and the National Science Foundation.

SBIR provides small businesses with awards to be used for R&D activities. Phase I, with a maximum award amount of $100,000, is for research projects that evaluate the technical merits or feasibility of an idea or technology and generally last up to six months. Phase II projects, with a maximum award amount of $750,000, are based on the results of the first phase and fund R&D work as well as evaluation of commercialization potential. Awards are based on the qualifications of the small business, degree of motivation, technical merit and future market potential.

The Small Business Technology Transfer (STTR) program, set to expire at the end of FY97, was reauthorized for the period of FY98 to FY00. The budget to administer this program is shared with the SBIR program. This pilot program was created in 1992 to provide funding aimed at increasing research and development collaboration between universities and small high-tech companies. Money to fund the program comes from a 0.15 percent set-aside on the entire extramural research budgets of five federal agencies, all of which spend over $1 billion on research and development: the Department of Energy (DOE), DOD, the Department of Health and Human Services (HHS), NASA and the National Science Foundation.

Workforce Development

The House and Senate once again moved closer to consolidating and updating federal job training and vocational education programs. The House is keeping the issues in separate bills, and the Senate is grouping them together.

In May, legislation that would consolidate over 60 federal job training and literacy programs into three state block grants, H.R. 1385, passed by a 343-60 vote in the House. The bill, sponsored by Education and the Workforce Subcommittee on Postsecondary Education, Training and Life- Long Learning Chair Buck McKeon (R-CA), included an amendment that would allow state legislatures, not governors, decide how to allocate the block grant funds.

The three block grants are:

• Adult Employment and Training Opportunities Grant: targeting disadvantaged adults and dislocated workers who are either chronically unemployed or who have lost their jobs as a result of economic shifts or corporate downsizing;
• Disadvantaged Youth Employment and Training Opportunities Grant: for at-risk, low- income teenagers and young adults; and
• Adult Education and Literacy Grant: to help low-income people obtain the necessary skills to become employed, such as those trying to move from welfare to work.

In July, the House voted to reauthorize and revise the Carl D. Perkins Vocational and Applied Technology Act of 1990. Rep. Frank Riggs (R-CA) sponsored H.R. 1853 which would allocate state funds based on the percentage of their population in the 15- to 25-year-old age range, the target groups for vocational and technical education programs. The bill would also change the formula for state dispersal of funds to schools. Ninety percent, up from 75 percent, would go to schools. Eight percent would go to state activities, and the remaining two percent would be used for administrative purposes.

In September, the Senate passed its version of a job training program consolidation bill, S. 1186. The bill, introduced by Labor and Human Resources Subcommittee on Employment and Training Chair Mike DeWine (R-OH), would permit states to create a comprehensive system of job training, vocational education and adult education, with separate funding streams for each. One-stop service centers would offer clients job training, career counseling and other employment services. Individual training accounts would provide greater flexibility for job- seekers to get training.

The Senate version was attached and then dropped from the Department of Education spending bill for FY98. The plan has been opposed by most educational groups and Clinton would have likely vetoed it.

Both sides are expected to come to a conference agreement early in the recently started current session.

Empowerment Zones and Enterprise Communities

In his budget request presented to Congress in February, the president called for a second round of Empowerment Zones/Enterprise Communities (EZ/EC). The federal EZ/EC program is a 10- year initiative that targets federal grants to distressed urban and rural communities for social services and community redevelopment. It also provides tax and regulatory relief to attract and retain businesses in the area designated as a zone.

First-round designations were made in December of 1994 by the secretaries of the Department of Housing and Urban Development (HUD) and the Department of Agriculture (USDA), creating six urban EZs, three rural EZs, 65 urban ECs and 30 rural ECs.

Each urban EZ was given $100 million in social services block grant funds, each rural EZ received $40 million, and both urban and rural ECs were allocated $3 million each. EZ/ECs also qualify for tax-exempt bonds that provide facilities and land for businesses, are given special consideration in competitions for funds from other federal programs, and receive assistance from the federal government to overcome regulatory impediments. Businesses in EZs also qualify for tax credits on wages and increased deductions for depreciation.

Sen. Carol Moseley-Braun (D-IL) and Ways and Means Committee Ranking Minority Member Charles Rangel (D-NY) introduced the Community Revitalization Act of 1997, S. 235 and H.R. 505, which outlined plans for a second round of EZs/ECs and $2 billion worth of brownfields cleanup incentives. The legislation would have changed eligibility requirements, offered a different set of incentives and a new category of bond financing.

As part of the Tax Relief Act of 1997 that was one side of the Balanced Budget Agreement, a second round of EZs were authorized, with authority to designate 15 in urban areas and five in rural areas. The two existing Supplemental EZs in Los Angeles, California and Cleveland, Ohio would become full-fledged EZs. No new Enterprise Communities (ECs) were authorized.

The new EZs and current EZs/ECs will benefit from several new program provisions:

• A brownfields tax incentive to promote cleanup and redevelopment;
• Relaxed eligibility rules for bonds and expensing to broaden the range of businesses that qualify for special tax-exempt private-activity bonds;
• A public school renovation tax credit; and
• The Work Opportunity Tax Credit (WOTC), with a maximum amount of 40 percent of $6,000 in wages paid during the first year of employment.

New EZs would also benefit from:

• A special Brownfields Tax Incentive to allow designation of up to 2,000 acres of non- poverty, industrial acreage to help create jobs for zone residents;
• Enhanced Private-Activity Bonds, allowing new EZs to be eligible for $60-230 million in flexible private-activity bond authority to subsidize job-creation and business expansion activities. This bond authority is outside of the state volume cap; and
• Additional Section 179 expensing of investments in capital and equipment to promote commercial investment.

Funding for the second-round EZ will come from HUD, the Department of Labor and the USDA. HUD has already allocated $5 million in FY98 funds to the program.

Evaluating the Performance of EZ/ECs

In October, the House Ways and Means Subcommittee on Oversight held a hearing on the performance to date of the federal EZ/EC program, with testimony from a wide range of experts on the federal program and state enterprise zones. CUED board member Diane Lupke testified on behalf of CUED on the performance on the EZ/EC program. In her written testimony, incorporating information gathered from CUED members, Lupke touched on five suggested improvements to the EZ/EC program: a specific incentive for brownfields cleanup and reuse, technical assistance and better marketing of the EZ bond program, an easier-to-use employment tax credit, a sustainable governance structure, and greater partnering with existing state zone programs.

Particular interest in the performance of the EZ/EC program arose from the proposed second round of EZs and legislation that would create so-called renewal communities. H.R. 1031, the American Community Renewal Act of 1997, was introduced by Rep. J.C. Watts (R-OK) and would create 100 renewal communities, 50 of which would be in existing EZ or ECs. These new zones would provide tax credits to promote commercial revitalization in areas characterized by pervasive poverty, unemployment and general distress. The bill and its companion piece, S. 432, were not acted upon in committee but interest remains strong.

Down in 1997, But Not Out?

There were several legislative initiatives that were introduced in Congress but did not make it to a vote before adjournment. The following describes legislation that will likely resurface in 1998.

International Trade

Renewal of fast track authority, the ability for the president to negotiate trade agreements with foreign governments with only the yea-or-nay involvement of Congress, was a major concern in Congress and the White House toward the end of the session. In fact, GOP leaders delayed adjournment in order to help the President rally support from Democratic members, but the initiative stalled and Congress was forced to leave this issue for 1998.

Because of fast track's free-trade, pro-business orientation, support among GOP lawmakers has been strong. Democrats, and their organized labor allies, have been firmly against renewal. Since fast track authority has been held by every president since Gerald Ford, a vote against renewal would be an embarrassment to the Administration. This issue is expected to re-emerge as a major focal point at the beginning of the new session.

Multilateral Agreement on Investment

The Multilateral Agreement on Investment (MAI) is an international agreement designed to remove barriers to international trade and promote globalization of the world economy. Spearheading efforts of MAI completion is the Organization of Economic Cooperation and Development (OECD), an association of 29 industrialized nations based in Paris, France. While those participating in the development of the agreement represent industrialized economies, it is their intention to have underdeveloped countries eventually sign on as well.

Proponents have touted the agreement as a long-sighted step in the direction of opening up world markets for a freer flow of commerce. The MAI is designed to ease the movement of capital across international borders. It would protect the rights of investors to free, safe and equal market access and would help resolve conflicts that may arise between governments and transnational corporations. The goal is to increase investment and economic growth.

Opponents have pointed out several potentially negative outcomes to local economic development. Governments from those countries that sign the agreement may have to abandon laws and policies that involve local economic development, human rights and environmental protections. Additionally, corporations would be able to sue national governments in an international court if they perceived that a domestic law violated their rights.

The agreement is not expected to be completed until May 1998.

Electric Power Deregulation

Efforts to deregulate and restructure the electric power industry started off as a hot-button issue but had lost much steam by the end of the session as debate over other issues occupied Congress and the Administration. Although several bills were introduced, there was no clear consensus as to which plan would be the best. Two key points of contention among Congressional members is whether or not states should have to deregulate the industry, and if so, should there be a deadline by which they need to do so.

On the House side, Majority Whip Tom DeLay (R-TX) and Commerce Subcommittee on Energy and Power Chair Dan Schaefer (R-CO) support the idea of deregulations by a specific date, as do Senators Slade Gordon (R-WA) and Dale Bumpers (D-AR), who introduced S.1401, which would set January 1, 2002, as the deadline for states to deregulate. On the other side of the fence, Senate Energy and Natural Resource Committee Chair Frank Murkowski (R-AK) has said he is against any federal mandate for states to deregulate.

Federico Pe–a, Secretary of the Department of Energy, indicated that the administration is considering a "flexible" mandate to exempt those states that come up with a better solution to deregulation. Officially, though, no policy on this issue has come from the White House yet. Electric power deregulation will continue to be an focal point of debate in 1998.

Individual Development Accounts

Labor and Human Resources Subcommittee on Children and Families Chair Dan Coats (R-IN) and Sen. Tom Harkin (D-IA) introduced the "Assets for Independence Act" (S. 1255), a bill that seeks to establish a four-year, $100 million Individual Development Account (IDA) demonstration program. The House version, H.R. 2849, was sponsored by Rep. Tony Hall (D- OH) and Budget Committee Chair John Kasich (R-OH).

The stated goals of the bill are to determine:

• The social, civic, psychological, and economic effects of providing to individuals and families with limited means an incentive to accumulate assets by saving a portion of their earned income in an IDA;
• The extent to which an asset-based policy that promoted savings for education, home ownership, and microenterprise development may be used to enable individuals and families with limited means to increase their economic self-sufficiency; and
• The extent to which an asset-based policy stabilizes and improves families and the community in which they live.

The goal of IDAs in general is to help low-income individuals and families save their money, build assets and connect to the economic mainstream. Participants would deposit whatever they could into their account at a federally insured financial institution, and this amount would be matched, sometimes doubling their investment.

In the case of this demonstration program, the match would be based on a formula, with a maximum match of $2,000 for individuals and $4,000 maximum for families. The demonstration program would be administered through the Department of Health and Human Services and would fund nonprofit organizations and state and local governments to implement IDA programs. The legislation would target low-income individuals and families, enabling them to use IDAs to purchase a home, fund postsecondary education or capitalize a microenterprise.

The bills were referred to the appropriate committees in both chambers but were not acted upon. Legislation on IDAs is expected to appear again in the second half of the 105th Congress.

Incentives

Trying to give state and local governments greater leverage in their ability to deal with businesses, Rep. David Minge (D-MN) introduced the Distorting Subsidies Limitation Act of 1997, H.R. 3044. The bill would create a federal excise tax on businesses benefitting from targeted economic subsidies or incentives. Businesses would be taxed on the value of these subsidies at the same rates as currently applied in the federal corporate tax structure. The stated goal of this legislation is to encourage states to increase their competitiveness not by the use of "special treatment" to businesses, but rather through quality of services, reasonable and efficient regulatory policies and fair tax structures.

Minge's statement on the bill argues that it will "allow states and local officials, who face exploitation from companies' threats to relocate, the ability to negotiate with businesses on a level playing field. The ever increasing practice of giving targeted subsidies to demanding businesses is having a very detrimental effect on both the employment stability and fiscal stability of cities and states."

The tax would not be applied to businesses benefitting from special targeted economic subsidies that are available to all businesses in a designated area. It would not apply to expenditures for training or other educational purposes either. As an example, federal program dollars that are available to all businesses or are used for an established federal economic development program such as an enterprise zone would be exempt from the tax. But federal funds that are used for targeted subsidies would need to be recovered from the governmental unit or business that benefitted from them.

The bill, introduced on the final day of the Congressional session, was referred to the Committee on Ways and Means.

Prohibiting Tax-Exempt Stadium Financing

Prohibiting tax-exempt bond financing for professional sports facilities was high on the to-do list of Senate Finance Ranking Minority Member Daniel P. Moynihan (D-NY) at the beginning of the session. He introduced the Stop Tax-Exempt Arena Debt Issuance Act, S. 434, in March as a means to closing a perceived "loophole" in a 1986 law to prohibit private-activity bond financing of stadiums. Private-activity bond financing may not be used for stadiums, and Moynihan's bill would define a private-activity bond as "any bond issued as part of an issue if the amount of the proceeds of the issue which are to be used to provide professional sports facilities" exceeds the lesser of 5 percent of the proceeds or $5 million.

Although there were no hearings held on this bill in the first session, Moynihan has requested that Finance Committee Chair William Roth (R-DE) hold a hearing in 1998. Roth has not set a date for a hearing yet, but he has agreed to do so. Moynihan's commitment to this bill is expected to remain strong and this means the bill will resurface when Congress reconvenes.

Copyright 1998 by the Council for Urban Economic Development