Who would have guessed that in 1998 the federal government would be debating what to do with a prospective budget surplus? For many years, a steady stream of budget deficits relegated even the thought of a budget surplus to the realm of the hypothetical. And yet when the year opened, serious discussion had already begun on what to do with a budget surplus. Some argued for more tax cuts, the president urged saving social security, while still others saw an opportunity to start finally chipping away at the nation's $5.5 trillion debt. The debate would not be resolved, but other pressing issues proved to be just as contentious, making the legislative process often an uphill battle.
As all the world knows, a great deal of time was consumed in the impeachment and trial of President Clinton. Although the Congress was not directly involved in this process until near the end of the year, the whole atmosphere clouded the activities on the Hill and tended to obscure many issues. Certainly, the media and many members and staff found it difficult to focus very long on other, less exciting concerns. Added into this mix was the fact that 1998 was an election year which always diverts attention from legislative matters. Given all of this, it is surprising how much actually was accomplished in the second half of the 105th Congress.
A number of other issues dogged passage and presidential approval of the 13 annual appropriations bills for fiscal 1999 (FY99). Agreements such as a ban on so-called partial-birth abortions, campaign finance reform, the 2000 census, restrictions on the use and sale of tobacco, raising the minimum wage, and medical insurance reform proved difficult, even elusive, in the second half of the 105th Congress. Battles over these issues consumed much time and sometimes served as major roadblocks to passage of other bills.
One of the first prolonged battles that Congress faced was a reworking of the surface transportation bill, the 1991 Intermodal Surface Transportation Efficiency Act (ISTEA). Extended to the end of April after reauthorization efforts stalled in 1997, ISTEA served as a blueprint for federal transportation funding and policy. After much sparring between chambers, a deal was finally brokered after the short-term extension had expired. Congressional approval of the new Transportation Equity Act for the 21st Century (TEA-21) finally came on May 22 and the president signed the bill June 9, more than eight months after the original law had expired.
To cut or not to cut taxes also proved a difficult issue to resolve. An ambitious package of tax cuts that at one point totaled $100 billion was scaled back to $80 billion. Supporters argue that the tax cuts could be paid for largely from the budget surplus. But even the smaller version proved too difficult for full congressional support and a more modest, $9.2 billion compromise bill that would extend certain existing tax credits was eventually enacted. Included among these is the research and development tax credit for businesses. The Work Opportunity Tax Credit (WOTC) and the Welfare-to-Work tax credit also were both extended to June 30, 1999.
Heated debate on these and other controversial issues stalled agreement on a budget resolution, leaving appropriators with the unusual task of crafting spending bills without the guidance of a budget framework. This is the first time in 24 years that such a resolution was not passed by Congress. With the appropriations process already behind schedule, it became clear by late summer that work on all of the appropriations bills would not likely be completed by Oct. 1.
After passing six continuing resolutions to keep the federal government running past the end of the 1998 fiscal year, Congress finally passed a catch-all spending bill before adjourning. The remaining eight spending bills were dealt with in an omnibus appropriations bill signed by the president on Oct. 21. Although members from both parties expressed disappointment with the final $500 billion spending bill, general agreement prevailed that this was better than a government shut-down.
An emergency spending bill totaling $20 billion allowed both parties to secure funding for key initiatives, thereby claiming budgetary victories, without technically overstepping the limits of the 1997 balanced budget agreement. The budgetary excesses would come out of the estimated $70 billion budget surplus, which came as an FY98 windfall. Included in the omnibus bill were appropriations for the departments of Commerce, Agriculture, Labor, Education, Treasury and Justice, and extensions of numerous tax credits.
Despite the political environment in Washington, several economic development-related initiatives made it to the finish line before the 105th Congress finally adjourned Oct. 21. The following is a summary of how federal program funding faired, which major pieces of legislation will have an impact on economic development and what issues died in Congress but may resurface in the 106th Congress.
Department of Commerce
EDA Reauthorization Realized
The Economic Development Administration (EDA) received $368.4 million for its grant programs. With salaries and expenses, this comes to $398 million and is consistent with the president's request for FY99. This represents an increase of $31.4 million over FY98 spending. During House consideration of the EDA spending bill, Rep. Mark Souder (R-IN) offered an amendment that would have cut EDA funding by $21.6 million. The amendment was defeated, 327-91.
The public works program, used to help fund infrastructure projects to aid business expansion, had $205.8 million to use in FY99, up from $178 million in FY98 and $154.2 million in FY97. Planning grant funding remained level with FY98 appropriations at $24 million. Also remaining level was funding for the technical assistance program, with $9.1 million available for FY99. The economic adjustment program, which assists communities grappling with negative changes to their economies, saw funding increase to $34.6 million, up from $29.9 million for FY98. This is far less than the $79.3 million requested by the president.
The defense adjustment program received $84.8 million, down from $89 million. This program helps communities that have been adversely affected by the closure of local military bases. Funding for the trade adjustment assistance program inched up slightly to $9.4 million. Last year, the program received $9.1 million, up from $8.5 million in FY97. The president had requested $10.5 million for the program, which helps U.S. businesses, recover from difficulties stemming from international competition.
Funding also had been requested to support the creation of an Office of Community Economic Adjustment. This office would deal with communities that were hurt by international trade agreements such as the North American Free Trade Agreement (NAFTA) or by the closing of a major manufacturing facility. Congress did not provide any financial support for this initiative.
Efforts to reauthorize EDA emerged in both chambers during the 105th Congress. The House version of the 1998 Economic Development Partnership Act, H.R. 4275, was introduced by Transportation and Infrastructure Chair Bud Shuster (R-Pa.) and garnered 105 cosponsors. The slightly different Senate version (S. 2364), sponsored by Environment and Public Works Chair John Chafee (R-R.I.), attracted 61 cosponsors. The House had held two hearings at the subcommittee level in 1997 and the Senate held a subcommittee hearing in 1998.
In the waning days of the 105th session, the Senate approved S. 2346 by unanimous consent, and the next day the House approved the Senate version by voice vote. The president signed the bill on Nov. 13. After waiting 16 years for reauthorization, the agency's funding is now secure for the next five years. Funding for EDA in FY00 is set at $338.4 million, for FY01 at $306 million, and for FY02 and FY03 at $277 million. The bill also reauthorized the Appalachian Regional Commission (ARC) for three years.
The bill makes several changes to EDA grant requirements. Previously, the federal share of the total project cost was 75 percent. That has changed to a 50/50 match, although the assistant secretary for economic development may reduce or waive the non-federal share. The eligibility qualifications are also more stringent. To be eligible for EDA funding, an area must have a per capita income of 80 percent or less of the national average or an unemployment rate at least one percentage point greater than the national average. Or the area must have experienced or be about to experience actual or threatened severe unemployment or economic adjustment problems. In addition, economic development districts, Indian tribes, states, institutes of higher education and nonprofit organizations cooperating with localities also may be eligible.
National Institute of Science & Technology
The National Institute of Science & Technology (NIST), part of the Department of Commerce's Technology Administration, received FY99 funding of $647.1 million, down from $672.9 million in FY98. This figure also is $67.9 million less than the president's request. Funding for NIST is broken down into three areas: Scientific and Technical Research Services (STRS), that includes the Baldrige National Quality Program; Industrial Technology Services (ITS), that covers funding for the Advanced Technology Program (ATP) and the Manufacturing Extension Partnership (MEP); and the improvement of NIST research facilities.
ATP saw an increase for FY99 to $203 million, up from $192.5 million in FY98 but still short of the $260 million that the president had proposed. Included in this funding is $66 million for new awards in FY99. This program provides funding for innovative research and development projects that have the potential for broad-based economic benefits but are viewed as too risky for private-sector venture capital investment. ATP provides early stage seed funds to help finish research for products or processes that have great potential but cannot attract venture capital investments.
Toward the end of the year, a new competition was announced for ATP funding. The program is consolidating this process into a one large competition, instead of the various technology specific competitions of the past. Independent review boards for different areas of research will evaluate the proposals. A new baseline of $2.7 billion in annual corporate revenues will be used to define a "large" corporation. Large companies must cover at least 60 percent of the project's annual costs. Companies in the past were not given a specific minimum level of cost-sharing.
The MEP program received $106.8 million for FY99, down from $113.5 million in FY98 but consistent with the administration's budget request. This program helps fund regional centers around the country that assist small and medium-sized manufacturers in acquiring new technologies and manufacturing practices. The goal is to make these businesses more productive, profitable and globally competitive.
A new piece of legislation, the 1998 Technology Administration Act, signed by the president in late October allows a MEP regional center to receive one-third of its funding from NIST after its sixth year. Previously, a sixth-year sunset provision on funding had existed, although since 1995 Congress had provided funding extensions for a number of centers that had reached their sixth year. Additional federal funding is possible following a positive evaluation through an independent review. Centers also get funds from state and local governments and user fees.
The departments of Commerce and Agriculture signed a memorandum of understanding (MOU) in October that addresses anticipated computer problems with the coming of the year 2000, often referred to as Y2K. The MOU outlines ways in which the MEP program can help smaller manufacturers, particularly those in the food, fiber and wood products industries, deal with Y2K problems and improve their productivity and competitiveness. The program now offers both a self-help computer tool and information on its Web site to help smaller manufacturers: conduct an inventory of equipment, such as hardware, software and embedded systems; identify core business systems and rate their importance to the survival of the company; develop contingency plans; and plan and manage remediation plans.
International Trade Administration
The International Trade Administration (ITA) was appropriated $286.7 million, an increase of just $3.7 million from FY98. With carryovers from prior years, the actual availability of funds in FY99 will be $302.8 million. The goal of this agency is to help U.S. companies become more competitive by promoting exports, negotiating and implementing trade agreements, and helping businesses overcome unfair trade barriers.
The Trade Development program was funded at $59.3 million, roughly level with FY98 funding. Part of this money will be used to fund a new trade statistics improvement initiative. This program operates the Trade Information Center and funds the Advocacy Center. It also helps negotiate and enforce industry specific trade agreements such as those pertaining to autos, textiles and aircraft. The Market Access and Compliance Program received level funding of $17.8 million. The program identifies barriers to market access and ways to overcome them, assists with the development of bilateral and multilateral trade policies for greater market access and counsels and assists U.S. businesses interested in access to foreign markets. Funding for the Import Administration increased for FY99, from $28.8 million to $31 million. The agency administers U.S. antidumping laws and countervailing duty laws, and various industry-specific trade agreements to protect U.S. companies from unfair trade practices.
Increasing by $11.7 million, funding for the U.S. and Foreign Commercial Service for FY99 was set at $182.7 million. Of this amount, $1 million is earmarked for the continuation of the Rural Export Initiative. This agency provides export counseling and export promotion services to U.S. businesses. It has a network of offices throughout the United States and abroad.
Minority Business Development Agency
Funding for the Minority Business Development Agency increased slightly to $27 million, up from $25 million for FY98. This agency coordinates all minority business programs and assists businesses with market access and identification of resources.
In addition to its coordination role, MBDA was created to promote private and public sector investment in the development of competitive minority owned businesses. A database is maintained to assist minority businesses to be informed about available business opportunities.
The Department of Housing & Urban Development (HUD) touted what it called the "best budget in 10 years," with an FY99 appropriation of $24.5 billion for programs and activities. This is a substantial increase over the $23.7 billion HUD received last fiscal year, but is still less than the $25 billion that the president had requested. A major portion of the budget, $9.6 billion, will fund Section 8 housing subsidy contracts, including providing 90,000 families with welfare-to-work assistance.
The Community Planning & Development (CPD) division of HUD, which funds most of the department's economic development programs, saw an increase of almost $260 million. For FY99, CPD received a program budget of $7.65 billion, up from $7.39 billion.
As one of the two CPD programs that received sizable budget increases, the Community Development Block Grant (CDBG) program received a $75 million boost in funding for FY99 for a total of $4.75 billion. Setasides, or specially earmarked funds, also continued to increase. The president's budget proposal would have slashed setasides to $292 million, down from the FY98 level of $472.3 million. Although both the House- and Senate-passed versions of the spending bill had setasides in the $300 million range, the final number was $531.8 million.
Those programs receiving CDBG setasides and the amounts earmarked for FY99 include:
No money was allocated for the Regional Connections Initiative, a new program that would have received $100 million. Both chambers dismissed funding for the program on the grounds that it was not authorized.
A few programs funded by FY98 CDBG setasides were funded without setasides in FY99. The newly created Office of Rural Economic & Housing Development received funding of $25 million, of which $4 million will go to develop state and local-level capacity for rural housing and economic development. And HUD's brownfields redevelopment initiative received $25 million, half of what was requested but level with FY98 funding. The CDBG program includes a loan guarantee component, known as Section 108 under the Housing & Community Development Act. These loan guarantees provide HUD guarantees for private bank financing for the acquisition of real property, housing rehabilitation and various kinds of economic development projects.
The Section 108 program remained level in its budget recommendation, at $1.26 billion. Section 108 allows state and local governments to leverage up to five times their annual CDBG entitlements in private finance to fund infrastructure projects and business loans. The types of projects financed include water and wastewater facilities for multi-family housing and economic development expansions, acquisition and initial development of land for housing and industrial use, and business activity loans to promote community employment opportunities.
The Economic Development Initiative (EDI) is being proposed to be combined with a portion of the Section 108 program to provide $125 million through EDI grants and $625 million in Section 108, for a total of $750 million that can be used to leverage up to five times that level of private financing. This would potentially create 100,000 new jobs through business loans for expansion and modernization, startup costs for small and mid-sized businesses, preservation of existing industrial facilities, and retail and commercial revitalization in underserved neighborhoods.
Section 205 of the appropriations bill also states that CDBG money for FY98, FY99 and all subsequent fiscal years can now be used for brownfields cleanup and related economic development activities. The Brownfields Redevelopment program provides competitive grants in conjunction with Section 108 guarantees for brownfields cleanup.
Redeveloping Brownfields
HUD announced on Nov. 16 that it would provide $152 million to help redevelop brownfields at 21 sites across the country. These funds would be in the form of grants and loan guarantees, with $22 million coming from the Brownfields Economic Development Initiative (BEDI) program and $130 million in Section 108 loan guarantees. An additional $715 million from businesses and local, state and other federal investments is expected to supplement HUD's contribution.
HUD anticipates that 7,700 jobs will be created with the restoration of polluted and abandoned sites into businesses, homes and recreation sites, as well as additional construction jobs numbering in the thousands. Grant winners were: Huntington Beach, Calif.; Los Angeles; Stockton, Calif.; Washington, D.C.; Atlanta; Thomson, Ga.; Chicago; Springfield, Mass.; Benton Harbor, Mich.; Kansas City, Mo.; St. Louis; Ithaca, N.Y.; Nassau County, N.Y.; Rochester, N.Y.; Syracuse, N.Y.; Oklahoma City; Allegheny County, Pa.; Bethlehem, Pa.; Philadelphia; Memphis, Tenn.; and King County, Wash.
Streamlining the Application Process
HUD announced in March a reworked grant application format, the so-called SuperNOFA (notice of funding availability). SuperNOFAs are designed to streamline the application process for HUD money by standardizing the application and selection processes. Previously, sometimes up to 40 HUD NOFAs were published throughout the year with different rules, deadlines and evaluation criteria, making the process difficult and time-consuming for communities.
The new format is broken into three broad categories for funding: housing and community development, economic development and empowerment, and targeted housing and homeless assistance programs. Programs in the $176 million economic development and empowerment SuperNOFA include:
HUD plans to consolidate eventually the application process into one giant SuperNOFA, which could happen as early as 1999.
Second Round of Empowerment Zones
The selection process for a Second Round of Empowerment Zones (EZs), authorized by the 1997 Tax Payer Relief Act, moved forward this year with regional workshops to help communities applying for designation as one of the 15 urban EZs or 5 rural EZs. HUD and the U.S. Department of Agriculture sponsored workshops across the country in April and May to help communities apply for designation, with information on new criteria, new incentives and an increased focus on the plethora of other federal programs that can be used by EZs. The deadline for applications was October 9 and designations are were announced in January 1999.
The new urban EZs will create or retain nearly 72,000 jobs. They have commitments of $12.75 billion in leveraged public funds and $5.9 billion in private funds. It is important to note, however, that this leveraging relies upon congressional approval of more EZ grant funding. This will be proposed in the 2000 budget.
The 15 urban EZs are: Boston; Cincinnati; Columbia/Sumter, S.C.; Columbus, Ohio; Cumberland County, N.J.; El Paso, Texas; Gary/East Chicago, Ind.; Huntington, W.Va./Ironton, Ohio; Knoxville, Tenn.; Miami; Minneapolis; New Haven, Conn.; Norfolk/Portsmouth, Va.; Santa Ana, Calif.; and St. Louis, Mo./East St. Louis, Ill. Each EZ gets $3 million in grants. The Clinton Administration wants congressional approval for an additional $1.5 billion in grants, to be spread over 10 years ($100 million apiece).
Congress already has authorized $2.2 billion in tax-exempt bonding authority and other tax incentives for all 20 new zones. This breaks down to $130 million in bonding authority for the urban zones and $60 million in authority for rural EZs. (For more on the rural zone program, see the USDA section later in this report.)
Beyond the bonding authority, each zone can benefit from four categories of tax incentives, which have proven to be valuable redevelopment tools for the first-round zones.
Businesses located in zones can take a federal income tax deduction of up to $37,500 of machinery and equipment in the year it is placed in service, instead of gradually recovering the cost through depreciation.
Zones can offer tax incentives to promote the cleanup and redevelopment of brownfields. Businesses can deduct qualified environmental cleanup costs in the tax year in which the cost is paid or incurred.
Zone businesses can claim up to a $2,400 tax credit for hiring 18-24-year-old zone residents and other hard-to-employ residents under the Work Opportunity Tax Credit.
State and local governments can issue bonds that permit public schools in a zone to raise funds for curriculum development or physical improvements. Schools must have financial commitments from business partners in order to qualify.
Gore announced a proposal in the White House's FY 2000 budget that would provide $65 million in grants to runners-up in the urban zone competition. Fifteen such communities, dubbed Strategic Planning Communities, each would get $3 million. They are: Anchorage, Alaska; Birmingham, Ala.; Burlington, Vt./Plattsburgh, N.Y.; Charleston/North Charleston, S.C.; Jackson, Miss.; Kansas City, Mo./Kansas City, Kan.; Louisville, Ky.; Las Vegas/North Las Vegas, Nev.; New Orleans; New York City/Brooklyn, N.Y.; Newark/Elizabeth, N.J.; Providence, R.I.; San Antonio; and Tacoma/Lakewood, Wash.
The remaining $20 million from this pool would help urban EZ applicants fund strategic planning and technical assistance.
During the second-round EZ competition, two specific changes in eligibility were explained in the April 16 rules published in the Federal Register. The size of an EZ has been increased and the requirements for poverty rates has been relaxed. Previously, at least half of the nominated area had to consist of census tracts with poverty rates of 35 percent. While this requirement has been eliminated, a requirement for at least a 25-percent poverty rate for 90 percent of the area's census tracts and at least a 20-percent poverty rate for the remaining tracts continues to apply. Special consideration is given to census tracts with populations under 2,000.
In addition to the new zones, Vice President Al Gore announced in early 1998 that Los Angeles and Cleveland would be upgraded to full EZ status. The two cities previously operated as Supplemental EZs. Although there will be no new funds for these zones, they will benefit from the full range of incentives offered to the original EZs. The District of Columbia also was designated a special Empowerment Zone for a shortened five-year term.
The EZ/EC program was launched at the federal level in 1994 with the designation of nine EZs (six urban and three rural) and 95 ECs (65 urban and 30 rural). Each urban EZ received $100 million in Title XX Social Services Block Grant (SSBG) funds from the U.S. Department of Health & Human Services to be used over a 10-year period, while urban ECs received $3 million each. In addition, two Supplemental EZs in Los Angeles and Cleveland, and four Enhanced ECs in Boston, Kansas City (Kansas and Missouri), Oakland, Calif., and Houston received specially earmarked Economic Development Initiative (EDI) funds and Section 108 loan guarantees.
Unlike the first round of designees, however, new EZs will not be able to access the employment credit. This credit allows businesses that hire individuals who live and work in the zone to claim a credit on qualified zone wages. A 20 percent credit, up to a maximum of $3,000, is available for 1994-2001, with the credit diminishing over the next few years to 5 percent or a maximum of $750 by 2004 when the program sunsets.
However, the second round of EZs will be able to access a number of benefits beyond the SSBG funds that are available to first-round EZs and ECs. A new brownfields tax incentive would allow zones to identify an additional 2,000 acres of property for commercial and industrial use that would be eligible for the tax benefits afforded areas within the EZ. These areas could be composed of up to three separate parcels of land and would be exempt from the poverty rate criteria used for the rest of the EZ. Redevelopment of these areas must be linked to benefits, such as jobs, for EZ residents. The tax incentive is a deduction of qualified environmental cleanup costs that can be taken in the tax year that the cost was incurred. Qualified costs are generally defined by the Internal Revenue Code as those incurred or paid to abate or control a hazardous substance.
In September, guidance on developable sites was issued to help clarify for applicants the uses and definitions of these sites. Included within this guidance are the following points of clarification:
Another benefit that will be available to second-round winners is an increased Section 179 deduction. The increase is as much as $20,000 and applies to qualified zone property of an "enterprise zone business." This increased deduction cannot be claimed by businesses located in an EC. Section 179 of the Internal Revenue Code allows businesses to deduct all or part of the cost of certain qualifying property in the year it is placed in service. This can be done instead of recovering the cost by taking depreciation deductions over a specified recovery period.
Tax-exempt bond financing is another EZ/EC program benefit. These facility bonds can be issued to help enterprise zone businesses with qualified zone property. A minimum of 95 percent of the bond proceeds must help finance a qualified zone property principally used by an zone business and land that is used for a related purpose such as a parking lot for employees and customers. An additional public school bond known as the Qualified Zone Academy Bond also may be issued. These funds can be used to rehabilitate or repair school facilities, obtain equipment, develop course materials or train teachers and other school personnel. Private commitments for contributions valued at no less than 10 percent of the total issue must be collected before bonds can be issued.
Finally, there are two tax credits that zones can offer to their businesses. The Work Opportunity Tax Credit (WOTC) and the Welfare-to-Work credit. WOTC provides a credit to employers who hire specially targeted individuals during the employees' first year of employment. It was extended to June 30, 1999. Targeted individuals include welfare recipients, veterans, ex-felons, high-risk youth, vocational rehabilitation referrals, summer youth employees, food stamp recipients and supplemental security income (SSI) recipients. The maximum amount that can be claimed per employee is $2,400 for at least 400 hours worked. Between 120 and 400 hours, a maximum $1,500 credit can be claimed.
The welfare-to-work credit, also extended to June 30, 1999, applies to wages earned by those receiving welfare and can be claimed for the first two years of employment. A qualified employee would be one who is a long-term aid recipient. The maximum credit that can be claimed by an employer is $3,500 the first year and $5,000 the second year on a maximum of $10,000 in qualified wages. This credit cannot be claimed in conjunction with WOTC. It was also extended to June 30, 1999.
The Rural Community Advancement Program (RCAP) received a larger appropriation for FY99, increasing to $722.7 million from $652.2 million. The three programs under RCAP and their respective levels of funding are: Rural Housing Assistance Program (RHAP) with $29.8 million, Rural Business- Cooperative Assistance Program (RB-CAP) with $47.9 million, and Rural Utilities Assistance Program (RUAP) with $645 million.
The FY99 budget for the Department of Agriculture (USDA) was set at $55.9 billion, an increase of almost $2 billion over the previous year's allocation. The original spending bill was vetoed by the president on Oct. 7 due to controversy over the low level of farm relief spending. A compromise of $1 billion in tax cuts and an increase to $5.9 billion in farm relief allowed the spending bill to pass as part of the final omnibus spending package. Rural economic and community development programs are handled by three USDA agencies: Rural Housing Service (RHS), Rural Utility Service (RUS), and Rural Business-Cooperative Service (RBS).
RHS funds support loans, loan guarantees, rental assistance payments and grants to low-income families. The RHS also offers community facility loans and grants. Total loan authorizations under RHS's Rural Housing Insurance Fund Program for FY99 totaled $4.25 billion, with loan subsidies totaling $197.3 million.
RUS supports three main programs. The Rural Electrification and Telecommunications loan program received a subsidy of $43.3 million to support a program level of $1.56 billion, a slight increase over last year's level of $1.42 billion. The Rural Telephone Bank program was allocated a subsidy of $4.2 million for a total program level of $157.5 million, down from $175 million in FY98. Finally, the Distance Learning and Telemedicine program received a slight increase in funding to $12.7 million. Also known as Medical Link, the program provides rural residents with great access to educational and medical facilities.
RBS programs support technical assistance, development and research service activities. The agency's Rural Development Loan Fund program received funding to support a program level of $33 million, down $2 million from the previous year's level. Part of these funds will go to Empowerment Zone/Enterprise Community loans. The Rural Economic Development Loan Program received $3.8 million to cover costs for direct loans for a total loan program amount of $15 million, down from $25 million in FY98. Rural Cooperative Grants saw a slight increase to $3.3 million, with $1.3 million to be made available for the "Appropriate Technology Transfer for Rural Areas" program. The Rural Business Enterprise program received $5 million less for FY99, dropping to $33 million. Finally, the Business and Industry (B&I) loan guarantee program level decreased slightly, from $1.05 billion in FY98 to an even $1 billion for FY99. This program facilitates private lending to establish, expand or modernize rural businesses. The Rural Development Loan Fund is a part of this program.
Second Round of Rural Empowerment Zones
A second round of rural EZs received $10 million. Twenty new ECs received a total of $5 million in the FY99 budget. This money, far less than the originally proposed $40 million for 10 years. Additional funds will be requested in the FY2000 budget proposal.
The five rural EZs are: Cordele, Ga.; Fargo, N.D.; Ogala Sioux Reservation in Pine Ridge, S.D.; Riverside County, Calif.; and Ullin, Ill. Poverty has struck these communities harder than the urban areas, with the average rate at 37 percent (excluding the tribal zone). Shannon County, S.D., which is included in the Ogala Sioux zone is the poortest county in the United States. Each rural zone gets $2 million. The president wants $100 million for the rural zones over 10 years ($20 million each).
Although not a part of the Tax Relief Act of 1997, 20 new Enterprise Communities (ECs) were authorized in 1998. These new rural ECs will receive $250,000 in first-year funding. The effort to create this second round of ECs was spearheaded in the House by Reps. Wes Watkins (R-Okla.) and Maurice Hinchey (D-N.Y.). The two introduced the 1998 Rural Enterprise Communities Act, H.R. 4071, in June, a bill that would have created 33 rural ECs and modified the eligibility requirements.
The 20 new rural ECs are: Ada, Okla.; Hallandale, S.C.; Austin, Ind.; Bowling Green, Ky.; Charleston, W.Va.; Collie, Wash.; Deming, N.M.; Harrison, Mich.; Immokalee, Fla.; Kaunakakai, Hawaii; Juneau, Alaska; Keshena, Wis.; Leoti, Kan.; Lewiston, Maine; Orange Cove, Calif.; Poplar, Mont.; Rutledge, Tenn.; Uniontown, Pa.; Uvalde, Texas; and Window Rock, Ariz.
USDA will request $5 million for additional grants for rural communities that applied but did not get an EZ designation. They are known as Champion Communities.
Defense Secretary William Cohen stepped up efforts to get two more rounds of base closures through Congress when he released the department's report on base closures April 2. The report once again described the state of financial affairs and the need for two more rounds of base closures in 2001 and 2005. The request for two more BRAC rounds ran into trouble in the House and ultimately never saw the light of day.
Office of Economic Adjustment
The Office of Economic Adjustment (OEA) within the Defense Department (DOD) is charged with assisting those communities that have been affected by base closure and realignment. OEA's program budget decreased to $31.2 million but with $25.5 million for specific projects, the total for FY99 comes to $56.7 million. Those projects specifically targeted for funding were:
In a separate appropriations bill for military construction, funding was allocated for the Base Closure & Realignment (BRAC) program. Funding for the BRAC 93 account was set at $427 million, with $271 million available for environmental restoration. Congress appropriated $1.2 billion for BRAC 95, with $426 million for environmental restoration. The president had sought $433.4 million for BRAC 93 and $1.7 billion for BRAC 95.
Congress included in the spending bill a requirement for DOD to create a Treasury account for BRAC environmental restoration. Future restoration costs would be programmed and budgeted in this account.
The spending bill also allocated $3.5 billion for housing construction, operation and maintenance. The bill included language directing DOD to review proposed privatization efforts and then submit quarterly reports to congressional appropriators on the status of these efforts.
The General Accounting Office (GAO) issued a report in the summer on privatization efforts in military housing, Military Housing: Privatization Off to a Slow Start and Continued Management Attention Needed. The report recommended a three-pronged strategy to expedite the process while keeping costs down. The suggestions were:
Congress Rejects More BRAC
A proposal to schedule two more BRAC rounds, in 2001 and 2005, was a predictably hard sell to Congress. The issue was not even broached in the House National Security Committee, while the Senate Armed Services Committee effectively killed the proposal. Sens. John McCain (R-Ariz.) and Carl Levin (D-Mich.) offered the proposal to their colleagues, who rejected the measure in May, 9-8.
The administration had not even issued formally a plan for more base closures and realignments, but top- level officials, including Secretary Cohen, have been advocating the authorization of more rounds as a necessary step in achieving the department's readiness goals. With the savings produced by more closures, estimated to reach $3 billion eventually, DOD could modernize the military.
Those opposed to more BRAC rounds have criticized the base closure accounting estimates and also have expressed concern over cutbacks in light of problems with Iraq. Still others have been soured on the process because of BRAC 95 and what they saw as inappropriate involvement by the administration in the closure process.
DOD officials, in defense of the proposal for more BRAC rounds, have argued that the alternatives would be more damaging. For example, a less palatable alternative would be for DOD to "hollow out" or "pickle" certain bases. This means that the military would abandon bases viewed as unnecessary, leaving behind boarded up buildings and shutting down utilities. Financial assistance would not be provided through OEA and the property would not be available to impacted localities.
The issue came up again in Senate consideration of the FY99 Defense Authorization bill. An amendment sponsored by Sen. James Inhofe (R-Okla.) would have made it harder for DOD to close, or pickle, bases on its own. Furthermore, the amendment expressed the sense of the Senate that no further BRAC rounds should be authorized until current base closure actions have been completed.
The Inhofe amendment sought to prohibit DOD from unilaterally closing, inactivating or abandoning an installation or from shifting a base to caretaker status if such a move displaced at least 225 civilian workers. The current threshold is 300 civilian jobs lost. The amendment also would prohibit the closure of a base that had completed realignment activities within the last four years in which the number of civilian workers had fallen below 225.
The amendment also included language critical of DOD's report on the BRAC process, faulting the apparent inability of the department to track effectively base closure costs and savings from BRAC 93 and 95.
The Senate voted 48-45 to include the amendment in its version of the bill, but it was not included in the final conference report.
Rep. Joel Hefley (R-Colo.), chair of the House National Security Subcommittee on Military Installations and Facilities, also expressed reservations about more base closures. He said that discussions of additional base closures were often focused too much on the economic efficacy of such a move and not on the critical issue of national security. He, too, expressed the desire to see the previous rounds of closures through to completion before embarking on more closures.