Los Angeles, which was stunned in 1994 by its failure to win a federal empowerment zone, was awarded the long-sought prize Wednesday, clearing the way for the city to receive up to $600 million a year in federal tax credits intended to spur development in poor neighborhoods.
Although a formal announcement of the award is not scheduled until Jan. 31, word of the decision reached city officials Wednesday. Once enacted, the designation will allow business owners in poverty-stricken areas to receive $3,000 in federal tax credits for each employee who lives and works inside the zone. The designated sites include parts of East and South-Central Los Angeles, as well as the Pacoima area in the San Fernando Valley.
For small and medium-sized businesses, which make up the bulk of employers in much of Los Angeles, the credits can represent a significant rebate on their federal taxes. A garment manufacturer or toy company employing 100 workers, for instance, could see its federal taxes cut as much as $300,000, provided its employees live close enough to the company's plant.
"This could really help us," said Glenn Sataloff, corporate controller of Arc Machines Inc., a 240-employee welding system manufacturer in Pacoima. "We're a growing company . . . and we always try to hire locally."
In addition to delivering help to struggling businesses, the designation also caps a long political struggle that at first left city officials bitterly disappointed but in the long run has resulted in Los Angeles receiving a double dose of federal aid.
"This is terrific and welcome news from Washington," Mayor Richard Riordan, who has lobbied more than three years for the zone, said in a statement. "The empowerment zone designation, coupled with the Community Development Bank and the other items in our economic toolbox, will result in jobs, jobs, jobs for Angelenos who live in parts of Los Angeles where jobs are most needed."
On Dec. 21, 1994, Riordan was preparing for a holiday party when word reached him that the federal government had turned down the city's request for one of the original empowerment zones. Although the zones were created largely with Los Angeles in mind, the city was passed over that year in favor of Detroit, Chicago, New York, Atlanta and Baltimore.
Federal officials said Los Angeles' application was vague and incomplete compared to the better work produced by rival cities. Riordan and other city officials denied that, and the mayor called the U.S. decision "unbelievable."
He was so incensed that he refused to participate in the conference call with President Clinton announcing the winners. Instead, Riordan turned to lobbying federal officials for something in place of the zone. That effort eventually paid off in creation of the Community Development Bank, which is dedicated to making loans in the same poor neighborhoods.
That bank was widely criticized for taking years to establish itself, but it now has begun giving out loans to businesses in impoverished areas. Local leaders are closely watching its efforts this year in hopes that the bank can begin to have a noticeable effect on creating jobs throughout poor neighborhoods. The bank is backed by $740 million, making it by far the biggest such financial institution in the country.
Gilbert Ray, a prominent Los Angeles lawyer and former board member of the bank, said Wednesday's decision to create a Los Angeles empowerment zone will bolster the bank's efforts by easing the burden on some of the city's most struggling employers.
"This will help a great deal," he said. "The bank and the empowerment zone together will be a dynamite one-two punch."
Despite creation of the bank, city leaders continued to push for the empowerment zone. When Vice President Al Gore visited Los Angeles last fall, Riordan joined him for a limousine ride between public appearances and presented him with a bluntly worded list of items of high priority to the city.
The empowerment zone was among those, as was a request that the money for the tax credits become available in 1999. On Wednesday, Rockard Delgadillo, deputy mayor for economic development, said the city still has not learned for certain when the credits will become available but has been assured that it will be no later than 2000.
"We continue to push for 1999," he said. "I think we have a receptive ear in the White House."
Meanwhile, the mayor's office also has proposed creation of tax-free zones in the designated neighborhoods, meaning that firms in those areas would see their city business taxes frozen for five years. Under that proposal, which is still awaiting City Council action, firms that moved to the areas would not pay any business taxes for five years.
Gore is scheduled to lead a news conference in Los Angeles on Jan. 31 formally announcing the zone designation.