CABINET COUNCIL ON ECONOMIC AFFAIRS - MAY 8 1984 - 8:45 A.M. ROOSEVELT ROOM TOPIC: PRESIDENT S NATIONAL URBAN POLICY RPT

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP86M00886R001900200026-5
• Release Decision: RIPPUB
• Original Classification: K
• Document Page Count: 203
• Document Creation Date: December 21, 2016
• Document Release Date: November 5, 2008
• Sequence Number: 26
• Publication Date: May 4, 1984
• Content Type: MEMO

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Executive Registry
i
THE WHITE HOUSE CA 9 r S I A I
WASHINGTON
CABINET AFFAIRS STAFFING MEMORANDUM
Date: 5/4/84 Number: 168983CA Due By:
Subject: Cabinet Council on Economic
ALL CABINET MEMBERS
Vice President
State
Treasury
Defense
Attorney General
Interior
Agriculture
Commerce
Labor
HHS
HUD
Transportation
Energy
Education
Counsellor
OMB
( 6A
41w-
GSA
EPA
OPM
VA
SBA
REMARKS:
Action
0
Affairs - May 8, 1984 - 8:45 A.M.
TOPIC: President's National Urban Policy Rpt
Actions
FYI
CEA
12
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OSTP
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Baker
Deaver
Darman (For WN Staffing)
Jenkins
Mc Farlane
Svahn
CCCT/Gunn
CCEA/Porter
CCFA/
CCHR/Simrnons
CCLP/Uhlmann
CCMA/Bledsoe
CCNREi
The Cabinet Council on Economic Affairs will meet on Tuesday,
May 8, at 8:45 A.M. in the Roosevelt Room.
The agenda and background paper are attached.
RETURN TO: ^ Craig I.. Fuller
^Jfratherine Anderson ^ Don Clarey
Assistant to the President
A"-. for Cabinet Aff Tom Gibson ^Larry Herbolshe,mer
Associate Director
456-2823 Office of Cabinet Affairs
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THE WHITE HOUSE
May 3, 1984
MEMORANDUM FOR THE CABINET COUNCIL ON ECONOMIC AFFAIRS
FROM: ROGER B. PORTER ,e8 r
SUBJECT: Agenda and Paper for the May 8 Meeting
The agenda and paper for the May 8 meeting of the Cabinet
Council on Economic Affairs are attached. The meeting is
scheduled for 8:45 a.m. in the Roosevelt Room.
The Council will consider the final draft of the 1984
President's National Urban Policy Report. Secretary Pierce
has prepared a short memorandum accompanying this report
which includes a brief summary of the arguments and conclu-
sions of the Report. A copy is attached.
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CABINET COUNCIL ON ECONOMIC AFFAIRS
May 8, 1984
8:45 a.m. -
Roosevelt Room
AGENDA
1. President's National Urban Policy Report (CM# 469)
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U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
THE SECRETARY
WASHINGTON, D.C. 20410
May 2, 1984
FROM : Samuel R. Pierce, Jr.
Vq,
SUBJECT : President's National Urban P'icy Report
Attached is a copy of the final draft of the 1984 President's National
Urban Policy Report. I hope to be able to transmit the Report to Congress
in mid-May, and have therefore asked for expedited consideration at the
meeting on Tuesday, May.8, 1984.
The Urban Policy Report contains an Overview and four additional
chapters. The Overview, Chapter I, provides a statement of the
Administration's urban policy, and brief descriptions of many initiatives
undertaken as part of that policy. Chapters II-V are concerned, respectively,
with the Administration's Federalism Policy and its effects on States and
cities; the improvement in urban economies and efforts to aid lagging
cities; current social problems in the cities, such as poverty, education
and crime; and the physical environment of our urban areas, including
infrastructure, air and water quality, and housing. The draft has been
prepared with the cooperation of the respective departments and agencies
of government concerned, and has been reviewed by OMB.
To aid you in your review, a brief summary of the arguments and
conclusions of the 1984 National Urban Policy Report follows. I would
urge you also to use the framework provided in Chapter I, the "Overview,"
for your review.
Chapter I, Overview: This chapter sets the tone and framework of the
ran Policy beginning with the assertion that the Reagan Administration
has ushered in an era of dramatic change in intergovernmental relations.
Through block grants, deregulation and tax and other incentives the
Administration has restored authority to cities and States, stimulated
intergovernmental cooperation and encouraged public-private partnerships
to help meet local needs. Underlying this reestablishment of State and
local authority is the revitalization of the national economy as the
result of the Economic Recovery Program. The recovery has restored local
economies and local fiscal strength, as well as reducing demands on
limited government resources.
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In this chapter the Administration pledges to continue these policies,
as well as to help care for the needy, aid cities with special problems,
maintain anti-crime initiatives, press for improved education, and provide
resources, through user fees, for infrastructure. The chapter then highlights
many Administration initiatives and actions including the following: the
Economic Recovery; maintenance of programs (CDBG, UDAG, General Revenue
Sharing) aiding distressed cities; Enterprise Zones; improving targeting
of assistance to the needy; job training and specialized training for
youth and single parents; anti-crime initiatives; efforts to improve
local and parental control of education; housing initiatives aimed at
increasing affordability for both the poor and moderate income homebuyers;
public housing improvements; fair housing; added infrastructure funding
through the Surface Transportation Assistance Act; and encouragement of
public/private partnerships.
Chapter II - Restoring the Grass Roots: The Administration has acted to
restore balance in e federal system by strengthening State and local
governments. This chapter shows how the growing professionalism,
accountability and responsiveness of State and local governments provided
a basis for Administration policy. The Administration's actions to
consolidate grants through the Omnibus Reconcilation and Budget Act of
1981, to eliminate unnecessary strings on categorical grants through
legislation, and to relax or rescind regulations affecting States and
cities are briefly described. Preliminary results and reports indicating
the success of these efforts, and the effectiveness of State and local
governments in implementing these programs and meeting legislative goals
are also described.
The combination of Economic Recovery, State and local fiscal
responsibility and increased flexibility and authority, have led to a
situation in which States and local governments are becoming fiscally
healthy for the first time in years, and are learning to work with each
other to meet their citizens' needs. Current figures on local fiscal
conditions are provided.
Chapter III - Urban Economies: The foundation of the Administration's
ran Policy is a sustained conomic Recovery, which has already had the
effect of improving conditions in the cities. This chapter provides
current analysis of the economic conditions as they affect cities in the
aggregate, as well as a description of the factors leading some cities to
lag in the recovery. Most cities have seen unemployment declines, revival
in their manufacturing and service sectors, and significant improvement
of their tax receipts and fiscal health. Transition and growth at the
local level are generally being aided by the overall strength of the
economy. For those cities held back by aging plants, difficult labor
market conditions and shifts in the overall economy, the Administration
has not only maintained General Revenue Sharing and targeted programs
such as CDBG and UDAG, but has proposed Enterprise Zones. In addition,
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the Administration has revamped training efforts with the Job Training
Partnership Act, directing a much higher proportion of training funds to
actual training, has urged enactment of a youth employment opportunity
wage, and has developed specialized training initiatives such as the
Minority Youth Training Initiative and Project Self-Sufficiency (aimed at
single parents). Activities of the SBA to aid small and minority firms
are described, as well as the successful refocusing. of CDBG funds to
economic development by States and cities using their new flexibility
under Administration policies.
Chapter IV - Urban Social Conditions: This chapter focuses on three
major social pro ems of urban areas: concerns of the needy, educational
quality, and crime. It begins with a brief update of demographic trends
since the 1982 Report, which show continuing movement to the South and
West and from central cities to suburbs and non-metropolitan areas.
Changes within the poverty population, such as the growth of single-
parent households are also described.
The Administration has been successful in its efforts to target
assistance more accurately to the most needy households, and to increase
State and local authority in health and human services. In addition,
actions have been taken by many Departments under leadership of HHS to
provide emergency food and shelter in the cities as needed.
The chapter also details efforts by all levels of government to
create a new partnership for excellence in education. The Administration
has acted to provide leadership, to consolidate grants, and to deregulate
to increase local authority and discretion. In addition, the Administration
has proposed innovations such as tuition tax credits and vouchers to
increase parental influence. State and local governments have contributed
with movement toward merit pay and special efforts for the handicapped,
disadvantaged and minorities.
Crime has been an area of notable improvement recently, with a 7
percent decline reported for 1983. The broad range of Administration
initiatives directed toward law enforcement, aid to victims, lessening
family violence, and cooperation with State and local authorities is
described.
Chapter V - Urban Physical Environment: Housing, infrastructure and air
and water quality are emphasized in this discussion of Administration
actions to improve the physical quality of life in urban areas. A full-
scale revamping of national housing policy combined with the lowering of
inflation and interest rates has led to increased affordability of housing
for low and moderate income families. Federal housing assistance programs
are aiding more low-income families for less than costly construction
programs. For homebuyers, the Administration has emphasized reducing
cost through deregulation and increasing the sources of housing finance.
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New programs in Rental Rehabilitation and Housing Development will aid
those specific urban areas where there is a shortage of housing supply.
With the Surface Transportation Assistance Act, the Administration
has made a significant contribution to the problem of maintaining the
nation's infrastructure. State and local policies have also been redirected
to maintenance and rehabilitation and recent assessments have indicated
that the infrastructure problems, though significant, are manageable.
This chapter also describes the many ways in which the Administration has
acted to improve the quality of air and water in urban areas.
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The Reagan Administration has ushered in an era of dramatic change
in intergovernmental relations, reversing the trend of the past 50 years
which had made cities overly dependent on the Federal government. This
new era seeks to restore the authority of State and local governments, to
rebuild and enhance the natural relationship between States and their cities,
and to encourage elected officials on both levels of government to forge
productive partnerships with their private sectors.
President Reagan's strategy for revitalizing cities has aimed at
creating, fostering, or in some cases, accelerating these evolving relation-
ships through a series of initiatives designed to encourage States and
cities to set their own priorities and make the most of existing resources.
Underlying these initiatives is the central recognition, raised to national
consciousness by President Reagan, and therefore affecting officials on
all three levels of government, that excessive spending fuels inflation,
ultimately hurting everyone, and that the nation, as a whole, must manage
wisely by balancing needs against resources and learning to share both
resources and responsibilities.
Block grants, deregulation, more careful targeting of federal
funds, incentives for public-private partnerships--these policies pursued
by the Reagan Administration have lifted much of the burden of Federal
mandates and restrictions from State and local officials and endowed them
with a new flexibility in managing their resources. As a result of these
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policies, and of the growing recognition by State and local policymakers that
financial resources are increasingly limited, in the past three years, cities,
counties and States have entered into an ever increasing number of creative
partnerships and consolidations that have helped substantially to relieve
pressures on urban budgets.
While examples abound, and many of these are detailed in Chapter II
of this report, a clear description of this trend was recently provided
in testimony before the U. S. Advisory Commission on Intergovernmental
Relations by the President of the North Carolina Association of County
Commissioners and Chairman of the North Carolina Local Government Advocacy
Council:
There was a time in North Carolina when the allocation of functions,
responsibilities and powers between city and county governments was
such that there was relatively little overlap. For example, not too
long ago only cities were involved in fire protection, water and sewer
services, solid waste collection and disposal, parks and recreation,
planning, zoning and subdivision regulations and inspections. Today,
all of these functions are authorized for counties as well as for
cities and are being performed by most counties--sometimes independently
and sometimes cooperatively with cities. These and other functions
of cities and counties are also shared in some cases, with the state.
We in North Carolina believe we are in a new public financing era
in our state as well as in the entire nation--one in which responsi-
bilities for financing essential governmen services will increasingly
fall on state and local governmental shoulders, and one in which
financial resources are increasingly limited. In order to be prepared
for this new era, we are assessing our present alignment of responsi-
bility in order to be able to make informed choices for the future.'
(Emphasis added.)
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What is happening in North Carolina is happening in many States in
In effect, President Reagan has helped make citizens and officials on
all levels of government aware of the need to understand their governmental
systems and ask some basic questions: Who does what? Who pays for it?
How well is it done? Who should do it, and who should pay for it? As a
result, in the past three years cities, States and counties have joined
together to reexamine their relationships and review the need to change,
divide or combine responsibilities for administration and finance. Local
governments have joined with neighborhood groups or private firms, counties
with their cities, cities with their surrounding suburbs or other cities,
and States with their cities or other States to pool resources and provide
services and to assume functions that were once solely the responsibility
of municipal governments.
Another result of the national awareness of budgetary restraints is
the increasing use of volunteers by local governments to supplement city
staffs. For cities, the contributions made by volunteers go beyond cost
savings. Volunteerism both taps and enhances community spirit, loyalty,
and commitment, thus helping, in less tangible ways, to enhance the
quality of life in cities.
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Perhaps the most dramatic change has been the growing responsiveness
of States to their cities. Cities have long charged States with neglecting
local needs. Hard-pressed central cities in particular, whose job and
population losses undermined their ability to serve their heavy concentrations
of needy people, traditionally by-passed the State House and looked to
the Federal government for relief. The growing professionalism of State
governments and the new flexibility granted to them by the Reagan Administra-
tion policies, coupled with the new national awareness of the need to make
the most of existing resources, have led States to become more involved in
providing local services. In the past three years, States have increased
targeting to their distressed communities, undertaken major infrastructure
repairs, assumed a substantial share of the cost of some key local services,
and taken steps to improve local access to credit.
Pivotal to this recent assumption of responsibility is the
restored economic health of the nation. As stated in the Administration's
1982 Urban Policy Report, the foundation for President Reagan's Urban
Policy was his Economic Recovery Program. The success of that program
is the springboard for the newly formed interrelationships on State
and local levels. The President's Economic Recovery Program has reduced
the rate of increase of Federal government spending and restored saving and
investment incentives to levels necessary for sustained economic growth.
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Within three years economic conditions improved dramatically for most
States and urban areas. The following results show that President Reagan's
policies are helping to return growth and prosperity to urban areas:
After virtually no growth from 1979 to 1982, the
economy grew at a 6 percent annual rate in 1983
and entered 1984 with strong momentum. Most other
economic indicators are now headed upward. Housing
starts, for example, have risen above an annual rate
of 1.7 million units in 1983 and averaged a 1.95 million
annual rate in the first quarter of 1984.
The CPI has been cut sharply from over 12 percent when
the Administration took office to the current rate of
4.6 percent. State and local governments can once
again engage in rational budgeting without having to
worry about the disruption of double digit inflation.
The civilian unemployment rate dipped from a 10.8 percent
rate in December 1982 to 7.8 percent in February-March
1984; this decline of 3 percentage points is the largest
for any comparable post-war recovery period. The unemploy-
ment rate decline was broad-based, including all demo-
graphic groups and 90 percent of the States.
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Since December 1982, close to 5 million more people have found
jobs, bringing employment to its highest level in history.
Eighty percent of the States have more non-farm employment than
they had one year earlier, and about 70 percent of the metropoli-
tan areas have more non-farm employment than they had one year
earlier.
Despite the recent rise in interest rates, the prime rate is
still nearly half of what it was at the start of 1981, when
it was 21.5 percent.
The budget positions of State and local governments have
been significantly enhanced. State and local operating
budgets moved into a sharp $15 billion surplus in 1983.
Knowing that they can look forward to building surpluses, States
and counties are restoring services cut in the recession and are increasingly
helping their cities. For cities, because of the national economic
recovery, their own innovative public-private strategies, and increased
aid from State and county levels, their fiscal position is the strongest
it has been in a number of years.
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President Reagan's Urban Policy will continue to encourage these
positive trends and affirms the following principles:
- To continue to keep the nation on the path of economic
growth;
- To continue to facilitate, through block grants and
further deregulation, the development of State and
local authority and cooperation;
- To continue to encourage public/private cooperation;
- To continue to help cities with special problems
anticipate and adjust to economic dislocation;
- To continue to help care for the truly needy;
6
- To continue anti-crime initiatives which have helped
bring about the first annual drop in the crime rate in
five years;
- To continue to focus national attention on the quality
of education and increased State and local flexibility;
- To continue to provide, through the Surface Transportation Act,
resources for rebuilding the nation's infrastructure and
to provide technical assistance to States and localities on
cost-effective capital investment strategies; and
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- To continue to promote civil rights through vigorous
enforcement of legal protections against discrimination,
and by acting to guarantee equal treatment in publicly
funded programs, regardless of race, color, sex, creed or
national origin.
The following chapters examine in detail the effects on all three
levels of government of the Reagan Administration's Urban Policy. Chapter
II discusses how far the Administration has come in promoting a reordering
of our federal system and points out how States and localities, in partnership
with the private sector, are demonstrating increased capacity, willingness,
and cooperation in solving local problems. Chapter III examines the
impact of recovery on urban economies and the special economic problems
of older central cities, and the steps taken by the Administration and
States and localities to try to deal with these problems. Chapters IV
and V examine specific problems facing a number of our cities and responses
by public and private sectors to these problems. Chapter IV focuses on
the Administration's effort to target assistance to the neediest households
and initiatives by all levels of government to enhance the social and
economic well-being of urban residents in the areas of crime and education.
Chapter V examines housing and infrastructure issues.
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In the past three years the Administration has undertaken several major
initiatives to implement its Urban Policy principles. Highlights of
initiatives currently in place or being developed include the following:
The economy is projected to grow at rates of over 5 percent in 1984 and
4 percent in 1985. The composite index of twelve leading indicators, which
predicts future changes in the economy, is on a strong upward trend,
rising in 14 of 15 months since November 1982. Low inflation rates and
lowered interest rates, increased consumer spending in 1983, tax reductions
and the reduction in regulations which saved billions for businesses,
the record level of foreign investments in the U.S., and the $55 billion
budget surpluses in State and local government coffers--the combined
effect of all these has helped stimulate strong business expansion.
The Administration is very concerned about the large federal deficit
and has consistently urged Congress to trim government outlays to cope
with the problem. The President has suggested a downpayment of $148
billion in deficit cuts for the next three years. He has also endorsed a
Constitutional amendment mandating a balanced budget each year. Forty-nine
of the fifty States' constitutions contain such a directive. National
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momentum is building towarda Balanced Budget Amendment. In 1982, it
passed the Senate by a two-thirds vote and received a majority in the
House. Thirty-two States have directed Congress to adopt this measure or
to hold a constitutional convention for that purpose.
Continued Strengthening of State and Local Authority
In every Federal department and agency over the past three years, programs
have been reviewed to identify ways to increase State and local authority.
In addition, new programs such as Rental Rehabilitation and the Job
Training Partnership Act, have been structured and administered to provide
maximum State and local discretion and minimum federal intrusion. The
implementation of the block 'grants which consolidated 57 programs into 9
through the Omnibus. Budget Reconciliation Act of 1981 is undergoing
thorough evaluation, from many perspectives, to provide a foundation for
. i,
future consolidation efforts.
The impact of deregulation is also being examined to identify opportunities
for further easing of unnecessary administrative burdens. Major savings
for State'and local governments, of $2 billion in annual costs and $4 -
$6 billion in initial costs were achieved through efforts of the Presidential
Task Force on Regulatory Rellief, and the departments and agencies. The
Administration expects contiiriued savings for State and local governments
will result from a second wave of review and deregulation.
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momentum is building toward a Balanced Budget Amendment. In 1982, it
passed the Senate by a two-thirds vote and received a majority in the
House. Thirty-two States have directed Congress to adopt this measure or
to hold a constitutional convention for that purpose.
Continued Strengthening of State and Local Authority
In every Federal department and agency over the past three years, programs
have been reviewed to identify ways to increase State and local authority.
In addition, new programs such as Rental Rehabilitation and the Job
Training Partnership Act, have been structured and administered to provide
maximum State and local discretion and minimum federal intrusion. The
implementation of the block grants which consolidated 57 programs into 9
through the Omnibus Budget Reconciliation Act of 1981 is undergoing
thorough evaluation, from many perspectives, to provide a foundation for
future consolidation efforts.
The impact of deregulation is also being examined to identify opportunities
for further easing of unnecessary administrative burdens. Major savings
for State and local governments, of $2 billion. in annual costs and $4 -
$6 billion in initial costs were achieved through efforts of the Presidential
Task Force on Regulatory Relief, and the departments and agencies. The
Administration expects continued savings for State and local governments
will result from a second wave of review and deregulation.
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Continued Aid to Cities Suffering Effects of Economic Dislocation
The Administration recognizes that neither the general economic
recovery nor the increasing capacity and willingness of State and local
governments and their residents to help themselves, will solve the problems
of all cities.
While more and more cities are sharing the benefits of economic
recovery, some cities still have not fully recovered. Older cities,
dependent on industries suffering long term structural problems exacerbated
by cyclical fluctuations in income and employment, remain troubled. With
large concentrations of the needy, these cities continue to feel financial
hardships and are unable to diversify their economic bases or change from
a manufacturing to a service economy, as other cities have done. Yet
these cities have the enormous strengths and competitive advantages of a
skilled labor force, extensive infrastructure, choice location, universities,
and central business districts.
Recognizing both the special problems and strengths of these
cities, the Reagan Administration's Urban Policy is committed to helping
them anticipate and adjust to structural change.
The Administration's commitment to helping cities whose revenue base
dwindles as industries leave or fail is not based on the notion of
centralized planning. Proponents of a national industrial policy
argue that the Federal government should analyze troubled industries,
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decide which to help and how, and provide the necessary subsidies to do
so. Some of our basic industries--steel, auto, textiles--have recently
encountered hard times for a number of reasons, including past management
mistakes, excessive labor demands, the relatively high value of the
dollar internationally, and the heavy hand of government regulations.
If some of these industries are now recoverable it will be because the
Reagan Administration is removing regulatory burdens created by too many
years of centralized planning and creating, through tax cuts, tax incentives
for investment, low inflation and interest rates--the market conditions
most favorable to the recovery of these firms. In addition, the strength
of the economic recovery will make it possible for farsighted managers to
accomplish needed technological changes, capital improvements and efficiency
measures in a time of increasing profitability and market demand. As a
result, the necessary modernization of much of our national industrial
plant will be brought about with much less strain and distress than would
have occured if the economy had been allowed to continue in the "stagflation"
of the late 1970's and 1980.
To aid those cities having difficulty adjusting to the rapid economic
changes of the 1980's, the Administration has maintained aid programs focussing
on declining cities' needs, and proposed a major new initiative to aid them:
? General Revenue Sharing has been continued and maintained at
existing levels to enable cities to direct those relatively
unrestricted funds to areas of pressing local need.
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? Community Development Block Grants (CDBG) are being maintained with
increased local discretion and modifications to permit greater use
for economic development and private sector involvement;
? Urban Development Action Grants (UDAG), with streamlined application
procedures and adjustments to emphasize job production more strongly,
are providing solid help to cities committed to working with their
private sectors to bring about economic development;
? Enterprise Zones, a vital new initiative to reinvigorate sections of
our cities by removing tax and regulatory inhibitions on business to
encourage job formation and expansion, has been offered to Congress
in each year of the Administration. Despite passage in the Senate,
co-sponsorship by well over half of the House of Representatives, and
enactment of Enterprise Zone legislation in over 20 States, this
important experiment and potential aid to our cities has been
allowed to languish in Congress. The Administration will continue
to press for the earliest possible passage and implementation of
the Enterprise Zone program.
? Technical Assistance can be an extremely useful tool for aiding cities
to adjust to local circumstances while taking advantage of experience
gained around the nation. The Administration continues to provide
technical assistance to cities to assist them in addressing their
most pressing problems. For example, HUD has undertaken special
technical assistance efforts for the nation's ten highest
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unemployment cities. The Department sent in special teams to provide
economic development and strategic planning aid as well as specific
help on developing projects suitable for Urban Development Action
Grants.
Continued Targeting of Assistance to the Needy
Close to 62 percent of people with income below the poverty level
live in metropolitan areas. Recent reports indicate that, with the onset
of uncontrolled inflation and resulting recessions, poverty levels have
been increasing since 1979. With economic recovery, the nation is back
on its track of progress against poverty. Although many problems remain,
poverty has been alleviated by the President's Economic Recovery Program
and other initiatives.
Effects of Economic Recovery
The nation's economic recovery has done much to help the poor by
increasing the purchasing power of their income. In the 1970's, benefits
for the average family on AFDC increased by one-third. But high inflation
in that decade meant that even though a family had more money, they could
buy a third less at the end of the decade than they could buy at the
start. Now, with inflation cut to just 3.2 percent, a poor family of
four with a poverty level income has over $900 more purchasing power than
it would had inflation continued at the same rate as in the years prior
to the President's inauguration.
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-15-
Improved Targeting and the Needy
Welfare reforms passed in 1981 were designed to lower costs, main-
tain the safety net and reduce dependency on government assistance.
By implementing measures designed to restrict AFDC eligibility to those
whose income and resources are insufficient to meet basic needs, these
reforms saved about $2 billion in State and federal outlays. At the same
time, States put the money saved to good use by actually increasing
benefits to the truly needy.
Actual cash and medical assistance to the needy has increased and
the number of people served by programs such as medicaid, Aid to Families
with Dependent Children (AFDC) and Supplemental Security Income (SSI)
has increased by a half million. Food stamps are benefiting 2.4 million
more people this year than in 1980 and spending for the program was $3.7
billion higher in 1983 than it was in 1980. Spending for the Women,
Infants and Children (WIC) program has increased from $774 million in
1980 to over $1.1 billion in 1983. In the area of assisted housing, by
the end of FY 1985, HUD expects to be providing subsidies through housing
programs to almost 4 million families--up from 3.3 million at the end of
FY 1981. These totals include only direct ongoing HUD subsidy payments.
Counting all forms of federal low-income housing subsidies, the total
number of families assisted will reach 4.9 million by the end of FY 1985.
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Emergency Needs
To focus on emergency needs of the poor, the Administration established
an Interagency Task Force on Food and Shelter, which has made available
federal resources, such as vacant HUD-held housing and military bases for
public and private groups in cities, and $140 million through the Federal
Emergency Management Administration (FEMA) in 1983 and 1984. Also,
working with a coalition of private groups, the Administration is supporting
a ten city demonstration to address emergency needs.
Minority Youth Training
The most extensive enduring problem of unemployment exists among
minority youth. The newly enacted Job Training Partnership Act (JTPA)
directs a majority of its financing to this problem. Not only are the
youth-oriented Job Corps Training Program and the Summer Youth Employment
and Training Program being continued but 40 percent of the resources
available to States under the general grant for training for private
sector employment must be used for youth. The majority of the $3.6
billion requested for Job Training Partnership Act programs will be spent
on services for economically disadvantaged youth.
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Youth Opportunity Wage
The major task now is to remove government imposed barriers from
getting needed work experience. The President is urging the Congress to
enact a Youth Employment Opportunity Wage for the summer months (75
percent of the regular minimum wage) which will enable employers to expand
job opportunities for youth.
Minority Youth Training Initiative
In addition, the Administration is exploring ways to use existing
federal programs in coordinated fashion to accomplish both their primary
purposes and to ease difficulties in minority youth employment and
training. After consultation with the Department of Labor, HUD has
initiated the Minority Youth Training Initiative (MYTI). HUD is
providing $100,000 each to 20 participating cities and counties through
Comprehensive Improvement Assistance Program funds made available to their
public housing authorities. The CIAP funds are then combined with funds
available to the local communities through the Job Training Partnership
Act administered by the local Private Industry Councils and used to
provide training to minority youth in housing management and maintenance.
The local governments and Public Housing Authorities are working with
their Private Industry Councils to identify job placement opportunities
for the trainees.
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Project Self-Sufficiency
Project Self-Sufficiency is an effort to coordinate housing and a
broad network of public and private services for single parent households,
usually female-headed households, to enable single parents to obtain job
training and entry level positions. Child care, counselling, and other
needed services will be combined with housing certificates to provide a
foundation which will give single parents the freedom and security to
participate in job training programs without undue concern for the welfare
and safety of their families. These training programs will be tailored
to meet the job market needs and opportunities of local participating
communities. Since single parent, especially female-headed, households
have become the single greatest factor in the increase of poverty, programs
such as Project Self-Sufficiency are needed to address their unique
problems.
Employment Opportunities
Our recovering economy created over 3 million jobs in 1983.
The Administration expects growth to create some 5 million new jobs
by the end of next year.
Job Training Partnership Act
The Job Training Partnership Act, discussed above, replaced the
ineffective CETA Act, in which most of the available funds were eaten up
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in wages and administrative costs. The JTPA requires that at least
70 percent of funds be used specifically for training. By enabling
States and local communities to determine their training needs and target
the uses of the funds, the JTPA is expected to train people more quickly
and efficiently for real positions in the private sector, rather than
make-work public jobs as frequently occurred under CETA. As exhibited in
HUD's MYTI program the JTPA block grant makes possible creative coordination
of federal, State and local programs at the local level in response to
local needs and local job market conditions.
Anti-Crime Initiatives
Crime is one of the most serious problems facing Urban America.
City dwellers, particularly minority groups, are the predominant victims of
crime. The reduction of crime is one of the highest priorities of President
Reagan's Urban Policy. The Administration has launched major anti-crime
initiatives, ranging from focusing national attention on the victims of crime,
on family violence, and on organized crime to a major reform of federal
criminal laws. In 1982 there were signs of progress. Serious crime dropped
five percent in 1982, the first annual decrease in the crime rate in five
years.
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The Administration has acted in many ways to attack the problem of
urban crime. In addition, it has placed a special emphasis on attacking
drug trafficking and organized crime. The President has also placed a
high priority on measures to improve the lot of victims of crime, among
whom are disproportionate numbers of minorities and the poor.
? President Reagan appointed the President's Commission on Organized
Crime to help develop an overall strategy. The Commission is making a
national analysis of the prevalence of organized crime, evaluating federal
laws pertinent to organized crime, and identifying administrative and
legislative improvements needed to fight organized crime more effectively.
? The Administration established 12 new regional Drug Enforcement Task
Forces throughout the country to mount an attack against drug trafficking.
The task forces are able to focus the resouces of many agencies, including
the FBI, Drug Enforcement Administration, IRS, Bureau of Alcohol Tobacco
and Firearms, INS, U.S. Marshals Service, Customs, Coast Guard, and
Defense, in the largest federal effort against drug trafficking ever
undertaken.
? The Office for Victims of Crime was established within the Department
of Justice to implement recommendations of the President's Task Force on
the Victims of Crime. The priority activities of the Office for Victims
of Crime are: establishment of a National Victims Resource Center,
development of model victims legislation, and victim training packages
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for judges, prosecutors, and law enforcement personnel. The Attorney
General has established guidelines for Department of Justice units to
implement the Victim and Witness Protection Act of 1982, which dictate
special attention to victims and witnesses who have suffered physical,
financial or emotional trauma as a result of violent crime. These
guidelines are intended to serve as models for State and local officials.
? The Administration has implemented a substantial majority of the 64
recommendations of the Attorney General's Task Force on Violent Crime,
which identified both administrative and legislative ways to combat
violent crime.
? Every United States attorney has established a Law Enforcement
Coordinating Committee, made up of federal, State and local enforcement
officials to coordinate efforts against the types of crime identified as
the greatest problem in each area.
A National Center for State and Local Law Enforcement Training,
established through the Department of Justice and the Treasury, is
complementing the training efforts of the FBI. It trains local law
enforcement agents in investigating arson, bombing, bribery and variety
of offenses relating to organized crime.
? To determine the best means of combatting family violence, especially
child abuse and molestation, spouse abuse and mistreatment of the elderly,
the Attorney General's Task Force on Family Violence was created in
September 1983.
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Key to all the activity to fight the types of crime prevalent in
urban areas are the reforms the Administration is seeking in federal
criminal statutes. The Comprehensive Crime Control Act of 1983 was
submitted to Congress in March of 1983. It provides for bail and sentencing
reform, reform of insanity defenses and forfeiture measures and amends
drug enforcement laws to increase penalities and strengthen efforts to
prevent diversion of controlled substances.
Continued Emphasis on Education
The Reagan Administration's Urban Policy remains committed to improving
the quality of education in the nation. Through deregulation and program
consolidation, the Administration strengthened the ability of State and
local educational authorities to manage their programs efficiently. By
focussing attention on the quality of education--on higher academic standards
and improved discipline, President Reagan has galvanized concerned parents,
teachers, school boards, and administrators to take steps to improve and
reform local systems.
The Education Consolidation and Improvement Act of 1981 combined 29
categorical programs into a single block grant for the states. It gave
state and local educators the authority to make the on-site decisions on
priorities they will meet with Chapter 2 funds. Savings in administrative
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costs resulting from these changes reached $1.8 million and 191,000 person
The Administration has acted to increase the involvement of the
private sector in education. One effort is through Partnerships in
Education, an initiative to encourage private corporations to share their
expertise and resources with schools. Extensive partnerships have been
established in cities such as Dallas, Chicago and San Diego. Adult
illiteracy is being addressed through an effort of the Department of
Education and the White House Task Force on Private Sector Initiatives
aimed at bringing in private sponsors.
Improving schools will require increased parental control, which the
Administration has sought to foster by promoting tuition tax credits for
elementary-secondary education and compensatory education vouchers for
disadvantaged children. The Administration has also encouraged development
of locally designed and administered master teacher and merit pay plans,
stricter discipline codes and increased requirements for high school
graduation.
The Administration has maintained a particular commitment to special
needs children. For FY 1985, it has requested $4.7 billion for disadvantaged
and handicapped students.
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Housing
The Reagan Administration has focused heavily on the housing needs
of the nation through a series of key initiatives designed to increase
affordability and availability of housing for both low income people and
homebuyers.
Through Administration management and budget actions, more low-income
families are receiving and will receive housing aid than ever before.
Over 3 million families were receiving assistance through HUD low-income
programs in 1981; almost 4 million will be receiving assistance by 1985.
increasing costs to the taxpaying public.
? Vouchers, established as a demonstration for Fiscal Year 1984, are
proposed to be launched as a full fledged program in Fiscal Year 1985,
to provide affordability in housing to low-income families. Built
on the success of the Section 8 Existing Certificate program and
the Experimental Housing Allowance Program, vouchers are aimed at
enabling the poor to achieve mobility within urban areas, to parti-
cipate more fully in the housing market, and to avoid the stigmatiza-
tion given to high concentrations of the poor in low-income housing
projects. It will enable the federal government to make more effective
use of private sector resources to house the needy.
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? Rental Rehabilitation is a new program initiated by the
Administration to bring together public and private resources in
cities with established need for additional low-income housing
stock. Cities will use Rental Rehabilitation grants to leverage
private investment for rehabilitation. Rental Rehabilitation
grants may provide up to 50 percent of the project costs and no
more than $5,000 per unit, except where adjusted for high cost
areas. Vouchers and Section 8 Existing Certificates will also be
provided to aid families residing in the rehabilitated units.
? Supplementing the Rental Rehabilitation program, for cities with
housing needs which cannot be met with existing stock, is the Rental
Housing Development Grant program. This will provide federal matching
funds for new construction and substantial rehabilitation to cities with
severe shortages in stock, in a manner similar to that in the Rental
Rehabilitation program.
Public Housing
Maintaining the quality and availability of public housing has been
a priority of the Administration since 1981. The President has sought and
obtained an acceleration of modernization efforts and funding to bring
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cost-effective public housing stock up to standard. HUD has launched
major efforts to improve management with more effective auditing and
oversight. Support has been given to expand successes of local authorities
which have markedly improved the quality of life in public housing.
Affordability of housing for homebuyers has also been a major concern
of the Administration. In 1981 homebuyers were being driven out of the
market by rising costs and interest rates, and the future of housing finance
itself was in jeopardy.
By bringing down the inflation and mortgage rates, the Administration
has made homeownership possible for 5 million more Americans who couldn't
afford to buy homes three years ago. Monthly payments on a new $50,000
mortgage are about $200 a month less now than they were in 1980.
The Reagan Administration has also aimed at addressing long term
structural problems which can drive up the cost of housing: excessive
regulations and lack of housing finance.
Joint Venture for Affordable Housing
Through a combination of federal technical assistance and State and
local cooperation with private developers, the Reagan Administration's
Joint Venture for Affordable Housing has demonstrated that over 20% can be
saved on the cost of a home through regulatory and processing reform.
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Obsolete and unnecessary local regulatory and extended application and
review procedures have frequently added both direct costs and the costs
of delay to housing prices. By bringing State and local officials,
private developers, and concerned public interest groups together this
HUD demonstration in 30 locations has established that housing costs can
be brought down. The Joint Venture for Affordable Housing is now being
expanded to every state and to infill projects.
New Sources of Housing Finance
Through an extended effort led by HUD Secretary Samuel R. Pierce, Jr.,
the Administration has expanded the sources of housing finance creation.
HUD launched a pioneering communications effort to the nation's pension
funds involving conferences, intensive work sessions, mailings and a
major publication to both attract additional investment from their over
$700 billion in assets and to identify what was needed to enable mortgage
investments to compete effectively for funds. The Department of Labor
eased restrictions on ERISA regulations, removing barriers to prudent
pension fund investment in housing. A monitoring survey, commissioned by
HUD, has indicated that private pension fund assets invested in mortgages
and related investments increased by 58% from 1980 to 1983.
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In related efforts, the Government National Mortgage Association
(GNMA) has developed GNMA II, a centralized and modernized form of GNMA
investment capable of meeting the needs of modern investors and institutions.
In addition, GNMA certificates are now listed on the Singapore and Luxembourg
exchanges, encouraging increased foreign investment, and GNMA's are now
being sold in Japan.
Fair Housing
Increased affordability will not by itself solve such problems as the
persistence of racial segregation and discrimination in American cities and
suburbs. The Administration has taken strong measures to strengthen the
role of state and local fair housing enforcement agencies in cooperation
with HUD. Most importantly, the Administration has pressed aggressively
for amendments to the 1968 Fair Housing Act to strengthen enforcement
provisions by providing for stiff financial penalities and direct litigation
unencumbered by bureaucracy. The Administration's efforts have led to
increased participation of states and local governments in processing
fair housing complaints and major increases in voluntary compliance
efforts through Community Housing Resources Boards.
Infrastructure
The Surface Transportation Assistance Act represents a major part of the
Administration's response in meeting federal responsibility for infrastructure
needs. The Act provides for completion of all segments of the interstate
system by the early 1990's, an immediate spending increase of 144 percent
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over levels prior to the Act for rehabilitating and preserving existing
segments of the interstate system, and an 88 percent increase in budgets
authority from 1982 to 1986 for primary highways and bridges. In addition,
one cent per gallon of the new motor fuel tax will provide approximately
$1 billion annually for mass transit systems. In all, passage of the gasoline
tax bill will lead to a projected 17 percent increase in all federal capital
assistance to State and local governments between 1983 and 1984.
Local operating costs for infrastructure and mass transit are best
handled at the local level. Therefore, the Urban Mass Transportation
Administration (UMTA) has been phasing out operating subsidies as capital
assistance has been increased. In addition, the states have shown,
through financing innovations, an increasing willingness to meet the
responsibility for ongoing infrastructure development and maintenance.
Continued Encouragement of Public-Private Partnerships
The President understands the importance of the private sector in
rebuilding America's local economies. This understanding led to the
creation of the White House Office on Private Sector Initiatives, the
creation in 1981 of the President's Task Force on Private Sector Initiatives,
and finally, the President's Advisory Council on Private Sector Initiatives.
These efforts are aimed primarily at promoting greater use of private
resources, human and monetary, for meeting the Nation's needs. These
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efforts have activated thousands of initiatives and partnerships throughout
the country, from the public side (e.g., State and local government task
forces), to increased participation by the small and large corporate sector,
non-profit organizations, churches, and many other organizations. One
immediate result was the formation of a computer-based information service
which provides immediate information on partnership activities to the
public and private sectors. Federal agencies have placed a high priority
on partnerships and increased private participation, including such varied
projects as increasing participation by the corporate sector in day care
centers, to the Education Partnership Program (Adopt-a-School). The
Administration sponsored a National Recognition Program for Community
Development Partnerships which identified and recognized communities that
used the Community Development Block Grant Program to create outstanding
public/private partnerships. Over 500 applications were received and 100
were selected for awards.
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1Statement of Commissioner Milles A. Gregory, Chairman North Carolina
Local Government Advocacy Council before the U.S. Advisory Commission
on Intergovernmental Relations March 1, 1984.
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Chapter II
Restoring the Grass Roots
Sorting out responsibilities and restoring balance to our federal
system by strengthening the role of State and local governments is one of
the foundations of the Administration's Urban Policy. Soon after taking
office President Reagan instituted a dialogue on Federalism with State
and local government officials. The result of that dialogue was a
comprehensive program of regulation reduction in and consolidation of
categorical grants which would restore discretion over the use of resources
to State and local governments. That restoration process is well underway,
and State and local governments are already benefiting from a strong and
growing national economy coupled with increased authority over grants-in-aid.
The purpose of this chapter is to take a fresh look at the restoration
process; how far it has come and where it will go from here. This chapter
examines the fiscal condition of State and local governments, and concludes
that because of their own actions, as well as the improved economy,
deregulation, and the greater flexibility provided by the Reagan
Administration, they are fiscally healthier than they have been in a long
time.
Federalism Debate
When the Reagan Administration began to send the various pieces of
its block grant legislation to Congress in 1981, proponents of the status
quo feared that these actions would polarize constituencies.
Information and opinions discussed here are for the internal use of HUD
officials. They do not necessarily represent Departmental decisions or
policy positions.
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Cities voiced long-standing arguments about state incapacity,
inefficiency, and rural bias. In their view, the 1200 percent increase
of federal aid to localities from 1960 to 1980 was justified for many
reasons. Chief among these was the apparent inability or unwillingness
of States and localities to provide many necessary domestic services. It
was argued that their revenue systems were not able to meet growing
demands for services caused by increasing incomes and populations.
Relying principally on excise and sales taxes, state revenue systems were
largely unresponsive to growth in income, and taxable resources were
unevenly distributed among States, resulting in an unequal ability to
provide services. Local revenue systems were heavily dependent on the
property tax, and localities were often prohibited by State constitution
or statute from employing other types of revenue sources. The result was
a State and local government revenue system that required federal support
in the form of grants-in-aid.
As far as willingness was concerned, the cities questioned the
receptivity of States to the needs of urban areas, because State legislatures
were dominated by rural legislators representing districts that contained
fewer residents than their urban counterparts. In addition, because
urban areas were predominantly the dwelling places of minorities and
economically disadvantaged individuals heavily dependent on public
services, it was argued that federal aid and oversight were required
to deal with the persistent problems of this population.
Information and opinions discussed here are for the internal use of HUD
officials. They do not necessarily represent Departmental decisions or
policy positions.
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Historical Trend of Federal Grant-in-Aid Outlays
(Fiscal years; dollar amounts in millions)
Federal grants as a percent of
Total Budget outlays State and Gross
grant-in local National
aid Total Domestics expanditures2 Product
Five-year intervals:
1950............ $2,253 5.3% 8.8% 10.4% 0.9%
1955............ 3,207 4.7 12.1 10.1 0.8
1960............ 7,020 7.6 15.9 14.7 1.4
1965............ 10,904 9.2 16.5 15.3 1.7
1970............ 24,014 12.3 21.3 19.2 2.3
1975............ 49,834 15.4 21.5 23.0 3.3
Annually:
1976............ 59,093 16.2 21.9 24.2 3.5
1977............ 68,414 17.1 22.9 25.9 3.7
1978............ 77,889 17.4 23.1 26.8 3.7
1979............ 82,858 16.9 22.5 26.3 3.5
1980............ 91,472 15.9 21.2 26.3 3.6
1981............ 94,762 14.4 19.5 25.1 3.3
1982............ 88,194 12.1 16.6 22.0 2.9
1983............ 93,013 11.7 16.1 21.8 2.9
1984 estimate... 98,765 11.6 16.4 NA 2.8
1985 estimate... 102,218 11.0 16.1 NA 2.6
1986 estimate... 104,584 10.5 15.8 NA 2.5
1987 estimate... 107,939 10.1 15.4 NA 2.4
1. Excludes outlays for the national defense and international
affairs functions.
2. As defined in the national income and product accounts.
NA = Not available.
Source: "Special Analysis H: Federal Aid to State and Local Governments,"
Special Analysis, Budget of the United States Government, 1985,
Washington, D.C.: U.S. Government Printing Office, 1984, p. H-16.
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11-4
States, for their part, expressed strong doubts about the Federal
government's desire or ability to provide real flexibility to States.
Twenty years of having to comply with an ever-increasing load of federal
mandates had convinced them that the "feds" would somehow play "gotcha"
in the end, thus further inhibiting their ability to deal flexibly with
their cities.
Various interest groups raised "national purpose" arguments. Without
the direct control of categorical restraints, how could the Federal
government ensure fullfillment by States and localities of national goals?
At the federal level, aid was often seen as a lever to be used to insure
compatibility of State and local expenditures with national objectives,
such as environmental protection, occupational safety, and non-discrimination.
As the number of national objectives increased, so did the use of the
lever.
To counter these various arguments, the Administration could, in the
first place, point out the costs to States and localities of federal aid.
The uniform application of costly federal standards accompanying federal
aid had reduced necessary and desirable diversity among local government
services. Matching requirements associated with much of the categorical
assistance given by the Federal Government had caused localities to
commit sometimes sizable portions of their budgets toward federal priority
projects, thereby reducing local budget flexibility and replacing State
and local priorities with those of the Federal Government.
Information and opinions discussed here are for the internal use of HUD
officials. They do not necessarily represent Departmental decisions or
policy positions.
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More important, the Administration could point to the growing
professionalism, accountability, and responsiveness of State and local
governments.
State Government Modernization
Much had occurred within State governments in the past thirty years to
substantially alter the deficiencies that the Advisory Commission on
Intergovernmental Relations (ACIR) noted as commonplace in the 1920's:
Many States operated under the handicap of out-of-date, restrictive
constitutions. Constitutional deficiencies, when coupled with
unrepresentative State legislatures, weak governors, and financial
distress, seriously eroded the States' ability to address and solve
pressing problems and public confidence waned.
"A largely unnoticed revolution has occured in state government.
The states have been transformed to a remarkable degree. The
decades of the 1960s and 1970s witnessed changes in state govern-
ment unparalleled since the post-Reconstruction period a century
ago, generally in the direction advocated by reformers for 50 years."1
Twenty years ago, all but five state legislatures were badly
malapportioned. Since Baker vs. Carr (1962), every state had apportioned
its legislature on the basis of one person, one vote.
Executive power in State government had become more focused, more
accountable, and more professional.
Eighty percent of the States had taken actions to update their
constitutions since 1950. Most had adopted reforms to enhance the powers
of the chief executive, improve legislative capability, and extend revenue
authority for many local jurisdictions. Executive power in State government
Information and opinions discussed here are for the intenal use of HUD
officials. They do not necessarily represent Department decisions or
policy positions.
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had become more focused, more accountable, and more professional. To
strengthen their executives, States had extended their governors' tern of
office and granted them more authority to implement their programs.
Forty-six States. now have four-year gubernatorial terms; 45 permit their
governors to succeed themselves; virtually all govenors now control a
State planning unit. Between 1965 and 1980, all States undertook
reorganizations of executive departments; 24 reduced the number of
independently elected administrative heads.
State legislatures had also made significant strides in achieving
greater professionalism, increased openness, and improved efficiency.
Almost all State legislatures now meet every year in either regular or
special session; professional staffs now provide technical support for
the finance and appropriations committees or in a central legislative
unit in every State on a year-round basis, compared to only a handful 20
years ago.
Every State judicial system was required to hear and remedy cases
arising under constitutional and other Federal law. In addition, State
courts had taken the lead in many instances in extending rights beyond
those recognized in Federal law. State court systems in virtually every
State had been dramatically reformed.
State responsiveness to local fiscal needs had dramatically increased.
Total state aid to localities funded from the States' own revenues grew
nearly sixfold from 1965-1980, and now surpasses $60 billion a year.
Information and opinions discussed here are for the internal use of HUD
officials. They do not necessarily represent Department decisions or
policy positions.
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11-7
Local Government Innovations
Modernization had also taken place at the local government level,
which enabled localities to provide local public services more efficiently
and effectively. Until the 1960's localities had been constrained by the
mismatch between political boundaries and population settlement patterns;
by limits on local indebtedness, taxing power, functions and boundary
adjustments imposed by States. Over the past twenty years, however,
States and localities began to work more cooperatively with States
increasingly granting home rule flexibility to local government. Local
boundaries were adjusted to conform more closely to the population affected
by a particular local activity, and States had increased local government
authority and access to revenues.
One innovation which had increased local government flexibility was
the transfer of services initially provided by a general purpose municipality
to another unit of government (e.g., county, State or special purpose
district) or to the private sector. From 1965 to 1975, over 1700 spinoffs
of functions from municipalities had occurred, with counties receiving 56
percent, special districts 19 percent, and States 14 percent.
Annexation was the most common way, particularly in the South and
Southwest, to extend the service or financing reach of a municipality.
From 1970 through 1977, "over 48,000 annexations occurred, adding nearly
7,000 square miles and 2.5 million people to cities over 2,500 in
population."2
Information and opinions discussed here are for the internal use of HUD
officials. They do not necessarily represent Departmental decisions or
policy decisions.
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In addition to functional transfers and annexations, city-county
consolidations, intergovernmental service agreements (the voluntary
agreement of two or more local governments to cooperate in the provision
of a service), and the exercise of extraterritorial power (the use of a
municipality's authorities beyond its own borders) had proven effective
in increasing municipal flexibility. In addition, local governments
formed multipurpose councils of government to more effectively address
regional issues. Revenue-base sharing schemes, such as Minnesota's
tax-base sharing plan for the St. Paul-Minneapolis area, and greater
cooperation of local public authorities and private organizations had
also furthered municipal efficiency. Private-public cooperation in the
form of contracting out, (where the municipality maintained some discretion
over the level of service provided or the groups served, or where the
service was moved into the private sector) had also become a popular
method for enhancing local government services.
Administration Action's
The Reagan Administration felt that all these modernization efforts
in State and local governments justified its confidence in the ability of
State and local officials to make their own decisions and manage resources
wisely.
The Administration's rebalancing strategy therefore had three basic
goals: to enhance modernization efforts in State and local governments,
to increase intergovernmental cooperation, and to provide fiscal flexibility
to State and local government.
Information and opinions discussed here are for the internal use of HUD
officials. They do not necessarily represent Departmental decisions or
policy decisions.
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This strategy, in turn, involved three basic components: first, in
the Omnibus Reconciliation Act of 1981, the Administration consolidated
57 categorical grants into 9 State Block Grants, among them creating
a Small Cities State Block Grant for Community Development and replacing
Title XX with the more flexible social services block grant; second,
in various pieces of legislation the Administration also moved to cut
categorical strings that had become attached to existing block grants;
and third, the Administration took steps to relax or rescind more than
1,200 regulations affecting States and cities.
Evaluations of these initiatives indicate significant impact in
helping to achieve all three goals.
In the area of regulatory reform and reduction, for example,
Administration initiatives had the dual effect of increasing State and
local flexibility and reducing State and local expenses.
A list compiled in 1979 of federal regulations imposed on a sampling
of 5 States and their local governments recorded 1,260 federal regulations.
Of these, almost 80 percent were contractual obligations or conditions of
federal aid, and the remainder were direct orders.3 Between 1971 and
1978, the pace at which the Federal Government attempted to regulate
local activities accelerated rapidly, with a total of 1,079 regulations
being imposed on cities in that period. In 1978, alone, federal regulations
cost the U.S. economy more than $100 billion.
Information and opinions discussed here are for the internal use of HUD
officials. They do not necessarily represent Departmental decisions or
policy positions.
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The Office of Management and Budget (OMB) has calculated cost savings to
State and local governments as a result of the Administration's regulatory
review program. In 1981, OMB estimated that sub-national governments
saved $2 billion in annual costs and $4 billion to $6 billion in one-shot,
start-up costs. Much of these cost savings can be attributed to relaxed
regulations in two areas, access for the handicapped and bilingual
education.4 Much cost reduction resulted also from the activities of the
Presidential Task Force on Regulatory Relief.
Some of the major government-wide streamlining efforts undertaken by
the Administration include the following:
o E.O. 12372, "Intergovernmental Review of Federal Programs,"
which replaced A-95, regulates federal agency responsiveness
rather than State and local comment processes.
o The Single Audit, strengthened by the Administration, enables
States and localities to conduct their own audits of federal
funds, rather than having to rely on federal agency auditing
efforts and procedures.
o Cash Management reforms which although now being tested, will
lead to intergovernmental cash flow requirements that make
sense in terms of existing State and local procedures.
Other recent regulatory relief efforts include:
Information and opinions discussed here are for the internal use of HUD
officials. They do not necessarily represent Department decisions or
policy positions.
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o The Department of Agriculture simplified cost accounting
procedures in the national school lunch program and
revised rules for the collection of data to examine State
agency compliance with matching requirements. These
reforms reduced the information collection burden for
States by approximately 21 million hours each year.
o The Department of Education prepared non-binding guidance
to States for implementing the State education block grant.
The guidelines responded to requests from States for
additional guidance and took into account their concerns
and suggestions about limiting administrative requirements.
o The Department of Energy simplified the financial assistance
procedures for grants to small jurisdictions.
o The Environmental Protection Agency (EPA) streamlined its
grants appeals process to allow EPA regional administrators
greater discretion in resolving appeals formerly referred to
EPA headquarters in Washington. The agency also revised its
construction grant regulations to give States more authority
over the operation of their programs.
o The Department of Health and Human Services proposed rules
to improve the early and periodic screening, diagnostic,
Information and opinions discussed here are for the internal use of HUD
officials. They do not necessarily represent Departmental decisions or
policy positions.
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and treatment child health activities under the Medicaid
program. The new rules should significantly reduce administrative
time and costs so that more resources can be used to provide
health care. The Department issued simplified rules for child
welfare services and developmental disabilities.
o The Department of Housing and Urban Development revised the
rules affecting the entitlement portion of the Community
Development Block Grant program. The new rules reduce
and simplify housing assistance plan requirements and
substitute a simplified statement of purpose for the
previously required application.
o The Department of Labor issued minimum and nonprescriptive
regulations under the new Job Training Partnership Act.
o The Department of Transportation simplified rules governing
the urban transportation planning program for local
jurisdictions.
o In addition, the Federal Aviation Administration (FAA) proposed
rules eliminating approvals that are now required when a local
government makes minor changes to an FAA approved airport layout
plan.
Information and opinions discussed here are for the internal use of HUD
officials. They do not necessarily represent Departmental decisions or
policy positions.
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The regulatory reduction examples just cited not only reduce man-hour
burdens to State and local governments but greatly enhance their ability
to set their own priorities.
In regard to the other Administration initiatives, evaluations by
GAO and others indicate that the Administration's confidence in States and
local governments was amply justified. States are displaying increased
sensitivity to the needs of their cities, intergovernmental cooperation
has increased, and both States and localities are using the increased
flexibility to more effectively meet the needs of their citizens.
For example, states and localities are also asserting their priorities
in program design and management. Major studies of the impact of the new
block grant programs are still underway, but preliminary findings suggest
that the majority of States have maintained and even increased program
levels. Drawing upon other federal funds and State and local resources,
they have allocated resources among program activities in accordance with
their own priorities to the degree permitted under statute; and they have
welcomed the increased discretion and reduced federal reporting requirements.
In general, governors and State legislators have been involved more
directly in planning and resource allocation than they had been under
many of the prior categorical programs. The States have also moved
quickly to involve a wide spectrum of people and groups in the allocation
Information and opinions discussed here are for the internal use of HUD
officials. They do not necessarily represent Departmental decisions or
policy decisions.
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of these funds. To the extent that States have shifted funding priorities,
resources have been targeted to the poorest populations or to families on
welfare.
With increased responsibility for the Medicaid program, for example,
States have begun to establish effective cost containment policies and to
improve services to the needy. The Intergovernmental Health Policy
Project, which has been systematically surveying State Medicaid programs,
draws strong contrasts between 1981 and 1982 in a report issued in April
1983. It notes that, prior to Administration-initiated reforms, out-of-
control growth was forcing States to retrench, often to the disadvantage
of recipients. In contrast, new flexibilities provided under the reforms
have allowed States to increase services and add beneficiaries.
Specifically, the report notes that:
1981 can be characterized generally as a period of moderate
retrenchment on the part of many State Medicaid programs and
severe retrenchment for a few.
Perhaps the most striking difference between the two years
[1981 and 1982] is that even in the face of continued fiscal
stress, a substantial number of States acted in 1982 to add
new services, reinstate previously eliminated benefits, lift
existing restrictions on access, or even increase payments to
providers.
Also in contrast to 1981, 1982 marked the beginning of a
gradual shift in the focus of cost-containment activities
away from the traditional short-term strategies, e.g.,
limitations on eligibility and services, reductions in
provider payments, etc., to a concentration on more long-
range, structural reforms in the organization, financing and
delivery of Medicaid services.5
Information and opinions discussed here are for the internal use of HUD
officials. They do not necessarily represent Departmental decisions or
policy decisions.
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11-15
A good example of the way in which the Administration's consolidation
efforts have encouraged and developed city-State cooperation is the State
Community Development Block Grant for Small Cities. Transfer of the
Small Cities CDBG program to State administration went very successfully.
States were able to determine their own objectives, design their own
programs, and select grantees -- all within a short period of time.
Generally, local governments were significantly involved in design of
their States' programs and responded positively to their programs
implementation and outcomes, comparing them favorably to the prior HUD-
run program. In most States advisory bodies of the small cities played a
large role in determining the format and priorities of the State program.
A series of reports evaluating the program have indicated that under
State control many more cities have been able to participate in the Small
City CDBG program, up to three times as many in some States. In addition,
funds used have been more highly targeted to lower income areas and
persons, vindicating the Administration's faith in State and local
governments' ability and willingness to meet the goals of the CDBG program.
The increasing sensitivity of States both to needy people and
needy places is also reflected in changes during the past three years in
their revenue and expenditure systems.
Equity features now built into many State revenue systems include:
1) the exemption of food (and sometimes clothing and prescription drugs)
Information and opinions discussed here are for the internal use of HUD
officials. They do not necessarily represent Departmental decisions or
policy decisions.
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from the sales tax or the provision of an income tax credit for such
purposes; and 2) State-financed circuit breakers that refund property tax
payments in excess of a given percent of household income for elderly
and/or low-income households. At the same time States are indexing their
own income tax systems to reflect economic realities, they are moving to
protect their ability to finance programs during economic downturns
through the establishment of "rainy day funds."
In terms of expenditure equity, by the beginning of 1984, only one
State did not have a State-local revenue sharing program. Forty-one use
an equalizing formula which helps jurisdictions in distress. Finally,
42 States, many since 1980, have enacted provisions improving local
government access to credit, and 26 States have extended local taxing
authority.? By the end of 1983, nearly all States had assumed the local
share of the costs of Medicaid and Aid to Families with Dependent Children.
And 1983 was the first year in which the States as a whole paid over 50
percent of local education costs.
With the increased flexibility created by the new block grants,
States have altered the mix and emphasis of programs offered, and are
increasingly tailoring programs to meet the needs of their communities.
Distressed localities, in particular, have been beneficiaries of this
increased State flexibility and responsiveness. A recent Advisory Commission
on Intergovernmental Relations (ACIR) study on State aid to distressed
communities concludes the following:
Information and opinions discussed here are for the internal use of HUD
officials. They do not necessarily represent Departmental decisions or
policy positions.
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11-17
State governments now have programs which (1) encourage and facilitate
private investment and employment in distressed communities through
development finance and assistance programs; (2) empower local govern-
ments, neighborhood self-help programs, and non-profit voluntary
organizations to engage in community stabilization activities; (3)
give direct financial aid to low-income individuals for housing
rehabilitation; and (4) provide fiscal and technical assistance
to local governments.8
On both State and local levels the Reagan Administration initiatives
such as the block grants and E.O. 12372 have accelerated the development
of intergovernmental service agreements, consolidations, annexations, and
public-private partnerships.
As an additional tool to facilitate these arrangements, the
Administration has provided advice to local governments on intergovernmental
service agreements by supporting the development of Interlocal Service
Delivery: A Practical Guide to Interlocal Agreements/Contracts for Local
Officials, published by the National Association of Counties. Recent
examples of successful intergovernmental agreements from this publication
include:
-- Douglas County, Colorado has agreed to provide the recently
incorporated town of Parker, Colorado with technical
Information and opinions discussed here are for the internal use of HUD
officials. They do not necessarily represent Departmental decisions or
policy positions.
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11-18
assistance, at no cost, to carry out the city's land use
and land development regulation responsibilties.
-- Hanover Park, Illinois and Park Ridge, Illinois have joined
with other members of the Northwest Municipal Conference to
reduce costs for recruiting entry-level police officers. The
inter-city program has reduced recruiting and testing costs
dramatically.
-- DeKalb County, Illinois has entered into an agreement with
the City of DeKalb and the DeKalb Park District to purchase
and develop an abandoned railroad right-of-way for a multi-
purpose nature trail for hiking, bicycle riding, crosscountry
skiing, and other recreational activities.
-- Cooperation between school districts provides another promising
opportunity for interlocal agreements. Williamsburg and James
City/County, Virginia have a joint school board. For example, the
cooperative purchasing saves the schools money on fuel, heating
oils, and trash removal services. The timely exchange of
information has improved budgeting, and joint studies have
increased effectiveness and reduced costs of telephone systems,
insurance, data processing, and records management. Cooperative
ventures in purchasing, equipment use, and information sharing
are expected to increase as more and more savings are realized.
Information and opinions discussed here are for the internal use of HUD
officials. They do not necessarily represent Departmental decisions or
policy positions.
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11-19
Public/private partnerships are also becoming increasingly important.
For example, the Center for Engineering Excellence is a partnership
between the State of Arizona, Arizona State University, and a coalition
of high technology firms joining forces to construct a new research
center. The private sector has contributed over $16 million to expand
the graduate program in science and engineering. Even before completion,
the Chamber of Commerce reported a large increase in high technology
firms wishing to relocate new facilities in the Phoenix area.
Aetna Life and Casualty teamed up with a neighborhood group in Lowell,
Massachusetts to preserve an inner-city neighborhood in an eight-block
area populated primarily by low-income Hispanics and Asian refugees.
Residents formed the Coalition for a Better Acre with funding from Aetna
and technical assistance from the Chicago-based National Training
Information Center. With city help, an apartment building has been
renovated and homeowners have been helped to keep their homes. The
Coalition is also working with the city on an anti-crime program, voter
registration and a long-term neigborhood site plan using donated
architectural assistance.
The heightened national atmosphere of intergovernmental cooperation
and the heightened sense of the need for public and private sectors to pull
together have sparked a wave of voluntarism across the nation. Voluntarism
and self-help are not new phenomena; but in the past decade, a new twist
Information and opinions discussed here are for the internal use of HUD
officials. They do not necessarily represent Departmental decisions or
policy positions.
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has been added: the use of volunteers by local governments to supplement
staff or deliver city services. A direct result of acceptance by citizens
and elected officials of the need for budget restraint, "cutback management"
has inspired efforts to capitalize upon the desire of many citizens to
contribute time and resources to their communities.
For example, the City of Baltimore, Maryland now uses volunteers to
enforce exterior sanitation and housing codes. The volunteers are approved
by neighborhood organizations and work closely with the organizations in
the area they serve.
The City of New Orleans, Louisiana has established a city-wide
volunteer program called VIGOR--Volunteers in Government of Responsibility.
In 1982, 3000 volunteers worked in 85 city agencies.
The police department of Virginia Beach, Virginia uses volunteers to
provide services to the public, to assist uniformed officers, and to
supplement ongoing programs. Volunteers are used in the crime analysis
unit, the investigative division, the uniform division in the vehicle
transport program, and the marine patrol.
Finally, even without city sponsorship, a nonprofit, grassroots
organization in St. Paul, Minnesota--the Tangletown Neighborhood
Association--has an agreement with a trash hauler. Residents arrange for
the service delivery with the hauler. The agreement allows the hauler
Information and opinions discussed here are for the internal use of HUD
officials. They do not necessarily represent Department decisions or
policy positions.
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to reduce prices to participating residents both because a large percentage
of customers are served in the neighborhood, and because the association
recruits participants for the hauler.
Improving State and Local Fiscal Conditions
The combination of economic recovery, lessened federal regulatory
burdens, and flexibility in the use of federal resources has contributed
to the increased financial strength of our State and local governments.
Aggregate fiscal data indicate that, as the Nation's economy improves,
State and local governments are re-establishing their fiscal health. The
surplus for the State and local government sector (excluding social insurance
funds, primarily pensions) was $15.0 billion for 1983 as compared to a
deficit of $1.9 billion for 1982.
Graph II-1 provides information on State government fiscal strength.
It shows State and local government operating account surpluses and
deficits as a percentage of receipts, excluding social insurance funds
(primarily pensions). The Office of Management and Budget explains
recent surpluses and deficits as follows:
o The surpluses in the early 1970's were largely the result
of the initiation of General Revenue Sharing and strong
economic growth.
o The low point in 1975 was largely the result of the
recession.
Information and opinions discussed here are for the internal use of HUD
officials. They do not necessarily represent Department decisions or
policy positions.
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THE BUDGET FOR FISCAL YEAR 7985
State and Lfocaf 'and Deficits
as a Percent of Recehis
- 12.
1955 60 65
Calendar Year
Note: Excludes Social Insurance Funds
Percent
-r6
80 83
Estimate
DRAFT 5/1/84
11-22 sPl:
DETAILEI
The following two table
19.3. 1984, and 1985. Tat
Local Governments-Budg
tailed budget authority an,
l2, "Credit Assistance to ~
information on direct an(
governments.
TAW H-tl FEDERAL GRANTS TO STAI
Nahaa>al defense:
DMartment of Defense-Military
katanal Guard centers construction.........
r'4*3f Emergency Management Agency .....
Total, national defense ..........
E~erDr
!ca''-er,t Y Energy Energy conservat c'
}par?-e^t o' 9ousIng 3c lirGar. Dez
AZ4ist3r.:e
or 30!a! 3nG CG:?
te:a"cx: Tprovements . .. .....
'?r+esa'0 +,tey Actfonrr r.~ ..............
Total, energy ...
Qataai resources and environment:
kCartn+ent zf Agriculture:
Watet`-hed and flood prevention oper
stars .......................................
Resource conservation and development ..
State and private forestry ........................
Forest 'Pesearch ........................................
DeWlent of Commerce:
Coasm zone management ..................
.....:
Dperatats research and facilities.............
Dr0artrnent of the Interior.
ADandoned mine reclamation fund ...........
"Walt-On and technology .......................'
Lard acowsrtion .............................
Uf* park and recreation fund ...............
Stoat aeservation fund ........................i
Rtswrce management ......................
.ous.
.fis.
Construction and anadrom..
.h...........;
taneous permanent appropriations ...
Dow
ronmental Protection Agency:
Sewage treatment system construction
grants ......
.........................................:
Abatement, control, and compliance........
420-700 0 - 84 - 20 QL : 3
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o The surpluses in the latter 1970's were largely the
result of economic recovery, increases in anti-
recession federal grants, reductions in debt-financed
capital spending, and general restraints in government
spending exemplified by the passage of Proposition 13
in California in 1978.9
The recessions of 1980 and 1981 forced many States and localities
into deficit. These governments consequently reduced expenditures and
increased taxes. These actions, coupled with the strong economic recovery
in 1983, have returned the accounts to a healthy position. As the recovery
continues, the outlook for continued fiscal health appears quite good.
Another indicator of relative fiscal health is State fiscal capacity.
Differences in State fiscal capacities provide an indication of differences
in States' fiscal ability to help their own cities. Recent work by the
Advisory Commission on Intergovernmental Relations (ACIR) shows that
there was a convergence of State fiscal capacities between 1967 and 1979.
States' fiscal abilities per capita were becoming more equal. Preliminary
evidence suggests that a slight widening of disparities among States
occurred between 1979 and 1982 based on the per capita income index.
While disparities in State fiscal capacity continue to exist, however,
they are well below the levels measure in 1967.10
Information and opinions discussed here are for the internal use of HUD
officials. They do not necessarily represent Departmental decisions or
policy positions.
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11-24
In addition to what is known about States, more recent information
on the fiscal condition of cities is provided by a recent Joint Economic
Committee study. Based on a sample of 299 localities representing cities
of all sizes, the study estimates average budgeted deficits for 1983 of
$11.44 per capita, down from $12.50 in 1982. Interestingly, the deficits
predicted by this study of cities for 1981 and 1982 were not realized.
That is, in 1981, and 1982, actual budgets showed year-end surpluses of
$13.18 and $7.73 per capita, respectively.11
A study of the fiscal condition of 29 large cities, recently updated,
suggests that, on the average, these large cities are in a relatively
strong fiscal position. For both 1981 and 1982, revenues exceeded
expenditures in these 29 cities by 1.5 and 1.2 percent respectively.12
Clearly, their position has improved substantially since 1980.
These budget surpluses come as a pleasant surprise to many local
public officials. The better-than-expected results quite likely reflect
the influence of two major factors: 1) the innovative and efficiency-
enhancing procedures adopted by local officials in many cases encouraged
or newly allowed by federal deregulation and consolidation policies; and
2) the strength of the economic recovery and its beneficial impact on
cities.
Information and opinions discussed here are for the internal use of HUD
officials. They do not necessarily represent Departmental decisions or
policy positions.
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CONCLUSION
The Administration's efforts to restore balance to our intergovernmental
system have had significant impact on the economic well being of our State
and local governments and the quality of life of their residents. States
and localities have taken advantage of their increased authority and
flexibility to manage more efficiently, improving functions and services
on both levels of governments.
Of course, the foundation for the present fiscal and political health
of States and localities is the success of the President's Economic
Recovery Program. Economic recovery and its beneficial effects on urban
conditions are examined in the next chapter. Chapter III also looks at
the special problems of cities that have not yet felt the impact of the
national economic recovery and discusses responses to these problems by
the various levels of government.
Information and opinions discussed here are for the internal use of HUD
officials. They do not necessarily represent Departmental decisions or
policy positions.
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CHAPTER II FOOTNOTES
1. Advisory Commission on Intergovernmental Relations, State and
Local Roles in the Federal System: In Brief, Washington, DC,
2. Ibid, p. 14.
3. C.H. Lovell et al., Federal and State Mandating on Local
Governments: An Ex oration of Issues and Impacts, Riverside,
California: Graduate Schoo of Administration, University of
California - Riverside (1979).
4. "Federal Aid to State and Local Government," Special Analysis,
Budget of the United States Government 1984, Washington, DC:
U.S. Government Printing Office, January 1983, p. H-21.
5. Quoted in statement of David A. Stockman, Director, Office of
Management and Budget, before the U.S. Congress, House Ways and
Means Subcommittee on Oversight, and Public Assistance and
Unemployment, November 3, 1983.
6. Advisory Commission on Intergovernmental Relations, The States
and Distressed Communities: Final Report, Draft, December, 1983.
7. Ibid.
8. "Federal Aid to State and Local Governments," Special Analysis,
Budget of the United States Government, 1985, Washington, DC:
U.S. Government Printing Office, January 1984, p. H-25.
9. Joint Economic Committee, Congress of the Untied States, Trends
in the Fiscal Condition of Cities: 1981-1983, prepared for the
Subcommittee on Economic Goals an Intergovernmental Policy, 98th
Congress, 1st Session, November 1983, Joint Committee Project.
10. Philip M. Dearborn, The Financial Health of Major U.S. Cities,
1971 - 1982, Draft, ACIR, December 21, 1983.
Information and opinions discussed here are for the internal use of HUD
officials. They do not necessarily represent Departmental decisions or
policy positions.
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Chapter III
URBAN ECONOMIES
The foundation of the Administration's urban policy is a sustained
economic recovery without the rapid inflation that characterized the
1970's. Economic growth and price stability are fundamental to the
continued development of urban areas.
This chapter documents the success of the Administration's efforts
to promote sustained economic growth, examines the changes taking place
in the economic structure of urban areas and the strengths and weak-
nesses of urban economies, and describes efforts by all three levels of
government to promote the economic health of cities.
Slowdown in Inflation
The most urgent economic problems confronting the Administration
when it assumed office in 1981 were runaway inflation and stunted economic
growth, a combination called "stagflation." Inflation, as measured by the
Consumer Price Index, had steadily increased from 5.8 percent in 1976 to
13.5 percent in 1980.1 Moreover, the expectation of continued inflation
had become firmly entrenched in price and wage decisions. Accelerating
inflation reduced net capital formation, productivity incentives, financial
stability, and the overall ability of the national economy to generate
real growth, while incessantly raising taxes through "bracket creep."
Uncertainty and pessimism dominated psychological attitudes of both
consumers and businessmen.
Inflation caused particularly severe problems in economically
declining urban areas where tax bases lagged behind mounting bills for
Information and opinions discussed here are for the internal use of HUD
officials. They do not necessarily represent Departmental decisions or
policy positions.
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personnel, equipment, supplies and fuel. High construction and.borrowing
costs also generally reduced the ability of State and local governments
to maintain and repair public infrastructure.
To counteract these problems the Administration enacted the Economic
Recovery Program designed to decrease government spending, reduce taxes,
stabilize monetary growth, and ease regulatory constraints. As the
Administration's economic recovery program took effect, inflation declined
so dramatically that, in 1983, prices increased by only 3.2 percent.
Fears that runaway inflation would continue have all but ceased, and
projected low rates of inflation during the years ahead will provide the
basis for a sustained economic recovery.
Among the most successful ingredients of the Reagan Administration's
economic recovery program are the Economic Recovery Tax Act of 1981 and
the Tax Equity and Fiscal Responsibility Act of 1982. These Acts
substantially improved the economic climate for saving and business
investment. Key changes embodied in the Economic Recovery Tax Act of
1981 were the reductions in marginal individual income tax rates, the
increased incentives for personal saving, and the reduction in corporate
income taxes. The Tax Equity and Fiscal Responsibility Act of 1982
improved the fairness of the tax system while preserving the incentives
for work, saving, and investment enacted in 1981. The Act increased tax
receipts primarily by eliminating unintended benefits and obsolete
incentives, and providing mechanisms to increase taxpayer compliance and
improve collection techniques.2
Information and opinions discussed here are for the internal use of HUD
officials. They do not necessarily represent Departmental decisions or
policy positions.
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111-3
These tax changes have played a major role in the current economic
recovery. As a result of these changes, the total share of GNP' taken by
taxes has fallen from 20.1 percent in 1980 to 18.7 percent in 1983.
Personal income tax rates have been reduced by a cumulative 23 percent
over three years, and the top marginal individual income tax rate was
reduced from 70 to 50 percent. Savings were encouraged by the universal
extension of eligibility for Individual Retirement Accounts (IRA). As.a result
of the legal changes, the number of individuals investing in IRA's rose
from 6.8 million in 1981 to over 24 million last year, with the largest
gain, 10 million, occurring in 1982 when both working spouses were allowed
to contribute up to $2,000. More rapid depreciation coupled with the
sharp decline in inflation has significantly increased the after tax rate
of return on business investment, thus substantially improving the climate
for business investment. Entrepreneurial activity has spurted noticeably.
Estimates are that there may have been a record 600,000 new incorporations
in 1983.
These changes have also been useful in generating the recent improve-
ments in labor productivity. From 1977 to early 1982, labor productivity
grew very little. It began to increase in the third quarter of 1982 and
grew at an average annual rate of 1.8 percent for the last two quarters
of 1982. For 1983, labor productivity grew by 3.5 percent per year, one
of the fastest rates of increase in a number of years.3
Recovery from Recession
Strong economic growth during 1983 went far to erase the effects of
the economic recession which began in July 1981 and ended in November
Information and opinions discussed here are for the internal use of HUD
officials. They do not necessarily represent Department decisions or
policy positions.
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1982. During this period, the Nation's unemployment rate increased
from 7.0 to 10.7 percent. Manufacturing jobs declined by over 2.3 million,
and the unemployment rate among blue-collar workers rose to 16.3 percent.
While the effects of the recession spread through cities in all
regions, the major impacts were in the older cities that specialize in
the manufacture of durable goods, such as steel and automobile products.
For example, job losses were greater in the North Central region than in
other regions.
Economic recovery began in November 1982. Real GNP turned up in
the first quarter of 1983 and registered strong increases during each
of the subsequent quarters. By December 1983, employment had increased
by 4 million over December 1982's recession low, and the national
unemployment rate had fallen to 8.2 percent. By March 1984, employ-
ment had increased by another 1.2 million to a record 104.1 million, and
the unemployment rate fell to 7.8 percent. Manufacturing growth has
been particularly sharp since March 1983, with durable goods industries,
such as transportation equipment, machinery, and electric and electronic
equipment, accounting for the bulk of the manufacturing gains. (See
Chart III-1 and Chart 111-2). By December 1983, unemployment rates had
declined in both large and small central cities in all regions.
With the Administration's Economic Recovery Program in place, the
stage is set for sustained economic growth stimulated by increased savings
and private sector investment. State and local governments can complement
Information and opinions discussed here are for the internal use of HUD
officials. They do not necessarily represent Department decisions or
policy positions.
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111-5
Chart 111-1
Employment in Major Manufacturing Industries. 1978-1984
Timm
loom A>TNM Ypii0~1le twindw DvLAfwa
.;
1ff
r
? ;
t
C' I I .Y..t.: - .~~. .1.
Towe. c.110,M,...* ..4 s.C~..s 1'6
SOURCE: Employment and Earnings
Bureau of Labor Statistics
Information and opinions discussed here are for the internal use of HUD
officials. They do not necessarily represent Departmental decisions or
policy positions.
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Chart 111-2
Selected Industrial Production Indices, 1984
17$ i1 II M
AND styes ..d itocb iadude imposts. LAWN Ines: J.w"y.
Source: Federal Reserve Bulletin, February 1984, page 88
Information and opinions discussed here are for the internal use of HUD
officials. They do not necessarily represent Departmental decisions or
policy positions.
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Federal efforts to maintain economic growth by developing their communities'
competitive advantages and attracting private investment to productive
activities. It is to be expected that different cities will share in
economic recovery at different rates. Cities with economies based on
growing industries and population and modern plants have in many cases
already overcome the effects of recession and surged to higher levels of
activity. Those cities which have been dependent on mature basic industries,
and which contain much aging and unmodernized plant, will probably lag the
recovery, and require special measures at all levels of government to
overcome their specific liabilities. Under conditions of national economic
growth, however, most communities will be able to improve their level of
performance.
STRUCTURAL ECONOMIC PROBLEMS OF CITIES
A number of the Nation's cities are afflicted by structural economic
problems, usually created by a dependence on older, basic industries
which have been adversely affected by shifts in consumer preference,
development of new technologies, labor cost disadvantages, and other
competitive pressures. Frequently those cities find their economic
adjustments inhibited by obsolete plant and an unwillingness of companies
to reinvest instead of building new plants in other locations. Such
structural problems have led, over the past few decades, to declines in
work forces, property values, and the overall economies of these cities
Information and opinions discussed here are for the internal use of HUD
officials. They do not necessarily represent Department decisions or
policy positions.
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111-8
especially, but not exclusively, in areas such as the Midwest and Northeast.
However, these declines of individual cities have occurred in the context
of a remarkable show of strength by the Nation's overall manufacturing
base. Discounting cyclical peaks and valleys, the manufacturing sector
has shown both underlying strength and indications of resurgence, based
on increasing modernization of older industries and continuing leadership
from high-technology firms. In addition, many cities have shown an
ability to attract and give birth to service industries to replace
employment losses in manufacturing. The Administration does not believe
that any city is condemned to inevitable decline. In the case of cities
experiencing severe structural problems, the Administration has not only
kept existing programs targeted to aid such cities, but has developed and
promoted new ones, such as Enterprise Zones, to enable cities to make the
needed adjustments to provide them, eventually, with stable, growing
economic bases.
Trends in Manufacturing Employment
In the 1960's and 1970's the number of workers employed in manufac-
turing increased slowly, and manufacturing's share of total output remained
relatively stable at just under 25 percent. While the aggregate figures
were stable, however, both within and around the manufacturing sector, there
were major shifts in employment patterns. Manufacturing's relative share
of total U.S. employment declined from 31 percent in 1960 to 22 percent
in 1980. Employment in high-technology industries increased relative to
capital-, labor-, and resource-intensive industries. (See Tables III-1 and
111-2). (High technology industries are those with high research and
development expenditures relative to the value of what they produce.)
Information and opinions discussed here are for the internal use of HUD
officials. They do not necessarily represent Departmental decisions or
policy positions.
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111-9
Table 111-1
Size and Share of U.S. Manufacturing Sector, 1960-1980
Manufacturing
Share of Total
Output Employment
(billions of (millions)
1972 dollars)
Output
Employment
1960
$171.8
16.8
23.3%
31.0%
1970
261.2
19.4
24.1
27.3
1980
351.0
20.3
23.8
22.4
Source:
U.S. Council of Economic Advisers, Economic Report of the President,
February 1984, Table 3-1.
Information and opinions discussed here are for the internal use of HUD
officials. They do not necessarily represent Departmental decisions or
policy positions.
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III-10
Table 111-2
Shares of Value Added and Employment in U.S. Manufacturing
by Industry Group, 1960-1980
(Percent of manufacturing total)
Group
Value Added
Employment
1960
1970
1980
1960
1970
1980
High-technology
27
31
38
27
30
33
Capital-intensive
32
30
27
29
29
28
Labor-intensive
13
13
12
21
20
19 I
Resource-intensive
28
25
23
23
21
20
Source: Robert Z. Lawrence, "Is Trade Deindustrializing America?
A Medium Term Perspective," Brookings Papers on Economic
Activit : 1, Washington, D.C.:- Brongs Ins on,
Table 2.
Information and opinions discussed here are for the internal use of HUD
officials. They do not necessarily represent Departmental decisions or
policy positions.
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The slow growth of manufacturing employment relative to employment
in other sectors has resulted from several factors, including (1) a shift
in consumer demand away from manufactured goods as income rises; (2)
increases in manufacturing productivity; and (3) intensified international
competition in manufacturing. Recent sluggish growth in the world economy
has also affected U.S. manufacturing employment. Employment shifts to
high-technology industries reflect shifts in consumer preferences as well
as export opportunities. The stability of the overall production and
employment figures within the context of these many changing factors
underscores the continued strength of the Nation's manufacturing sector.
However, these changes have necessitated major adjustments by workers and
communities faced with the loss or contraction of some jobs and industries
and the emergence and growth of others. Not all workers and all communities
have been equally capable of making these adjustments and responding to
new competitive opportunities.
A closer look at the types of manufacturing jobs that central cities
have been losing will clarify the problems faced by older industrial cities.
A recent study of the largest urban areas showed that cities such as
St. Louis, Cleveland, Buffalo, and New York experienced some of their
largest employment losses in low-skill industries, such as apparel,
textiles, leather goods, and furniture.5 This simply confirmed an historical
tendency of older industrial centers to lose less-skilled, labor-intensive
Information and opinions discussed here are for the internal use of HUD
officials. They do not necessarily represent Departmental decisions or
policy positions.
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jobs to areas with lower wages. Relocation of mill industries from New
England to the Carolinas provides an early example of this dispersion
effect; the increasing tendency of consumer electronic goods to be assembled
abroad provides a more recent example.
In addition to losses in their low-skilled industries, industrial
cities also suffered major job losses in higher-paying basic industries,
such as primary metals (steel), fabricated metals (machine tools), and
transportation (automobiles).6 Higher U.S. labor costs, foreign competition,
obsolete plants, and increased energy costs are reasons frequently cited
for these losses.7 However some of those job losses have been reversed
by the current economic recovery, particularly in automobiles.
Although manufacturing job losses during the 1970's were substantial
in some major cities, manufacturing continues to play an important
role in urban areas. As indicated on Chart III-1, many major industries
in the manufacturing sector have overcome their recessionary troughs and
have regained levels of employment approaching previous highs. The
American automobile industry, for example, has led a resurgence of production
and employment. Industries which looked as if they would never recover
when the overall economy was undergoing bouts of "stagflation" have shown
resilience in a healthy economy. The Federal Reserve's index of industrial
production in February 1984 was 3.9 percent above its previous high in
July of 1981. (See Chart 111-2). Production is approaching or exceeding
previous highs in almost all types of manufacturing, durable and nondurable.
Information and opinions discussed here are for the internal use of HUD
officials. They do not necessarily represent Department decisions or
policy positions.
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While increased automation and growing use of high technology and
robotics make it unlikely that many of the basic industries, such as
auto and steel, will ever require the same size labor force relative to
production as in previous decades, it is also clear that they will be
able to provide a continuing base of employment in urban areas. This
ability will be greatly enhanced by measures being taken in those industries
to increase their competitiveness, from use of production robotics in
the auto industry to modernizing furnances, expanding use of continuous
casting, or in some cases even shifting to finished product production
and using foreign-produced ingots in the steel industry. What is important
to the Administration in this atmosphere of resurgence and increasing
competitiveness is to encourage all cities to participate as fully as
possible and to aid cities suffering from disinvestment and obsolete
plant to either modernize or shift their economic bases according to
local needs.
Many cities in all sections of the country have been especially
successful in attracting and developing new industries. These cities
have capitalized on their special strengths to develop successful
economic development strategies. Dallas, Houston, San Jose, and Phoenix
have experienced substantial growth in high-technology industries, such
as non-electric machinery, electric equipment, and instruments; approximately
half of their manufacturing employment is concentrated in high-technology
sectors. Philadelphia has moved from its old heavy-industry base to a
mix of lighter industry and service industries, such as banking and
Information and opinions discussed here are for the internal use of HUD
officials. They do not necessarily represent Department decisions or
policy positions.
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merchandising. Boston took advantage of its great universities and a
skilled labor force, which gave the city a competitive advantage in the
design of sophisticated computers and instruments. Dayton, Ohio, which
has suffered substantial employment losses in industries such as cash
registers, refrigerator motors, and printing presses, is using its location
near several colleges and a major Air Force base to attract high-technology
firms. Other cities with similar resources are considering switching to
high-technology products.
Trends in Non-manufacturing
Another major opportunity for expansion of jobs in urban areas is in
office services (finance, data processing, headquarters offices, accounting,
corporate law), health services, specialty retail services, tourism, arts
and cultural services and education. Nationally, these services have
been growing very rapidly, and they tend to concentrate in urban areas.8
For example, 43 percent of the Nation's employment in legal services and
37 percent of its employment in banking are concentrated in 34 of the
largest urban counties.
Office services and corporate headquarters have exhibited strong
growth in many of the older urban areas that have been losing jobs in
other industries. Cities such as New York, Chicago, and Boston have
developed strong office sectors and are major centers of national and
Information and opinions discussed here are for the internal use of HUD
officials. They do not necessarily represent Department decisions or
policy positions.
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international finance. Being the headquarters location for major
manufacturing firms has assisted large industrial cities, such as
Pittsburgh (steel), Minneapolis (electronics), and Rochester (scientific
and office equipment), in building strong office industries.9
A recent study of the largest economically declining urban areas
shows that their finance industries grew by 15 percent between 1967 and
1979, and even higher growth rates were exhibited in their legal
(82 percent), business (41 percent), health (65 percent), and education
(37 percent) industries. In the context of their 27 percent loss of
manufacturing jobs during this period, these gains are quite impressive.10
They indicate that, despite a diminished population and job base, many
of the older urban centers are showing considerable strength in adapting
their economies to offset deterioration of their manufacturing and
trade industries. '
Of course, growth of office services in central cities may not
continue at the same pace in the future. Many administrative and
auxiliary (e.g., research and development) functions of major firms are
being decentralized to suburbs. One reason for this shift seems to
be the contracting supply of clerical workers in central cities and the
growing supply in the suburbs. Central city "push" factors, such as
high taxes, congestion, poor schools, and crime, also seem to be important
contributing factors.11 In addition, advances in data processing have
dispersed the "back office" activities of many financial firms to small
cities in nonmetropolitan areas.12
Information and opinions discussed here are for the internal use of HUD
officials. They do not necessarily represent Department decisions or
policy positions.
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Some cities have made the transition to a service-based economy more
easily than others. Among larger cities, national and regional centers,
such as New York, Boston, Philadelphia, Atlanta, and New Orleans, have
been more successful than manufacturing-based areas, such as St. Louis,
and Detroit, which started with a lower level of finance and service
employment and expanded at a slower rate.
To sum up, cities have had different degrees of success in dealing
with their structural problems. The Administration has maintained several
economic development programs to aid cities in adapting to these changes;
they are discussed below.
FEDERAL ACTIONS TO PROMOTE URBAN ECONOMIC DEVELOPMENT
Enterprise Zones
The Administration's proposed Enterprise Zone legislation (H.R. 1955,
S. 863) provides both encouragement and incentives for the public and
private sectors to work together in revitalizing distressed areas and
creating jobs.
The concept behind the legislation is to create an environment in a
distressed area conducive to stimulating business activity and stabilizing
or increasing employment for zone residents and others. State and local
Information and opinions discussed here are for the internal use of HUD
officials. They do not necessarily represent Departmental decisions or
policy positions.
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governments may offer tax or regulatory incentives, or perhaps additional
services in the area, or improvement of the infrastructure conditions.
As a result of the Administration's focus on the concept, this
experimental approach is already being tried by almost half of the States
through their own Enterprise Zone programs.
The Federal Enterprise Zone legislation provides tools that can be
used to complement State and local efforts to improve the economic
development process, regardless of whether they have enacted their own
State legislation. To nominate a distressed area for Federal Enterprise
Zone designation, a State and local government must identify impediments
to economic activity in a zone and formulate a strategy to remove those
impediments. This strategy must include commitments from both State and
local governments. The legislation also strongly encourages contributions
from the business community, such as financial and technical assistance
and training for employers and employees. It encourages participation
by zone residents in the economic success of the zone, as entrepreneurs,
job holders, or as part of a plan by which residents share in whatever
increased equity accrues to the zone.
Information and opinions discussed here are for the internal use of HUD
officials. They do not necessarily represent Department decisions or
policy positions.
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In addition to this process for formulating a strategy, and a
collection of local incentives, the Federal legislation provides a powerful
package of Federal tax and regulatory incentives. To stimulate growth
and training opportunities, particularly for disadvantaged individuals,
the bill offers tax credits to employers who increase payrolls and hire
disadvantaged and long-term unemployed individuals. To encourage business
investment, growth, and the flow of capital into the zones, the bill
provides tax credits for investment in zone personal property and real
estate in addition to those credits already provided in the tax code; and
exempts capital gains from taxation. The bill also provides for expedited
treatment of applications for establishing Foreign Trade Zones within
Enterprise Zones. To lessen the cost and time burdens of some Federal
regulations, the bill permits jurisdictions containing federally designated
Enterprise Zones to request the waiver or modification of regulations if
such waiver or modification would not violate a statute or adversely
affect health and safety. Regulations adopted to carry out statutes
and Executive Orders which prohibit discrimination may not be waived or
modified.
Enterprise Zones present exciting opportunities to revitalize
distressed areas throughout the Nation and to create or retain jobs where
they are most needed.
Information and opinions discussed here are for the internal use of HUD
officials. They do not necessarily represent Departmental decisions or
polcy positions.
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Urban Development Action Grants
Under this Administration, the Urban Development Action Grant (UDAG)
program was re-focussed toward its original stated purpose--stimulating
economic development and creating jobs in distressed areas. This program
makes discretionary grants to distressed cities to stimulate economic
recovery. The UDAG program is a good example of a Federal program which
embodies a number of the key components of the Administration's urban
policy in that the program seeks to maximize local government and private
sector control and discretion, and complements private sector efforts.
It is targeted to distressed areas, and it results in permanent job
creation through business investment.
The Administration sharpened the program's focus on economic
development by directing that project selections place a greater
emphasis on job creation and fiscal benefit.
Over the last three years, 1,254 projects involving $1.731 million
of action grant funds received preliminary application approval with
FY 1983 accounting for the largest number of projects (537) approved in
the six year history of the program. These projects account for 208,930
planned new permanent jobs and a projected $280 million additional annual tax
benefits.
In an attempt to make the UDAG program more responsive to communities
experiencing long-term, high levels of unemployment, the Administration
added location in a Labor Surplus Area as a distress criterion for
Information and opinions discussed here are for the internal use of HUD
officials. They do not necessarily represent Departmental decisions or
policy positions.
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establishing eligibility. This change was particularly aimed at smaller
communities for which specific and reliable measures of strucutural
unemployment are not available. The change gives one eligibility point
to large cities and urban counties that are designated as Labor Surplus
Areas (LSAs) by the Department of Labor and one eligibility point to
small cities if the county or county balance in which they are located is
a designated LSA. An area receives an LSA designation if its unemployment
rate exceeds 120 percent of the national average unemployment rate over
the previous two years.
The effect of this action is to make 14 more large cities and urban
counties and approximately 1,800 more small cities eligible to participate
in the UDAG program.
The Administration also initiated a concerted effort to increase the
participation of small cities in the UDAG program. These efforts involved
a variety of outreach activities by HUD Field Offices designed to inform
local government officials about how action grants can be used and to
fund private contractors, such as Halcyon, the Mexican-American Research
Center, the National Development Council, the National Association of
State Development Agencies, and McManus Associates, who conduct workshops
and give technical assistance in preparing applications to a number of
individual communities.
Information and opinions discussed here are for the internal use of HUD
officials. They do not necessarily represent Departmental decisions or
policy positions.
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The combination of these outreach activities contributed to a record
number of new applications from small cities for consideration in the
four competitive funding rounds of FY 1983. For these rounds, small
cities submitted slightly more than 600 new UDAG applications as compared
to just over 350 during the four FY 1982 rounds. The total number of
small city applications receiving preliminary application approval rose
from 272 during FY 1981-1982 to 241 in FY 1983 and the UDAG dollars for
these announced projects increased from $66 million in FY 1982 to $170
million in FY 1983. As a consequence, the carryover of the small city
set-aside declined by $36 million during FY 1983.
Community Development Block Grants
The Community Development Block Grant (CDBG) program is also playing
a key role in helping cities to adjust to their changing economic
situation. In 1983, the entitlement portion of the CDBG program provided
$2.4 billion to central cities, suburban cities with over 50,000
population, and 96 large urban counties. A recent HUD study showed that
CDBG funds are highly targeted to distressed and needy cities. In Fiscal
Year 1984, the most distressed 10 percent of cities are projected to
receive 3.7 times more in per capita funding than the least distressed
10 percent.
The Administration has increased the economic development emphasis of
the CDBG program by adding the direct support of for-profit organizations
as an eligible activity. This action stimulated a variety of innovative
Information and opinions discussed here are for the internal use of HUD
officials. They do not necessarily represent Departmental decisions or
policy positions.
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approaches not previously available. In addition, the Administration has
restored decision-making authority to local governments by substantially
reducing program regulations and replacing a detailed application process
with a statement of proposed uses.
As is becoming increasingly recognized, the quality of life in a
city is an important determinant of firm relocation decisions. A major
concern of office and service firms when considering a possible move is
whether or not the candidate city will be attractive enough for its white-
collar employees. For this reason, use of CDBG funds to reduce crime and
rehabilitate deteriorated neighborhoods is an integral part of a city's
economic development program.
The combination of reduced restrictions on dealing with private
business, greater flexibility in activity location, and generally broader
choice has resulted in more innovative approaches to economic development
with CDBG funds. For example, Houston has entered into CDBG economic
development activities for the first time by providing public improvements
in the city's newly created tax-increment finance district and supplementing
its industrial revenue bond program. Imaginative ways are being found to
use CDBG funds as a base for short-term loan programs to the private
sector to support economic development activities and to finance closely
related public improvements. In Atlanta, for instance, loans provided
public improvements for a large industrial park currently under development.
In Cleveland, a revolving loan fund aided revitalization of a former
warehouse district by financing acquisition and renovation of vacant
warehouse structures. In Phoenix, financing of a major downtown residential
Information and opinions discussed here are for the internal use of HUD
officials. They do not necessarily represent Departmental decisions or
policy positions.
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and office development was leveraged at better than a 10 to 1 ratio with
a loan from CDBG funds. Interim financing of construction in economic
development acitivities was provided in Seattle.
CDBG Technical Assistance
CDBG-funded technical assistance (TA) projects help State and local
governments through dissemination of information on successful community
and economic development projects and through direct provision of assistance.
Nearly $20 million were allocated for this purpose in FY 1983. Some TA
projects provide assistance to cities with significant minority populations
to develop and manage CDBG projects that benefit minorities. The National
Development Council is now working with governors in 40 States to establish
Small Business Revitalization Corporations to increase the availability of
private financing to small- and medium-sized businesses and to achieve
CDBG and UDAG economic development goals. HUD has entered into an
interagency agreement with the Small Business Administration (SBA) to
promote innovative use of CDBG, SBA, and other public and private
resources in economic development projects. As of February 1984, 1,189
businesses with $1.7 billion in loan requests were in process under the
program. Of these, 536 businesses had received loan approvals of $741
million. The approved projects will support approximately 30,000 jobs.
Other projects, too numerous to mention, focus upon energy conservation,
low- and moderate-income housing development, linking economic development
Information and opinions discussed here are for the internal use of HUD
officials. They do not necessarily represent Departmental decisions or
policy positions.
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and employment programs, involving neighborhood organizations in the
provision of municipal services, and related community development
activities.
Small Cities CDBG Program
As part of its Federalism initiatives, the Administration requested
Congress to give States the option of running the CDBG Small Cities
program. This program distributed $1.0 billion to smaller communities
(below 50,000 population) in Fiscal Year 1983. Thirty-six States and
Puerto Rico undertook the program in its first year, 46 States did so in
the following year. They were free to design and organize the program as
they chose within the three broad national objectives of the CDBG program.
Transfer of the program to State administration has been very
successful. States have chosen their own objectives, designed their own
programs, and selected grantees--all within a relatively short period of
time. Generally, local governments were significantly involved in design
of their State's program and have responded positively to its implementation
and outcomes, comparing it favorably to the prior HUD-run program along
several dimensions.
One of the clear differences between the program as administered by
State officials and the program as previously administered by HUD has
been the increased attention to economic development projects. Under the
new State-administered Small Cities Program, 44 of the 47 States
administering the Small Cities Program designated economic development as
a priority area for funding in FY 1983. In 1981, only four percent of
Information and opinions discussed here are for the internal use of HUD
officials. They do not necessarily represent Departmental decisions or
policy positions.
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the funds awarded to small cities by HUD were for economic development.
In fiscal years 1982 and 1983 under the revised program designed by State
agencies in consultation with local officials, the funding for economic
development projects increased more than three-fold to 14 percent and 15
percent respectively. Furthermore, these funds are reaching into communities
that had received little prior assistance from HUD. For example, in FY 1983,
more than one-half of these funds have been granted to very small communities
with fewer than 10,000 population and 83 percent to cities with less than
25,000 population.
Small Business Financial and Management Assistance
The Small Business Administration (SBA) offers both financial and
management assistance to small businesses. In its most common form of
financial assistance, SBA guarantees loans made by private lenders,
thereby reducing their risk. In FY 1983, SBA guaranteed over 17,000
loans for a total of $2.6 billion. It also makes direct loans to applicants
who are unable to obtain private or SBA-guaranteed financing. In FY 1983
SBA made over 2,000 direct loans for a total of $150.7 million.
SBA finances investment entities specializing in small business
loans. These include 360 Small Business Investment Companies (SBICs)
which provided a total of $397.7 million to small businesses in over 2,500
separate business transactions in FY 1983; and Minority Enterprise Small
Business Investment Companies (MESBICs) which provide specialized
assistance to small firms owned and operated by socially or economically
Information and opinions discussed here are for the internal use of HUD
officials. They do not necessarily represent Departmental decisions or
policy positions.
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disadvantaged persons in business, and which provided $54.9 million in
813 separate financings in FY 1983. Another tool used by SBA to promote
economic development and create jobs and to increase the involvement of
private lenders in regional and local economic development projects is
the Certified Development Program. This program provided $296 million
in guarantees to CDCo's and State and local governments in over 1,400
transactions in FY 1983.
SBA also provides management assistance to small firms or to
individuals wishing to start their own businesses. Twenty-six Small
Business Development Centers (SBDCs) operate in conjunction with academic
institutions to assist, train, and counsel small business owners. Other
management assistance programs make the advice of business administration
students and faculty and retired and active executives available to
small businesses.
In other activities, SBA assists in directing Federal prime contracts
and subcontracts to small business, either by government or private
contractors. It is also working with public and private resources to
produce partnerships that benefit the small business community. All of
these activities recognize the critical importance of small businesses in
the Nation's economy and in community and economic development.
Job Training Partnership Act of 1982
The Job Training Partnership Act (JTPA) replaces the Comprehensive
Employment and Training Act (CETA) Program and includes a number of
Administration initiatives that encourage business and State and local
Information and opinions discussed here are for the internal use of HUD
officials. They do not necessarily represent Departmental decisions or
policy positions.
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governments to work together to train disadvantaged and dislocated workers.
It contains a number of innovative features that will lead to more effective
training for unemployed workers.
Under JTPA, general Federal assistance to States for training has
been consolidated into a block grant of $1.9 billion; States and local
areas are given discretion to use the resources to address their most
pressing training and employment problems. Directing resources to States
permits increased coordination with other programs, such as vocational
and adult education, which are already the responsibility of State
governments. Although few restrictions are included in the Act, 70
percent of the grant amount must be used for training. In the past, an
average of only 18 percent of Federal training aid went for training,
with the remainder being spent on income transfers, administration, and
various support services.
Under JTPA, States designate local service delivery areas (SDA) with
populations of 200,000 or more. Each SDA must establish a Private
Industry Council (PIC), which is comprised of business, government,
education, labor and other local representatives, to design and implement
training programs for the disadvantaged. Unlike earlier training programs.,
business representatives are equal partners with local governments in
operating local training programs. Cooperation of the private sector
will ensure that disadvantaged people are trained for real jobs.
Information and opinions discussed here are for the internal use of HUD
officials. They do not necessarily represent Departmental decisions or
policy positions.
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JTPA also authorizes a new program of grants to States to help them
assist dislocated workers who are unlikely to return to their previous
jobs or occupations. Such workers can be helped into new fields of
endeavor through identification of alternative occupations that fit their
skills, training in new skills for which demand exceeds supply, assistance
in finding suitable new jobs, and payment of the costs of a worker's move
to a new location for a job. As a result of the Administration's budget
proposal last year, $233 million is now available in 1984 to provide
assistance to approximately 96,000 dislocated workers. A State match
of Federal resources is required for most of these grants.
The Administration's efforts to decentralize authority in major
urban aid programs from the Federal Government to State governments is
reflected in the new roles that States are now playing in the CDBG and
job training programs.
Youth Employment Programs
About 40 percent of block grant funds under the Job Training Partner-
ship must be spent on economically-disadvantaged youth between the ages
of 16 and 21. In addition, States receive grants to operate summer youth
employment and training programs. Seven hundred twenty-five million
dollars are provided for this purpose in Fiscal Year 1984, to employ
about 718,000 economically-disadvantaged youth between the ages of 14 and
Information and opinions discussed here are for the internal use of HUD
officials. They do not necessarily represent Departmental decisions or
policy positions.
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Two other programs with the aim of reducing youth employment are
the Job Corps and the Targeted Jobs Tax Credit. The Job Corps serves
economically-disadvantaged youth in a residential setting. Under the
program, a national system of 107 residential centers in 43 States
provides basic education, vocational training, counseling, health care,
and similar services to disadvantaged young men and women between the
ages of 16 and 21 to prepare them for jobs and responsible citizenship.
Enrollees may stay in the Job Corps as long as two years; at the end of
their stay, they are given assistance in finding a job. The 107 centers
have a capacity of about 40,000, but can serve about twice that number
each year, as the average length of stay is about six months.
The Targeted Jobs Tax Credit (TJTC) is available to private employers
who hire employees from targeted groups. Employers receive a credit of
50 percent of first year wages up to $6,000 per employee and 25 percent
of second year wages up to $6,000. This means a maximum allowable credit
of $3,000 per employee for the first year and $1,500 for the second.
The targeted groups include youth between the ages of 18 and 24 from
economically-disadvantaged families; almost 260,000 were certified for
the credit and found in jobs in FY 1983. Also served are youth between
the ages of 16 and 19 from economically-disadvantaged families who
participate in a qualified cooperative education (i.e., work-study)
Information and opinions discussed here are for the internal use of HUD
officials. They do not necessarily represent Departmental decisions or
policy positions.
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program. (Other TJTC targeted groups include recipients of Supplemental
Security Income, Aid to Families with Dependent Children, and State and
local general assistance, handicapped persons, felons, and economically-
disadvantaged Vietnam-era veterans.)
The major task now is the remove government-imposed barriers which
prevent youth from getting needed work experience. The President is
urging Congress to enact a Youth Employment Opportunity Wage (75 percent
of the regular minimum wage) which will enable employers to expand job
opportunities for youth.
Under a new Summer Youth TJTC program, a credit of 85 percent of up
to $3,000 in wages is paid to employers who hire economically-disadvantaged
youth who are 16 or 17 years old for summer jobs. In FY 1983, the first
year of this program, over 33,500 youths were certified for the credit
and found jobs.
The Minority Youth Training Initiative (MYTI) is a demonstration
program developed by the Department of Housing and Urban Development to
make creative use of the opportunities provided through the Job Training
Partnership Act. MYTI is intended to coordinate job training opportunities
provided through HUD-assisted programs with JTPA funds available to local
communities. Minority youth in 20 cities will be provided with training
in housing management and maintenance. Cities, working with their Private
Industry Councils established under the JTPA and with their public
Information and opinions discussed here are for the internal use of HUD
officials. They do not necessarily represent Departmental decisions or
policy positions.
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housing authorities, are developing programs and curricula in housing
management and maintenance attuned to the needs of their local job
markets. HUD has provided funds under the Comprehensive Improvement
Assistance Program to each of the participating public housing authorities,
and has provided technical assistance through a national contractor.
STATE AND LOCAL ECONOMIC DEVELOPMENT EFFORTS
State Governments and Local Economic Development
State governments have traditionally been involved in many economic
development programs, including manpower training, promotion of industrial
growth? international trade development, and minority business development.
Recently, they have begun to play a even greater role in the development
of policies to alleviate local economic distress. State-administered
programs to encourage private investment increased dramatically during
the latter half of the 1970's.13 More importantly, these State programs
were often designed with the help and support of city officials.
State governments have used several creative techniques and innovative
programs to stimulate development in urban areas, including: 1) incentives
to business development - (e.g., industrial revenue bonds, direct loans,
land banking, and training); 2) building local capacity - (e.g., technical
assistance, tax increment financing, and economic development corporations);
and, 3) coordinating State development - (e.g., targeted capital investments
and business ombudsman programs). States are also recognizing the importance
of identifying the State's or city's competitive advantages before deciding
on a particular policy. They are beginning to avoid the "smokestack
Information and opinions discussed here are for the internal use of HUD
officials. They do not necessarily represent Departmental decisions or
policy positions.
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chasing" approach to development and, instead, to encourage the kinds of
businesses that are likely to benefit from urban locations.
Rarely have State and local governments experimented with such a diver-
sity of incentives as they are now doing through their Enterprise Zone
programs.14 For instance, Connecticut's Enterprise Zone legislation,
designating six development zones, provides for such innovative features
as a venture capital loan fund for small businesses, a sales tax exemption
for the purchase of spare or replacement parts, a 50 percent State
corporate income tax credit, and employment training vouchers. Maryland
provides loan guarantees from a Venture Capital Guarantee Fund, and Florida
provide loans and grants to community development corporations (CDCs) in
State Enterprise Zones. Also, within some 400 potential zones, Louisiana
provides exemptions from State income, sales, and franchise. taxes for
purchase of plant and equipment; and Ohio provides sales tax exemptions
and permits property tax abatement.15
Competitive Advantages of Urban Areas
Recognizing that transformation of urban economies is likely to
continue, and possibly accelerate, during the 1980's, local officials
and community leaders are interested in identifying types of businesses
likely to find their cities profitable places to locate. They are reassessing
their economies to identify competitive advantages as a basis for their
economic development strategies.16 For instance, the City of Philadelphia
recently cooperated with private sector and community groups in a process
Information and opinions discussed here are for the internal use of HUD
officials. They do not necessarily represent Departmental decisions or
policy positions.
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of debate and education designed to promote informed policies concerning
Philadelphia's future. The economic development component of that project
-- which was called "Philadelphia: Past, Present, and Future" -- focused
on how the national shift toward services has affected the future prospects
of Philadelphia's economy and, in that context, what local development
strategies were appropriate. The Cleveland Foundation was the primary
sponsor of a similar study of Cleveland's economy. That study analyzed
past trends in Cleveland's industries to determine which were competitive
enough to emphasize in the future.17
Need for Flexibility
Several characteristics of recent efforts by cities to develop strong
economic development policies show clearly why the Administration has
emphasized giving local governments maximum freedom to respond to their
own diverse needs and opportunities. First, it is becoming increasingly
obvious that no single "grand" strategy will be successful in today's
urban economy. Compared with traditional industrial development strategies
that focused on attracting and retaining large factories, local strategies
in today's service-based economy are concerned with a much wider and more
complex range of opportunities, from encouraging growth in specialty
retail shops to training a labor force suitable for office services and
high-technology manufacturing. There is no single strategy for promoting
these different types of activities.
Information and opinions discussed here are for the internal use of HUD
officials. They do not necessarily represent Departmental decisions or
policy positions.
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Moreover, given the rapid pace of technological change and the high
mobility of capital in today's economy, cities are undergoing a continuous
process of adjustment to change. Developing a long-term strategy that
will ease these adjustments often requires emphasizing a different set of
factors than was emphasized during the earlier industrial era. For
instance, the quality of life in a city--rather than a location near
natural resources--is seen as increasingly important for attracting
new white-collar, office industries.18 Baltimore, for example, is
a city that has attracted office industries by improving its retail and
commercial trades sectors. A high-quality labor force will ease the
adjustment to technological changes. Educational systems, especially
colleges and universities, increasingly play important roles in local
development strategies as sources of entrepreneurs and skilled workers.
Essentially, the transformation toward office and other knowledge-intensive
activities means that local development policies are becoming more oriented
toward attracting and training people.
Some cities are anticipating the future needs of their service
industries by strengthening their telecommunications facilities. For
example, New York City is promoting an economic development project on
Staten Island called Tele,port, in conjunction with the Port Authority of
New York and New Jersey, Merrill Lynch, the Western Union Telegraph
Company, and other private sector firms. It is a 10-year, $300-million,
public-private effort to serve the region's information industry and
Information and opinions discussed here are for the internal use of HUD
officials. They do not necessarily represent Departmental decisions or
policy positions.
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retain businesses and jobs. The project includes development of an office
park to house "back office" (e.g., computer-related clerical) operations
and an advanced telecommunications network employing fiber optics and
satellite technologies for intra-regional and long-distance communications.19
Another teleport is under construction in the San Francisco area by a
private developer. In Columbus, Ohio, two computer data banks and Ohio
State University plan to spend $4 million on a teleport aimed at the
area's high-technology industries.20 Developers in Dallas, Chicago, and
several smaller cities already have plans or projects underway for smaller
scale efforts to link real estate developments and advanced telecommuni-
cations.21 Projects such as these are providing cities with the infra-
structure needed to attract and retain communication-based economic
activities.
Another characteristic of recent local strategies is the increasing
attention paid to small businesses. In the past, cities have often used
their economic development funds to attract large factories from other
States. However,, recent research has shown that plant relocations by
large firms account for only a small proportion of employment change.
Furthermore, interstate plant relocations are influenced more by overall
demand (e.g., market potential) and supply (e.g., wage rates and unions)
than by factors (e.g., local taxes) under the control of local officials.
In contrast, the birth and expansion of small businesses account for a
major portion of local employment changes and can be influenced by local
Information and opinions discussed here are for the internal use of HUD
officials. They do not necessarily represent Departmental decisions or
policy positions.
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policies.22 Therefore, local officials are concentrating on the retention
of existing firms and promotion of small businesses headed by local
entrepreneurs. Examples of such policies include land assembly to
provide space for expansion, financial assistance for start-up firms,
and "one-stop shopping" programs to ease the red tape and burden
associated with local regulations.
Information and opinions discussed here are for the internal use of HUD
officials. They do not necessarily represent Departmental decisions or
policy positions.
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Chapter III Notes
1. U.S. Council of Economic Advisors, Economic Report of the President,
Washington, D.C., February 1984, Table B-55.
2. Budget of the United States Government, FY 1985, Washington, D.C.,
1984, p. 4-5.
3. Economic Report of the President, op. cit., p. 186-189.
4. Robert Z. Lawrence, "Is Trade Deindustrializing America? A Medium-
Term Perspective," in Brookings Papers on Economic Activit ,
Washington, D.C.: The Brookings Institution, 198T,- pages 130-131.
5. Harold Bunce, Bob Benjamin, and Sue Neal, "Recent Economic Trends
in Large Urban Areas," unpublished HUD paper, 1983.
6. Ibid.
7. See Barry Bluestone and Bennett Harrison, The Deindustrialization
of American: Plant Closings, Community Abandonment,-and the
Dismantling of Basic Industry, New York: Basic Books, Inc.,
1982, pages 36-37, for a discussion of plant shutdowns in basic
industries.
8. The industrial specialization of cities and the recent shift of
the national economy toward services is discussed fully in
Thomas M. Stanback, Jr. and Thierry J. Noyelle, Cities in Transition,
Totowa, New Jersey: Allanheld, Osmun & Co., 1982, pages 7-35.
9. This discussion of the role of services in transforming the economies
of older industrial cities in based on Thierry J. Noyelle and
Thomas M. Stanback, Jr., Economic Transformation in American
Cities: A Study of Processes with Imp ications for Development
Policy, a report prepared for the U.S. Department of Commerce,
cc ttobeer, 1981. This report documents the important role of producer
services in urban economies.
10. Bunce, et al., op. cit.
11. Harry W. Richardson, 1978. "Basic Economic Activities in Metropolis,"
in The Mature Metropolis, edited by Charles L. Leven, Lexington, Mass:
Lexington oocs, p. 251-277.
12. Joseph F. Coates, "New Technologies and Their Urban Impacts,"
in Cities in the 21st Centur , edited by Gary Gappert and
Richard V. Knight, B every Hills, Calif: Sage Publications, 1982,
p. 177-195.
Information and opinions discussed here are for the internal use of HUD
officials. They do not necessarily represent Departmental decisions or
policy positions.
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13. This discussion of recent changes in the role of State governments
in local economic development is based on Lawrence Malone and
Robin Erdmann, State Development Programs: A Catalogue, Council
for Urban Economic Deve opment, 1981.
14. This discussion of the early experiences of State and local
governments with Enterprise Zones is based on Alan S. Gregerman
and Jeffrey M. Pyle, "Local Enterprise Zones: Testing a New
Development Tool," in Economic Development Commentary, National
Council for Urban Economic Development, Summer, 19 3, p. 4-10.
15. These findings were taken from "Survey of State Enterprise Zone
Performance," testimony by Mack Frazier (Director of Public Policy
Programs, Sabre Foundation) before the House Ways and Means Committee
Hearings on Tax Incentives for Distressed Areas, November 17, 1983.
16. For discussion of the determinants of a city's competitive advantages,
see George A. Reigeluth and Harold Wolman, The Determinants and
Implications of Communities Changing Competitive Advantages: A
Literature Review, Washington, D.C.: The Urban Institute, 198 .
17. Aaron S. Gurwitz and G. Thomas Kingsley, The Cleveland Metropolitan
Econom . Prepared for the Cleveland Foundation. Santa Monica,
Ca The Rand Corporation, 1982.
18. The role of city amenitities in the economic revitalization of
cities is emphasized by Richard V. Knight, "City Development in
Advanced Industrial Societies" in Cities in the 21st Century,
edited by Gary Gappert and Richard Vg Knight, Beverly Hills, Calif.:
Sage Publications, 1982, p. 54-68.
19. Robert O'Connell, Andrew Silton, and Roger Vaughan, "Telecommuni-
cations: The New Urban Infrastructure," Commentary (Spring 1982),
pp. 3-8. See also George Beckerman, "The Teleport: Telecommunications
and Urban Growth," Commentary (Spring 1982), p. 10-15.
20. Michael Wines, "Teleports May be the Newest Threat to Bell Companies'
Local Dominance," National Journal (November 12, 1983), pp. 48-52.
21. O'Connell et al., op. cit.
22. The conclusion that the interstate migration of business has
relatively little impact on regional employment changes has recently
been questioned by some researchers-. Harrison and Bluestone, OP-
cit., argue that shifts of capital -- rather than the physical
movement of establishments -- by large, multi-establishment
corporations and congomerates have played an important role in
Information and opinions discussed here are for the internal use of HUD
officials. They do not necessarily represent Departmental decisions or
policy positions.
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the employment losses of declining areas. Their conclusion on
corporate disinvestment was supported by a recent study of changes
in manufacturing employment in the Chicago SMSA; this study was
entitled "Corporate Disinvestment: An Empirical Examination of
Capital Shift," (unpublished, 1983), by Robert G. Sheets,
Kenneth P. Voytek, and Russell L. Smith.
Information and opinions discussed here are for the internal use of HUD
officials. They do not necessarily represent Departmental decisions or
policy positions.
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Chapter IV
URBAN SOCIAL CONDITIONS
This chapter summarizes recent demographic trends affecting the
economic and social well-being of urban residents. It describes steps
taken by the Administration to achieve the following goals: to target
assistance to needy households, to give State and local governments
greater flexibility in meeting human service needs, to improve education
quality, and to reduce crime and improve law enforcement. Poverty, crime
and lack of education are three interrelated problems of urban areas.
Lack of education leads to lower incomes, and crime victims are predomi-
nately the urban poor. This chapter assesses, wherever possible, the
impact of the Administration's actions-on States and localities and also
discusses State and local initiatives in the areas of social services,
education, and crime prevention.
RECENT DEMOGRAPHIC TRENDS
To the extent that demographic trends can be updated since 1982,
they indicate that the basic patterns recorded in the 1982 National Urban
Policy Report have continued apace. Population movements are generally
to the South and West, and from central cities to suburbs and non-
metropolitan areas. The following items update population trends reported
in the 1982 National Urban Policy Report:
o The Nation's population is increasing in the 1980's
at rates comparable to the 1970's. U.S. population
totalled 232 million in 1982, about 2.2 percent
more than in 1980.
o Immigration continued to decline in 1982. Net civilian
Immigration to the United States during 1982 was 280,000
compared with 520,000 in 1981 and 654,000 in 1980.
Information and opinions discussed here are for the internal use of HUD
officials. They do not necessarily represent Departmental decisions or
policy positions.
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IV-2
The higher levels of net civilian immigration during
1980 reflected the large numbers of Cuban, Haitian, and
Indochinese refugees admitted; during 1981 a substantial
number of Indochinese were admitted, but the flow of
Cubans and Haitians had virtually stopped.
o The most rapidly growing region in the period from 1980
to 1982 was the West 4.3 percent) followed closely
the South ercent . Three States--California,
Texas, and Florida--accounted for well over half of
the estimated population growth. Well below the national
average of rate of growth were the Northeast (0.7 percent)
and the North Central region (0.1 percent). Ohio, Indiana,
Missouri, West Virginia, and Michigan all lost population
in the early 1980's.
o The U.S. in the 1980's continues to be largely a metropolitan
Nation with the bulk of population growth concentrated in the
suburbs. Some two-thirds of the national population growth
of~1970's occurred in metropolitan areas, but almost
exclusively outside of central cities.
o The 10 fastest growing metropolitan areas for the 1970's were all
located in the West or South. Some 29 metropolitan areas declined
in population during the 1970's. All but one of these were in
the Northeast or North Central states. Those metropolitan areas
with population loss in the 1970's include some of the largest
ones--New York, Boston, Philadelphia, Buffalo, Pittsburgh,
Cleveland, Detroit, Milwaukee, and St. Louis--generally older
industrial cities undergoing structural change.
o Nonmetropolitan population growth is continuin in the 1980's.
After small declines during the 1950's and s, t o nonmetro-
politan population in the U.S. increased from 53.6 million in
1970 to 59.5 million in 1980, the largest numerical increase
since the 1870's0 This movement to nonmetropolitan areas does
not reflect a return to the farm. Farm population during the
decade declined by 25 percent and in 1980 numbered about six
million persons.
o Metropolitan residents continued to decentralize in the early
1980's, gradually moving away from densely-inhabited central
cities Into suburbs and nonmetropolitan areas.
Information and opinions discussed here are for the internal use of HUD
officials. They do not necessarily represent Departmental decisions or
policy positions.
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INCOME AND POVERTY
Widening Central City-Suburban Income Differentials
Between 1970 and 1982, income differentials between central city
and suburban residents continued to grow.1 The median income of central
city families fell from 99 percent of the 1970 national median income
to 93 percent of the 1982 figure, while the median income of suburban
families remained stable at about 115 percent of the national median.
The divergence of central city and suburban incomes was the largest in
central cities of large metropolitan areas (those with populations over
one million) where median family income fell from 101 percent of the
1970 national median to 90 percent of the 1982 figure. Widening central
city-suburban income differentials can have serious consequences for the
social and economic well-being of urban residents. Central cities
experiencing declines in family income relative to their suburbs have
relatively less capacity to raise revenues and meet service needs of
their residents, or of potential employers. Income declines make it
more difficult for them to retain middle-income residents and to improve
the long-run economic prospects of their low-income households through
employment growth.
In the same period, however, in both central cities and suburbs,
black male-headed families made substantial gains in median income
(Table IV-1). In central cities, their income improved from 83 percent
of the 1970 national median to 91 percent of the 1982 national median,
while in suburbs, it improved from 83 percent of the 1970 national median
to 104 percent of the 1982 median. These gains are due largely to the
Information and opinions discussed here are for the internal use of HUD
officials. They do not necessaily represent Departmental decisions or
policy positions.
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IV-4
Family Median Income Relative to U.S. Median Family Income
by Race, Sex, and Type of Jurisdiction, 1970 and 1982
U.S. Median Family Income = 100 1/
Male-Headed Families
Female-Headed Families
Central
Cities
Suburbs
Central
Cities
Suburbs
White
197
0 111
122
61
67
1982
113
117
62
74
Black
1970 83
83
37
37
1982 91
104
37
47
Spanish Origin
1970 80
96
36
43
1982 82
94
36
45
1/ U.S. median family income was $14,755 in 1970 and $22,228 in 1982.
SOURCE: U.S. Bureau of the Census, "Social and Economic Characteristics
of the Metropolitan and Nonmetropolitan Populations, 1977 and 1970,"
Current Population Reports, Special Studies, Series P-23, No. 75, November
1978, and unpublished comparable dates for 1982.
Information and opinions discussed here are for the internal use of HUD
officials. They do not necessarily represent Departmental decisions or
policy positions.
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growth of two-income families and in part to rapid increases in educational
attainment leading to improved employment opportunities. Between 1970
and 1982, income differences between blacks living in central cities and
suburbs grew as more black families began to locate in the suburbs.
Declines in central city family median income appear to be due in
part to the substantial increase in female-headed families. Between
1970 and 1982, the number of families headed by women nearly doubled to
28 percent in central cities and 17 percent in the suburbs. In 1982,
52 percent of all black central city families and 39 percent of all
black suburban families were headed by women. Female-headed families had
incomes well below the national median family income. In central cities,
the median income of families headed by white women was 62 percent of the
national median while that of families headed by black and Hispanic women
was about 37 percent of the national median.
Growth of Poverty in Metropolitan Areas
In 1982, 34.4 million persons had incomes below the poverty level.2
Over 19.3 million lived in metropolitan areas--11.2 million in central
cities and 8.1 million in suburbs. Between 1970 and 1982, metropolitan
areas' share of the poverty population increased from 56 to 61 percent.
In central cities, the poverty rate (the percentage of residents with
incomes below the poverty level) increased from 14.9 to 18.0 percent,
while in suburbs, it rose from 8.1 to 8.9 percent (Table IV-2). The
greatest increase occurred in the central cities of large metropolitan
areas where the poverty rate rose from 14.8 to 19.6 percent. However,
the number of persons in poverty increased faster in the suburbs.
Information and opinions discussed here are for the internal use of HUD
officials. They do not necessarily represent Departmental decisions or
policy positions.
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IV-6
Poverty Status by Type of Jurisdiction, 1970 and 1982
All Metro Areas
Large Metro Areas 1/
Central
Cities
Suburbs
Central
Cities
Suburbs
Number of Persons with Income Below Poverty Level
(in thousands)
1970
9,247
5,976
5,049
2,985
1982
11,237
8,119
6,353
4,350
Percent Change
1970-1982
+22
+36
+26
+46
Percent of Persons with Income Below Poverty Level
1970
14.9
8.1
14.8
6.6
1982
18.0
8.9
19.6
7.9
Difference Between
1970 and 1982
+3.1
+.8
+4.8
+1.3
1/ Metropolitan areas with populations of one million or more.
SOURCE: U.S. Bureau of the Census, "Social and Economic Characteristics of
the Metropolitan and Nonmetropolitan Population, 1977 and 1970, "Current
Population Reports, Special Studies, Series P-23, No. 75, November 1978, and
unpublished comparable dates for 1982.
Information and opinions discussed here are for the internal use of HUD
officials. They do not necessarily represent Departmental decisions or policy
positions.
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Poverty rates take into account the receipt of cash assistance,
such as Social Security and public assistance, but not noncash assistance
in the form of food stamps, other nutrition programs, Medicaid, and
housing subsidies. Noncash assistance has increased rapidly in the last
decade. In 1982, more than 70 out of every 100 dollars in means-tested
assistance was noncash.3 It has been estimated that taking into account
the market value of noncash assistance would reduce the poverty rate by
about one-third. The Bureau of the Census has estimated that the 1982
national poverty rate would be reduced from 15.0 percent to 10.0 percent
if noncash assistance were counted.4
Trends in poverty rates must be distinguished from trends in the
composition of the poverty population. Poverty rates have remained
relatively steady for family households of different types (Table IV-3).
As a result of high rates of separation and divorce and unmarried mother-
hood, however, households headed by women have increased rapidly in
number and now constitute a larger proportion of poverty households. In
central cities, 5.5 percent of all white male and 10 percent of all
black male family heads had incomes below the poverty level in 1982
compared to 22 percent of all white female and 50 percent of all black
female family heads. Of the 2.4 million central city families in poverty
in 1982, 67 percent were headed by women. The number of black female-
headed families in central cities with incomes below the poverty level
more than doubled between 1970 and 1982 to 915,000.
Information and opinions discussed here are for the internal use of HUD
officials. They do not necessarily represent Departmental decisions or
policy positions.
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IV-8
Families in Poverty by Race and Sex of Head
and Type of Jurisdiction, 1970 and 1982
Male-Headed Families Female-Headed Families
Central
Cities.
Central
Suburbs Cities Suburbs
Number of Families in Poverty
(in thousands)
White
1970
619
703
381 311
1982
520
775
666 676
Percent Change
1970-1982
-16
+10
+75 +117
Black
1970
290
104
426 84
1982
221
88
915 221
Percent Change
1970-1982
-24
-15
+110 +163
Percent of Families in Poverty
White
1970
5.6
4.2
24.5
21.8
1982
5.5
4.0
22.0
26.3
Black
1970
14.3
18.0
49.1
50.1
1982
13.1
9.8
49.7
39.6
SOURCE: U.S. Bureau of the Census, "Social and Economic Characteristics of
the Metropolitan and Nonmetropolitan Population, 1977 and 1970, "Current
Population Reports, Special Studies, Series P-23, No. 75, Novembers and
unpublished comparable dates for 1982.
Information and opinions discussed here are for the internal use of HUD
officials. They do not necessarily represent Departmental decisions or policy
positions.
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Compared to other household heads, heads of poverty households tend
to have lower rates of labor force participation, higher rates of illness
and disability, greater difficulty finding work, longer periods of
unemployment, fewer wage earners in the household, and lower earnings.
Heterogeneity of the Poverty Population
The poverty population is not homogeneous. In dealing with the
needs of the poor, it is necessary to understand the heterogeneity of the
poverty population and the most common reasons why different types of
households begin and end spells on welfare.
For purposes of policy analysis, it is useful to distinguish among
four types of poverty households: elderly households, male-headed families,
female-headed families, and young, non-family households. Public policies
have been highly effective in reducing poverty among the elderly. The
combination of Social Security, Medicare, Supplemental Security Income,
and various forms of noncash assistance have reduced poverty rates among
the elderly from 55.1 percent before cash and noncash transfers to 3.7
percent after transfers.5 As a result, few of the elderly are attached
to the work force, and economic growth is not crucial to their income
status. On the other end of the age spectrum, poverty among young non-
family households is closely related to the health of the economy. For
many young people, poverty is a temporary result of getting started in
the work force.
Information and opinions discussed here are for the internal use of HUD
officials. They do not necessarily represent Departmental decisions or
policy positions.
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Economic conditions and employment are critically important to
the incomes of non-elderly households. A recent study found that nearly
three-quarters of male-headed families begin spells on welfare following a
decline in family earnings and over 90 percent leave welfare as a result
of an improvement in earnings.6 In contrast, nearly two-thirds of spells
on welfare for female heads of households are precipitated by a change in
family relationships that causes them to become a female head of household--
e.g., widowhood, separation, divorce, unmarried motherhood, or assumption
of responsibility for a child. However, another 25 percent begin a spell
on welfare because of a decline in earnings. Over one-quarter of female
households that leave welfare do so because of a change in a family
relationship--for example, through marriage, and about 55 percent because
of improved earnings. Even women with very young children to take care
of have shown themselves to be able to earn their way off welfare.
However, women who have been on welfare over two years have a declining
rate of success in leaving welfare, and may need special assistance if
they are to achieve independence.
While most persons who ever experience a spell on welfare remain
on welfare for only a short time, most of those on welfare at any point
in time are in the midst of a long spell. This is because the small
percentage of those who begin long spells on welfare each year swell
succeeding years' totals. The likelihood that a spell on welfare will
be long is increased among women who have low educational and job skills,
Information and opinions discussed here are for the internal use of HUD
officials. They do not necessarily represent Departmental decisions or
policy positions.
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IV-11
who are black, and who have more children. The dynamics of welfare have
their largest impact on central cities where households likely to
experience long spells on welfare are concentrated. Consequently, policies
to assist this group also promise to deliver the largest benefits to
central cities.
Effect of Administration Economic Policies on Poverty
One route taken by the Administration to aid the needy has been to
expand employment opportunities through the achievement of sustained
economic growth. A significant fraction of heads of poverty households are
employed or seeking employment. In 1982, 6.3 million or 83 percent of
heads of poverty families were between the ages of 22 and 64. Of this
number, 54 percent worked at least part of the year. Those who worked
part of the year would have worked more if they had not been prevented
from doing so by the inability to find work (37 percent of those who
worked at all), by illness and disability (five percent), and by
the need to keep house (8 percent). Of the 46 percent who did not work,
16 percent were prevented from doing so by the inability to find work,
25 percent by illness and disability, and 43 percent by the need to keep
house.?
Employment reduces the incidence of poverty. Only eight percent of
those family householders between the ages of 22 and 64 who worked during
the year had incomes below the poverty level compared to 45 percent for
those who did not work at all. It is evident that not all family
Information and opinions discussed here are for the internal use of HUD
officials. They do not necessarily represent Departmental decisions or
policy positions.
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IV-12
householders are able to work, but increasing employment for those who
are able to do so should reduce the incidence of. poverty. The Administration's
success at increasing employment opportunities through promotion of
economic recovery and increasing work effort through welfare reform
promises to benefit a substantial number of poverty households.
Historically, poverty rates have varied with the strength of the
national economy. During, the period 1959-1966, when the economy grew
at a rapid pace, per capita real GNP grew at an annual rate of 3.0 percent
and the poverty rate for the non-elderly poor declined at an annual rate
of 6.4.percent. Between 1966 and 1973, per capita real GNP continued to
grow, but at a somewhat slower annual rate of 2.4 percent, and the poverty
rate continued to decline, but at the slower annual rate of 3.3 percent.
Between 1973 and 1982, per capita real GNP on average grew at the sluggish
rate of only .9 percent per year, and the poverty rate grew at a rapid
4.0 percent annual rate. This period was characterized by wide
swings in the business cycle; and in each of the three recessions, the
number of non-elderly poverty population rose'significantly. The number
increased by 15.0 percent during the 1973-1975 recession, 13.4 percent,
during the 1979-1980 recession, and 9.6 percent, during the 1981-1982
recession.
These patterns clearly suggest the importance of economic conditions
to the incidence of non-elderly poverty. The significance of economic
growth for poverty should not be surprising. A 3 percent increase in
GNP adds over $50 billion to incomes of individuals. Although this
Information and opinions discussed here are for the internal use of HUD
officials. They do not necessarily represent Departmental decisions or
policy positions.
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income is spread across the income distribution, the variations in poverty
over the business cycle are ample evidence that the poor and near-poor
benefit considerably from economic growth.8
ASSISTANCE TO THE NEEDY
Targeting Assistance to Needy Households
Cash and noncash transfers to individuals and households have
increased rapidly in the last decade, but they have not been efficiently
targeted to eliminate proverty. Each year the Bureau of the Census
estimates the amount of money needed to close the "poverty gap"--i.e.,
to raise low incomes to the poverty level. In 1970, the poverty gap
(before transfers) was estimated to be $39.3 billion, and actual cash and
noncash, means-tested transfers were $33.3 billion, not enough to close
the gap. In 1981, the poverty gap was estimated to be $50.1 billion, and
transfers were $81.0 billion, substantially higher. Nevertheless, the
post-transfer poverty gap was $25.6 billion. (All of these figures are
in 1982 dollars) In other words, in 1981, expenditures were 60 percent
more than necessary statistically to eradicate poverty, but the poverty
gap was reduced by only half. The other half went to people who were not
poor to begin with, or raised real incomes of some families far above the
poverty 11 ne.
Some of this inefficiency is, of course, only apparent. People's
incomes and living arrangements may change over the course of the year,
while poverty is measured on an annual basis. And a small percentage of
means-tested assistance is also devoted to those whose medical expenditures
Information and opinions discussed here are for the internal use of HUD
officials. They do not necessarily represent Departmental decisions or
policy positions.
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are sufficient to reduce their cash incomes, after these expenditures, to
a level below the poverty level. Nevertheless, much of this inefficiency
is real. It stems in large measure from the proliferation of benefit
programs and a lack of coordination among them. In 1965, welfare
recipients on average participated in one means-tested program. By 1981,
they participated in three. This pyramiding of benefits resulted in some
families who received assistance directed toward the needy having total
incomes well above the poverty line.9
Administrative Initiatives
It has been the aim of the Reagan Administration to improve the
targeting and incentive structure of means-tested entitlement programs
and to reduce or eliminate benefits among those who are not in need. For
example, it imposed gross income limits well above the poverty level in
AFDC, Food Stamps, and the free- and reduced-price lunch and breakfast
programs. Deductions in AFDC were restructured, and the assistance unit
was expanded to recognize the contribution to family well-being of all
family members. As a result, while means-tested cash and noncash assistance
remained steady between 1981 and 1982, the percentage of benefits going
to reduce the extent of poverty--the target efficiency index--rose from
49 to 54, a 10 percent increase.10
The recent severe recession has focused public attention on the
problem of hunger. Because no reliable estimates exist of the extent
of the problem, the President established a Task Force on Food Assistance
to investigate the matter. The Task Force found that:
Information and opinions discussed here are for the internal use of HUD
officials. They do not necessarily represent Departmental decisions or
policy positions.
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IV-15
.. There are a number of people who find it necessary at
various times to avail themselves of food assistance
programs in order to get enough to eat. There are people
who must sometimes cut back on food expenditures to pay
their rent and utility bills; toward the end of the
month there are individuals and families who run out of
money for food; there are homeless people who are unable
to support themselves or even to avail themselves of
existing public assistance programs....11
It recommended that States be allowed the option of establishing several
autonomous food assistance programs. It also made recommendations for
improving program targeting and administration and for encouraging private
sector food assistance efforts.12
Both Census and program estimates of participation in food programs
suggest that while eligibility has been tightened, benefits to the neediest
households have increased. Between 1980 and 1982, Census estimates of
the number of households receiving food stamps increased from 6.8 to
7.2 million, and more of the assistance went to the neediest households.
Of all households that received food stamps in 1982, 72 percent had incomes
below the poverty line. This represented an increase from 66 percent
who received food stamps in 1980. At the same time, more of the neediest
households received food stamps. Nationally, among households with incomes
below the poverty level, the percentage receiving food stamps increased
from 40 percent in 1980 to 43 percent in 1982, while in central cities,
it increased from 46 percent to 48 percent. Of the households receiving
food stamps in 1982, 67 percent had children under 19 years of age,
40 percent were headed by women, and 16 percent were headed by persons
65 years old and over.13
Information and opinions discussed here are for the internal use of HUD
officials. They do not necessarily represent Departmental decisions or
policy positions.
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Program data show that between March 1980 and March 1983, partici-
pation in the food stamp program increased from 21.5 to 22.5 million
persons, or four percent, while real benefits per person increased by
seven percent. In the same period, participation in the Women, Infants,
and Children Supplemental Food Program (WIC) increased from 1.85 million
to 2.4 million, a 30 percent increase, while real benefits kept pace
with inflation. Finally, in the same period, participation in the free-
or reduced-price lunch program remained stable at about 12 million parti-
cipants per day. Total U.S. Department of Agriculture expenditures on
food programs, including both cash expenditures for food stamps, child
nutrition programs, and WIC, and commodities and cash in lieu of commod-
ities, increased from $14.0 billion in March 1980 to $19.1 billion
in March 1983, a 37 percent increase in nominal expenditures and a
13 percent increase in constant dollars.14
Emergency Shelter and Food
Highly effective and significant efforts are being made by State and
local governments and private and philanthropic organizations to address
the needs of the homeless. Estimates of the number of homeless vary widely.
HUD has undertaken a study of the condition of the homeless, and the results
will be available shortly. This Administration, with the Department of
Health and Human Services in the lead, has initiated a federal interagency
task force to coordinate federal food and shelter activities and to
promote interagency cooperative activities to help alleviate the problems
of the homeless.
Information and opinions discussed here are for the internal use of HUD
officials. They do not necessarily represent Departmental decisions or
policy positions.
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The following actions have been taken:
o HUD leases vacant single-family properties, reacquired under the
General or Special Risk Insurance funds, to local governments and
charitable or religious organizations for temporary shelter for
the homeless.
o In FY 1982, one-fifth of the total of Community Services Block
Grant funds to States was used at the community level to assist
in emergency assistance for low-income people.
o A Memorandum of Understanding was negotiated between the Departments
of Health and Human Services (HHS) and Defense, under which food
returned to commercial vendors by military commissaries is being
made available to food banks serving the poor, including the
homeless poor. To date, some 130 food banks of a potential 240
have been linked with approximately 200 of a potential 240 Army,
Navy, and Air Force installations. A similar Memorandum of
Understanding has just been completed with the Department of
Transportation, under which 11 of a potential 75 Coast Guard
commissaries will be linked to local food banks.
o Jurisdictions can use HUD's Community Development Block Grant
funds to assist the homeless. Since the beginning of 1983 over
$39 million in these funds were expended by more than 175 local
jurisdictions for assistance to the homeless.
o The Federal Emergency Management Administration obligated $100
million by September 30, 1983 for an emergency food and shelter
program. These funds, from the Jobs Stimulus Bill, were divided
among States for grants to needy local residents, and a National
Board of voluntary organizations which distributed funds to local
private voluntary organizations in localities of highest need.
In FY 1984 the National Board is charged with the distribution
of $40 million to supplement and extend emergency food and shelter
services.
o The Department of Defense (DOD) provides facilities for emergency
shelter on military property, with local community assistance
organizations providing beds, food, transportation, and security.
Among facilities available are Kirkland Air Force Base, New Mexico;
Navy facilities at Corpus Christi, Texas; the U.S. Army Reserve
Center in Edison, New Jersey; and, potentially, Camp Parks near
San Francisco, California; and a Navy facility in Philadelphia.
DOD was also appropriated $8 million to assist DOD in the renovation
or repair of military facilities for shelter for the homeless.
Information and opinions discussed here are for the internal use of HUD
officials. They do not necessarily represent Departmental decisions or
policy positions.
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o A 10-city demonstration program has been initiated and includes
the following cities: Atlanta, Georgia; Baltimore, Maryland;
Boston, Massachusetts; Memphis, Tennessee; Pittsburgh, Pennsylvania;
St. Louis, Missouri; San Francisco, California; Detroit, Michigan;
Tunica, Mississippi; and Washington, D.C. In Memphis, an interim
placement homeless shelter was developed through the use of 10
HUD-held single family properties. Nineteen families have been
provided shelter since the first of the year.
o In Washington, D.C., a GSA structure was transferred to HHS, which
in turn has housed 800 men and 200 women since the first of the
year. The lease on this property expired on April 1, 1984, but
as a result of the efforts of the Interagency Task Force, the
President has directed that the shelter continue to operate until
an alternative location can be identified.
Recently, the President charged the Federal Interagency Task Force on
Food and Shelter for the Homeless with additional missions, including the
following:
o To draw from resources of the Alcohol, Drug Abuse and Mental
Health Administration to develop understanding of chronic
homelessness as it relates to deinstitutionalization, mental
illness, and substance abuse.
o To compile a comprehensive inventory of Federal resources
available including government buildings, supplies, and
food resources.
o To identify impediments in statutes and regulations that
restrict the provision of available government resources
to serve the homeless.
At the direction of HHS Secretary Margaret Heckler, the work group
will submit its preliminary report and findings to the Cabinet Council on
Human Resources by June 15, 1984.
Increasing State Responsibility for Health and Human Services
Another approach taken by the Administration to improve the targeting
and responsiveness of health and human services involves increasing
Information and opinions discussed here are for the internal use of HUD
officials. They do not necessarily represent Departmental decisions or
policy positions.
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State responsibility for program administration. With the passage of
the Omnibus Budget Reconciliation Act of 1981, approximately 30 categorical
Health and Human Services programs were consolidated into seven block
grants. Four of the block grants are for health services, two fund social
services, and one provides funds for home energy assistance for low-income
households.
The Reconciliation Act also reduced the Federal matching share for
the Medicaid program and provided States some additional flexibility to
manage the program more efficiently. Unconstrained growth of the
Medicaid program has placed a heavy burden on both Federal and State
taxpayers. Open-ended Federal matching, poorly structured benefits, and
overly-generous eligibility have contributed to Medicaid's failure to
provide cost-effective services to those in need.
Impacts on States and their Residents
The impact of increased State responsibility is most evident in
connection with the Medicaid program. Census estimates of Medicaid
coverage show that targeting of benefits increased between 1980 and
1982. While the number of households with one or more members covered
by Medicaid declined from 8.3 million.in 1980 to 8.1 million in 1982,
the percentage of recipients with incomes below the poverty line
increased from 53.3 percent in 1980 to 59.1 percent in 1982. In 1982,
39.2 percent of poverty households had one or more members covered by
Medi caid.15
Information and opinions discussed here are for the internal use of HUD
officials. They do not necessarily represent Departmental decisions or
policy positions.
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With increased responsibility for the Medicaid program, States have
begun to establish effective cost containment policies and to improve
services to the needy. The Intergovernmental Health Policy Project,
which has been systematically surveying State Medicaid programs, draws
strong contrasts between 1981 and 1982 in a report issued in April 1983.
It notes that, prior to Administration-initiated reforms, out-of-control
growth was forcing States to retrench, often to the disadvantage of
recipients. In contrast, new flexibilities provided under the reforms
have allowed States to increase services and add beneficiaries.
Specifically, the report notes that:
1981 can be characterized generally as a period of
moderate retrenchment on the part of many State
Medicaid programs and severe retrenchment for a few.
Perhaps the most striking difference between the two
years [1981 and 1982] is that even in the face of
continued fiscal stress, a substantial number of States
acted in 1982 to add new services, reinstate previously
eliminated benefits, lift existing restrictions on
access, or even increase payments to providers.
Also in contrast to 1981, 1982 marked the beginning of a
gradual shift in the focus of cost-containment activities
away from the traditional short-term strategies, e.g.,
limitations on eligibility and services, reductions in
provider payments, etc., to a concentration on more long-
range, structural reforms in the organization, financing
and delivery of Medicaid servi ces.1
States are also asserting their priorities in other program areas.
Major studies of the impact of the new block grant programs are still
underway, but preliminary findings suggest that the majority of States
are maintaining and even increasing program levels. Drawing upon other
Federal funds and State and local resources, they are allocating resources
Information and opinions discussed here are for the internal use of HUD
officials. They do not necessarily represent Departmental decisions or
policy positions.
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IV-21
among program activities in accordance with their own priorities to the
degree permitted under statute; and they welcome the increased discretion
.and reduced Federal reporting requirements. In general, Governors and
State legislators have been involved more directly in planning and resource
allocation than in many of the prior categorical programs. The States
also moved quickly to involve a wide sprectrum of people and groups in the
allocation of these funds. To the extent that States have shifted funding
priorities, resources have been targeted to the poorest populations or to
families on welfare.
Child Care
Child care is an area in which the Administration is encouraging
increased involvement by States and the private sector.17 Child care
provision has increased iniimportance as mothers with children under
six years of age enter the labor force in growing numbers. In 1950,
12 percent of mothers with children under six years of age were in the
labor force; in 1982, 50 percent of these mothers were working. There
are nearly eight million pre-schoolers (or 46 percent) with working
mothers. About half of the children of working women are cared for in
day-care centers and by babysitters who are not related to the child.
The Administration has increased Federal financial support for the
provision of child care since Fiscal Year 1980. The largest and fastest
growing source of support is the Child Care Tax Credit which has increased
from $960 million in FY 1980 to an estimated $1,960 million in FY 1984.
Information and opinions discussed here are for the internal use of HUD
officials. They do not necessarily represent Departmental decisions or
policy positions.
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The virtue of the tax credit is that it permits wide parental discretion
in the choice of child care providers. The amount of the credit was
increased by the Economic Recovery Act of 1981.
The Head Start program has increased from $812 million in FY 1980
to an estimated $1,050 million in FY 1984 and serves approximately
400,000 children. Meals for children in day care are subsidized under
the Child Care Feeding program which has increased from $235 million
in FY 1980 to an estimated $373 million in FY 1984. The AFDC work expense
disregard, which allows up to $160 per month per child as an earnings
disregard for child care for a full-time working AFDC parent, amounted to
an estimated $125 million in FY 1984.
States are expected to devote approximately 20 percent of social
service block grant funds (about $500 million) to child care, principally
for low-income families. Federal deregulation has increased their ability
to use these funds efficiently. By setting aside proposed Federal Inter-
agency Day Care regulations, the Administration acknowledged State and
local responsibility to regulate child care as needed and permitted
States to use Federal funds to serve more children at lower cost per
child. Department of Health and Human Services staff estimate that
FY 1984 support for child care will exceed FY 1980 support of $2,737
million by approximately $1,100 million (30 percent), and that an
estimated 7.5 to 8.0 million families are aided by the programs.
Info nmation and opinions discussed here are for the internal use of HUD
officials. They do not necessarily represent Departmental decisions or
policy positions.
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In addition, through its private sector initiative office,.the
Administration is encouraging corporate support for child care for
employees. The Department of Health and Human Services has been actively
involved in providing technical assistance and support to the private
sector initiative on employer assisted child care and other locally
initiated child care projects. In conjunction with the Rockefeller
Foundation, the Women's Bureau of the Department of Labor is funding
four demonstration projects to encourage employers to provide such
services.
Project Self Sufficiency
An Administration initiative to focus public and private assistance on
the needs of the female heads of household is Project Self-Sufficiency,
an experimental effort designed to help this population move from poverty
and dependence on welfare to self-sustaining employment.
Project Self-Sufficiency is envisioned as an intensive, short-term
(e.g., 12-18 months) program that would enable poor, single-parent
households with small children to make the transition to productive
employment and the mainstream of society. These goals would be accomplished
through a coordinated effort to provide housing assistance, job training,
child care, and counseling services that will enable participants to
achieve permanent employment and self-reliance. Project Self-Sufficiency
would be accomplished through a public/private partnership that would
combine the resources of all levels of government, business, private
industry councils, labor, education, and community groups in a task force
able to target and respond to these diverse local needs. The Department
Information and opinions discussed here are for the internal use of HUD
officials. They do not necessarily represent Departmental decisions or
policy positions.
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of Housing and Urban Development has committed 5,000 Housing Certificates
(vouchers) to the effort. These vouchers enable the single-parent-headed
household to seek housing anywhere throughout the local community. These
vouchers would be made available only to local communities willing to
form public/private partnerships able to address the needs of single-parent
households. Additionally, HUD will provide the technical assistance
necessary to help communities design and implement the program.
In summary, this section has shown that, while central city and
suburban income differentials have continued to widen, black male-headed
families in both central cities and suburbs have substantially improved
their relative income in the last decade. Poverty rates continue to
increase in central cities, and the number of poor people is growing
rapidly in the suburbs. As a consequence of high rates of divorce,
separation, and unmarried motherhood, the. number of female-headed households
is growing rapidly. While the poverty rate of female-householders has
not increased in the last decade, it is very high; and persons in female-
headed households constitute a growing proportion of the poverty population.
Historically, poverty rates have varied with the strength of the
economy. A substantial proportion of family householders in poverty
already work and would work more if they were able to find work or overcome
other impediments. The Administration's efforts to increase employment
opportunities through economic recovery should benefit poverty householders
who are able to work. As a result of Administration efforts, cash'and
noncash benefits are being more efficiently targeted to needy households.
Information and opinions discussed here are for the internal use of HUD
officials. They do not necessarily represent Departmental decisions or
policy positions.
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In addition, increased involvement by States and the private sector in
the provision of health and human services is increasing the cost
effectiveness and responsiveness of service delivery.
EDUCATION
The goal of the Administration's education policy is to assist
States, local school districts, and parents to assume their prime
responsibility in providing the best possible education for all citizens.
Despite a history of growing federal involvement in education, when
President Reagan took office the condition of U.S. education was perilous.
Over the past decade or so, it had become clear that there had been a
significant decline in quality.18
The National Commission on Excellence in Education, established by
the Administration, found the United States to be a "Nation at Risk":
o Between 1963 and 1980 test scores of graduating high
school seniors on the Scholastic Aptitude Test (SAT)
were in unbroken decline;
o Too little was expected and demanded of students;
standards had eroded;
o Thirteen percent of all 17 year-olds and over
40 percent of black 17 year-olds were functional
illiterates;
o Most students had less than one hour of homework a day.
The Commission concluded that "the educational foundations are presently
being eroded by a rising tide of mediocrity that threatens our very
future as a nation and a people."
Information and opinions discussed here are for the internal use of HUD
officials. They do not necessarily represent Departmental decisions or
policy positions.
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A New Partnership
In order to revitalize education, the Reagan Administration has
dedicated itself to a new partnership with those who are responsible for
providing education -- State and local authorities. A key feature of
this new partnership is that it includes Federal leadership but not
control. The Federal Government's role in this new partnership involves:
o Strengthening local school districts;
o Helping States carry out their responsibilities; and
o Helping to meet the special needs of certain groups,
including the handicapped, the disadvantaged and
minorities.
Urban school districts are among the beneficiaries of these policies.
This policy direction represents a significant shift from 1981, when
at the start of the Reagan Administration, the U.S. Department of
Education administered about 150 programs whose broad scope and complex
regulations obscured the responsibility of State and local authorities.
The profusion of these programs stifled State and local initiative and
left State and local school officials with time-consuming and costly
burdens of paperwork and reports.
The elements of the Administration's federalism partnership, which
is aimed at enhancing State and local capacity to provide quality
education, include:
o Deregulation;
o Program consolidation; and most importantly
o Leadership.
Info nmation and opinions discussed here are for the internal use of HUD
officials. They do not necessarily represent Departmental decisions or
policy positions.
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Deregulation
Deregulation strengthens State and local education authorities by
reducing costly and burdensome Federal regulatory and administrative
requirements. The deregulation goal pursued by the Department of Education
is to insure that regulations do not require more from State and local
agencies or grant recipients than is required by law.
Particular attention is given to areas where decision-making can
occur in State and local education agencies, rather than in the Federal
Government. As a result of the Education Consolidation and Improvement
Act of 1981, for example, the Secretary of Education cancelled 30 sets
of regulations governing more than 1,700 annual grants and contracts.
Program Consolidation
Program consolidation strengthens State and local education authori-
ties by allowing them the freedom to choose the educational activities
most appropriate for their situations. At the beginning of the Reagan
Administration, the U.S. Department of Education operated numerous separate
elementary and secondary education programs. Chapter 2 of the same
Education Consolidation and Improvement Act of 1981 combined 29 categorical
programs into a single block grant to States. The new statute provides a
broad authorization that includes purposes authorized in the previous
programs, but State and local educators make the on-site decisions
concerning educational priorities they will meet with Chapter 2 funds.
So far, it is estimated that State and local governments have saved $1.8
million in administrative costs and 191,000 person hours in paperwork as
a result.
Information Tand opinions discussed here are for the internal use of HUD
oofficiapositThei.do not necessarily represent Departmental decisions or
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Leadership
Leadership is the most significant way in which the Reagan Admini-
stration has addressed the problem of quality in U.S. education and acted
to strengthen State and local education authorities. There is currently
a national debate over the quality of education in America and ways to
improve it.
This debate was largely sparked by "A Nation at Risk," the report of
the National Commission on Excellence in Education (NCEE). To focus and
guide this national debate, the U.S. Department of Education recently
held a National Forum on Excellence in Education (in Indianapolis, Indiana)
following 12 regional forums around the country.
These national and regional forums brought together Governors, State
legislators, State and local education officials, education practitioners,
parents, and business leaders to discuss ways in which educational quality
might be improved. Among the initiatives discussed, the Reagan Admini-
stration has strongly advocated:
o Stricter discipline codes, including support for teachers
when they enforce those codes;
o Master teacher and merit pay plans to recognize and reward
outstanding teachers (such as the one adopted under the
leadership of Governor Lamar Alexander in the State of
Tennessee); and
o Increasing standards and requirements for high school
graduation, including the five "new basics": four
years of English, three years of mathematics, three
years of science, three years of social studies, and
one-half year of computer science.
Information and opinions discussed here are for the internal use of HUD
officials. They do not necessarily represent Departmental decisions or
policy positions.
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All of these initiatives would improve American education and help to meet
the national need for people well-trained in math, science, social studies,
and the humanities. However, simply increasing expenditures on education
is not the answer to improving education quality. Total expenditures in
the Nation's elementary and secondary schools in the 1982-83 school year
exceeded $130 billion. This doubles (in current dollars) what was
previously spent on education (for fewer students) 10 years ago, yet
quality has declined.
Private Sector Involvement
The Reagan Administration has also acted to increase the involvement
of the private sector in education. A chief means is Partnerships in
Education, an initiative to encourage private corporations and businesses
to share their resources and expertise with schools. In October 1982,
the Administration proclaimed the National Year of Partnerships in Education
with a goal for all 110,000 U.S. schools to have formed such a "partnership
in education" with businesses, labor unions, and other groups. As a result,
o In Dallas, over 1,000 businesses have struck partnerships
with 140 schools;
o In Chicago, 133 businesses are partners with 140 schools; and
o In San Diego, schools are partners with the Chargers, the
Padres, and the Navy.
Math and Science Education
The Reagan Administration has also moved to meet a problem in math
and science education. In order to ensure adequate math and science
teachers to educate students for our increasingly competitive and
Information and opinions discussed here are for the internal use of HUD
officials. They do not necessarily represent Departmental decisions or
policy positions.
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interdependent world economy, the Administration has proposed a.$50
million per year block grant to train 10,000 new math and science teachers
each year for four years.
In addition, the Administration has also launched an initiative to
end adult illiteracy. Working in cooperation with the White House Task
Force on Private Sector Initiatives, the Department of Education is
encouraging private sponsors to set up adult literacy programs.
Increasing Parental Control
In addition to the Administration's federalism initiative, the key
priority of this Administration's education policy is to increase parental
choice and control in the education of their children. For good reason,
many parents are deeply concerned about the quality of education.
Especially in urban areas, too many children are not getting the education
they deserve. Parents should have the right to choose the schools they
feel are best for their children. Yet because many cannot afford the double
burden of private school tuition in addition to taxes for the public schools,
they are of necessity excluded from choosing private education. This is
especially the case with low-income familes, many of whom are in urban areas.
To increase parental choice and control in the education of their
children, the Reagan Administration has proposed:
o Tuition tax credits for elementary-secondary education; and
o Compensatory education vouchers for educationally disadvantaged
children.
By fostering greater competition among schools, both of these proposals
would 'benefit urban education. A recent Gallup poll has shown widespread
Information and opinions discussed here are for the internal use of HUD
officials. They do not necessarily represent Departmental decisions or
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support for increasing parental choice and control through an education
voucher. Among the public as a whole, 51 percent support an education
voucher, while among blacks, 64 percent would like a voucher.
Special Needs Children
Finally, the Administration has maintained a commitment to special
needs children. For FY 1985, it has proposed $4.7 billion for disadvantaged
and handicapped students. Urban areas have the greatest concentration of
special needs children and thus would benefit most.
In summary, the Administration is providing leadership to raise the
quality of education. It is enhancing State and local capability by
consolidating and deregulating Federal education programs, by supporting
the concept of merit pay, and by encouraging more private sector involvement
in education, and by proposing to enhance parental control over education
through tuition tax credits and education vouchers. Provision of education
is primarily the responsibility of State and local governments, but the
Administration is providing leadership in the development of the broad-based
partnerships essential to their success.
URBAN CRIME
Crime is one of the most serious problems facing urban America.
Each year, about 40 million crimes of violence and theft are committed.
Fear of crime can destroy communities and drive away businesses. The
costs of crime, both to the taxpayer and to the victims, place a significant
burden on society. Reduction of crime is one of the Administration's
highest priorities.19
Information and opinions discussed here are for the internal u$eof HUD
officials. They do not necessarily represent Departmental decisions or
policy positions.
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In 1982 there were signs of progress in the continuing fight
against crime. According to the Federal Bureau of Investigation's Uniform
Crime Reports, reported crime dropped by three percent -- the first signifi-
cant decrease since 1977. In addition, the National Crime Survey of the
Bureau of Justice Statistics, which measures actual crimes committed,
found that crime in the United States fell four percent during the year --
the most sweeping downturn recorded since the survey began in 1973.
During 1983, this trend continued with a seven percent decline in the
amount of reported serious crime.
Urban locales shared in the general decline of crime in 1982. The
FBI reports that, for metropolitan areas, the property crime rate decreased
from 5,913 to 5,660 per 100,000 population, and the violent crime rate,
from 691 to 663. Nevertheless, over the 10 years ending in 1982, violent
and property crime rates have been consistently higher for metropolitan
than for nonmetropolitan areas.
Minority groups are disproportionately victimized by crime, with
.blacks more often affected by violent crime than whites, and hispanics
more victimized by property crime than non-hispanics. The economic impact
of crime hits the poor most heavily. The burden of crimes involving money
or property loss or destruction of property, expressed as a proportion of
reported family income, is higher for lower-income families. Violent crime
rates are also higher for lower income people. Young people are more
often victims of crime than the elderly for most types of crime. When
the elderly are touched by crime, however, they appear to be relatively
Information and opinions discussed here are for the internal use of HUD
officials. They do not necessarily represent Departmental decisions or
policy positions.
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IV-33
more susceptible to crime that is motivated by economic gain, particularly
purse-snatching and pocket picking. Although these crimes often are not
violent, they may cause considerable fear in victims.
In recent years, as a result of a enormous market for illicit drugs,
crime has become highly organized and more sophisticated. Drug trafficking
coupled with organized crime is the principal domestic crime problem
plaguing the Nation today. While this problem affects every element of
society, urban centers are most threatened. To reduce this threat, the
Administration has undertaken numerous initiatives to attack the problem
of urban crime, with special emphasis on drug trafficking and organized
crime.
Combating Drugs and Organized Crime
President's Commission on Organized Crime. The Administration has
recently created the President's Commission on Organized Crime as a
principal element of a comprehensive program for combating drugs and
organized crime. The Commission is in the process of:
o Making a national and region-by-region analysis of
organized crime;
o Developing in-depth information on the participants in
organized crime networks;
o Evaluating Federal laws pertinent to organized crime;
o Making recommendations for administrative and
legislative improvements as well as improvements in
the administration of justice;
o Defining the nature of traditional organized crime as
well as of emerging organized crime groups, the sources
and amounts of organized crime's income, and the uses
to which organized crime puts in income.
Information and opinions discussed here are for the internal use of HUD
officials. they do not necessarily represent Departmental decisions or
policy positions.
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Drug Task Force. The Administration has established 12 new regional
Drug Enforcement Task Forces throughout the country to mount a national
coordinated attack against organized drug trafficking. More than 1,000
Federal agents, 200 Federal prosecutors, and 400 support personnel have
been authorized to do the work of the task forces. Under the direction
of the Attorney General, they work with State and local law enforcement
agencies in order to assure a concerted approach. As a result of the
experience gained In coordinating the diverse agencies involved in the
South Florida Task Force, the task forces are focusing the resources of
the Federal Government, including the combined resources of the FBI,
Drug Enforcement Administration (DEA), the U.S. Attorneys, Internal
Revenue Service, Bureau of Alcohol, Tobacco, and Firearms, Immigration
and Naturalization Service, U.S. Marshals Service, Customs, and Coast
Guard. In some regions, Department of Defense tracking and pursuit
capability is being made available. The Administration for the first
time in history has brought to bear the resources of the FBI to complement
those of the DEA in a drug enforcement effort. These task forces represent
the largest Federal effort against drug trafficking ever assembled.
Cabinet-level Committee. The attack on organized crime and drug
trafficking is coordinated and sustained at the highest levels of the
Administration. Policies affecting all Federal Government agencies have
been brought together in a comprehensive attack on drug trafficking and
organized crime under a Cabinet Council on Legal Policy chaired by the
Information and opinions discussed here are for the internal use of HUD
officials. They do not necessarily represent Departmental decisions or
policy positions.
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President and at the President's behest, the Attorney General. The
Working Group on Drug Supply Reduction, headed by the Associate Attorney
General, coordinates interdepartment operations. The working group's job
is to assure interagency and intergovernment cooperation in the struggle
against organized crime.
Assisting Victims and Witnesses
President's Task Force on the Victimes of Crime. The President's
Task Force on Victims of Crime was established in April 1982, showing the
the President's concern for the plight of the victims of crime. The Task
Force's Final Report, submitted in December 1982, made recommendations
for executive and legislative action at the Federal and State levels to
improve the treatment of, and service to, crime victims. These include
recommendations directed to the police, prosecutors, the judiciary, and
parole boards. Recommendations were also made for nongovernmental entities,
such as hospitals, the ministry, the Bar, schools, the mental health
community, and the private sector. An Office for Victims of Crime
was established within the Office of Justice Assistance, Research, and
Statistics (OJARS) to implement some of the Task Force recommendations.
These include: establishment of a National Victims Resource Center;
development of model victims legislation patterned after the legislative
recommendations of the Task Force; and development of victim training
packages for judges, prosecutors and law enforcement personnel.
Information and opinions discussed here are for the internal use of HUD
officials. They do not necessarily represent Departmental decisions or
policy positions.
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Attorney General's Task Force on Family Violence. In September 1983,
the Attorney General's Task Force on Family Violence was created. The
objective of the Task Force is to make specific recommendations to the
Attorney General concerning family violence with special consideration
given to the abuse and molestation of children, spouse abuse, and
mistreatment of the elderly. It will review governmental and non-
governmental programs at the federal, State, and local levels in determining
its recommendations. The Commission's report is expected in the Spring
of 1984.
Coordinating Efforts with State and Local Government
Law Enforcement Coordinating Committee. In June of 1981, the Attorney
General directed each United States Attorney to form a Law Enforcement
Coordinating Committee (LECC) in his or her district. The Committees
consist of representatives of Federal law enforcement agencies and
appropriate State and local law enforcement officials. Through the
combined efforts of federal, State, and local law enforcement officials,
LECC's establish priorities and develop strategies to achieve the maximum
impact on the most serious crime problems in each district. Two-thirds
of the districts identified drugs as their number one enforcement priority.
Executive Working Group. The Executive Working Group for Federal-
State-Local Prosecutoriali Relations (EWG) was created in 1979. Its
membership is made up of 18 representatives--six each from the Department
of Justice, the National Association of Attorneys General, and the National
Association of District Attorneys.
Information and opinions discussed here are for the internal use of HUD
officials. They do not necessarily represent Departmental decisions or
policy positions.
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The EWG provides a forum for law enforcement officials from all
levels of government to engage in discussion regarding mutual law enforcement
priorities, differing approaches to prosecution, legislative proposals,
training efforts, and Federal financial assistance.
Governors' Project. This project assists the Nation's Governors in
coming together to bring about needed criminal justice reforms in the
fight against organized crime and drugs. The Governors' Project brings to
the attention of the States new racketeering enforcement measures and
initiatives and at the same time, serves as a sounding board for the
Governors' concerns.
State and Local Training. Through the Departments of Justice and
Treasury,,a National Center for State and Local Law Enforcement Training
has been established at the existing Federal facility in Glynco, Georgia.
Complementing the training programs already operated by the FBI at
Quantico, Virginia, the Center is training local law enforcement agents
and officials in investigating arson, bombing, bribery, computer theft,
contract fraud, bid rigging, and other offenses encountered in organized
crime.
Criminal Law Reform. The Administration is seeking reforms in
Federal criminal statutes dealing with such areas as bail, sentencing,
criminal forfeiture, the exclusionary rule, and labor racketeering that
will provide a long overdue strenghening of the legal process involved in
the battle against organized crime.
Information and opinions discussed here are for the internal use of HUD
officials. They do not necessarily represent Departmental decisions or
policy positions.
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The centerpiece of this legislative activity is the Comprehensive
Crime Control Act of 1983 submitted to the Congress by the President in
March of 1983. This omnibus crime bill was passed by the Senate in
February 1984 and provides for:
o Bail Reform: It authorizes courts to consider danger to
the community in setting bail conditions, to deny bail
altogether where a defendant presents an especially grave
danger to others in the community and to permit inquiry
into the source of bail money; and authorizes the courts
to refuse to accept money or property which would not
reasonably ensure a defendant's appearance at trial.
o Sentencing Reform: It replaces the present disparate
sentencing system with a more balanced and uniform
system of sentencing guidelines for Federal criminal
offenses.
o Insanity Defense Reform: It narrows the insanity
defense and paces t e burden on the defendant to
prove insanity, and provides for Federal custody
of persons acquitted by reason of insanity where
the State does not assume the responsibility.
o Forefeiture Reform: It strengthens criminal and
civil forfeiture laws to improve the ability of the
government to reach proceeds as instrumentalities of
organized crime and narcotics trafficking operations
and allows the Attorney General to transfer forfeited
property to State and local law enforcement agencies
which have given significant assistance in drug
investigations.
o Drug Enforcement Amendments: It provides for an increase
in pena it es for drug tra ficking and strengthens
efforts to prevent diversion of controlled substances
into illicit hands.
This bill also includes a title dealing with limited Federal financial
support for certain State and local criminal justice programs. This
narrowly targeted financial support will aid State and local criminal
Information and opinions discussed here are for the internal use of HUD
officials. They do not necessarily represent Departmental decisions or
policy positions.
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justice entities in programs focusing on such things as violent crime,
victim and witness assistance, repeat offenders, crime prevention,
and career criminal prosecution.
Research and Program Development
Through the Office of Justice Assistance, Research, and Statistics
(OJARS) of the Justice Department, research and program activities have
been launched that focus on urban crime and assist State and local
governments in dealing with this problem.
For example, through a modest investment by the National Institute
of Justice, a bullet-proof material has been developed, saving the lives
of some 500 police officers. It is hoped that other areas of research
will result in savings of equal importance.
The problem of jail and prison overcrowding is of great concern to
State and local officials. The dramatic recent increases in the number
of jail and prison inmates (from 453,000 in 1978 to 622,000 in 1982) have
strained the resources of already overburdened State and city institutions.
To help provide some guidance to jurisdictions faced with unappealing
alternatives to overcrowded prisons, the Institute is conducting a major
program of research and evaluation on this problem. The effects of
early release programs are being examined in terms of relief to the
institutions as well as the even more important potential effects on
public safety. The benefits of targeting scarce resources at the violent
offender are being assessed. In addition, through a program of defendant
drug testing, the Institute is attempting to improve pre-trial release
decisions by identifying high-risk defendants.
Information and opinions discussed here are for the int r al use.of HUD
officials. They do not necessarily represent Departmen aS decisions or
policy positions.
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The OJARS also supports a nationwide public eduation campaign on crime
prevention in cooperation with the Advertising Council, Inc., and the
Crime Prevention Coalition, a group of about 90 Federal agencies, national
groups, and State programs. The highly successful effort brings to the
American people practical, down-to-earth recommendations on how to make
themselves, their families, their homes and their neighborhoods safe from
crime. It promotes collective citizen programs such as Neighborhood
Watch. OJARS estimates that about 30 million people have learned something
new or taken some preventive action as a result of this educational
program. In addition, the program has helped create a readiness on the
part of the citizens to assist in the fight against crime, a readiness
reflected in the fact that about one in six Americans now participates
in some sort of organized crime prevention activity. The significant
decreases in residential burglaries experienced in 1982 are attributed at
least in part to these growing citizen and police community crime prevention
activities.
State and Local Government Initiatives
A number of State and local governments are acting in creative ways
to reduce criminal activity or respond to it in a more effective manner.
Examples follow:
Statewide Crime Prevention Program: Pennsylvania. The Pennsylvania
Council on Crime and Delinquency has received nationwide attention in
developing community and police department participation in the statewide
Crime Watch program. One of the basic goals is to see that every police
Information and opinions discussed here are for the internal use of HUD
officials. They do not necessarily represent Departmental decisions or
policy positions.
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department in the State has a certified crime prevention officer. To
date, over 2,000 officers have been certified in the basic course and
675 officers have completed this advanced training program. Recently
included in the Pennsylvania crime prevention initiative was the inclusion
of a "model city program." This program includes all of the elements of
a community-based crime prevention program and also provides special
training for all municipal elected officials.
Repeat Offenders: Maryland. The Maryland Criminal Justice
Coordinating Council and its Repeat Offender Task Force have designed a
unique. experimental program to reduce serious delinquent and criminal
activity by repeat offenders. The Repeat Offender Program Experiment
(ROPE) is intended to improve the way adult and juvenile repeat offenders
are apprehended, prosecuted/petitioned, convicted/adjudicated, sentenced/
disposed, and incarcerated/committed, through a concentrated and coordinated
effort by State and local justice agencies.
Victims: California. Several bills were enacted in September 1983
in California relating to victims' compensation which implement provisions
of California's victim's bill of rights, otherwise known as Proposition 8.
Assembly Bill 2041 provides that restitution fines imposed on offenders
be made payable to the clerk of the court or the person responsible for
the collection of fines. Failure to pay the fines in certain cases
would result in the payment of fines from wages of prisoners and wards.
Under compelling or extraordinary circumstances, the offender may be
sentenced to perform community services. Assembly Bill 1087 defines
Information and opinions discussed here are for the internal use of HUD
officials. They do not necessarily represent Departmental decisions or
policy positions.
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restitution, and provides for the imposition of specific restitution
fines and for payment of those fines. Assembly Bill 331 establishes a
state-mandated local program requiring probation officers to notify
victims of their rights to civil recovery against the defendant and of
the opportunity to be compensated from the Restitution Fund.
Crime Prevention: Texas. Texas homeowners can qualify for a five
percent reduction in homeowners insurance premiums following property
certification by a qualified security inspector. The reduced premium
program was instituted by the State Board of Insurance in compliance
with a measure enacted by the state legislature designed to offer incentives
for lessening the opportunity for crime. Security inspectors are trained
by the Texas Crime Prevention Institute and certified following completion
of one of their courses.
Citizen-Oriented Police Encounters (COPE): Baltimore. COPE is an
innovative unit of 45 police officers who survey targeted neighborhoods
to determine citizen's fears and the underlying problems which contribute
to those fears. In some cases, they found that the fear is considerably
greater than the actual problem. In these cases, they try to rectify
the situation through education. In those instances where the community's
fear is justified by a crime problem, the unit seeks to address the
underlying problem contributing to that fear. The unit does not adopt
the traditional police approach to solving problems, but rather looks
beyond traditional police departmental remedies to solutions that better
utilize all the community's resources.
Information and opinions discuss?d here are o the int r al use.of HUD
pofficyaps. Th n .do not necessarily represent Departmen al decisions or
itio
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Hampton Neighborhood Watch: Hampton, Virginia. Community crime pre-
vention projects such as the Hampton Neighborhood Watch Program may have
the largest single impact on crime reduction. The police provides guidance
in establishing neighborhood groups, disseminate information regarding
crime prevention and self-protection to the group members, and show
citizens how they can detect crime and quickly report suspicious events
to the police. Citizens are also given the opportunity to relay to the
police their perceptions of particular neighborhood problems. The benefits
of neighborhood watches--fear reduction, better cooperation between the
police and the community, and an increased citizen awareness of how to
reduce crime--have caused them to be replicated by many of the Nation's
police departments.
Community-Oriented Policing (COP): Santa Ana, California. Santa
Ana's Community-Oriented Policing (COP) is a multifaceted community
crime prevention program which brings together community members,
law enforcement officials and others to find workable solutions to the
problem of crime in the community. The police department has reorganized
its patrol beat into small community-based efforts to solve the crime
problems. Effective community crime prevention programs such as
Neighborhood Watch have been implemented and sustained over long periods
of time. These types of community crime prevention efforts as well as
the close working relationship between the police and the community have
had a dramatic impact on crime and the delivery of police services.
Information and opinions discussed here are for the internal use of HUD
officials. They do not necessarily represent Departmental decisions or
policy positions.
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In summary, crime in urban America is a critical problem that must
be ameliorated if our cities are to remain viable.places in which to
live and work. Each level of government must do its part if the recent
downward trend in crime rates is to continue. As this summary of
initiatives reveals, the Administration is strongly committed to leading
the fight against drug traffic and organized crime, encouraging humane
treatment of victims and witnesses, playing a coordinating role in federal,
State, and local law enforcement efforts, and disseminating information
about effective criminal justice and crime prevention methods. But State
and local governments, with the assistance of individual citizens and
organized groups, must continue to bear the brunt of the responsibility
for reducing crime and the fear of crime, and thereby improving the
quality of urban life. The partial list of State and local initiatives
above demonstrates that States and localities have the capacity to carry
out their responsibility with ingenuity and imagination, and as these
efforts are multiplied, cities will became safer places in which to live
and work.
Information and opinions discussed here are for the internal use of HUD
officials. They do not necessarily represent Departmental decisions or
policy positions.
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1All of the figures in this section on income, health, and human services
are drawn from the following sources and use 1970 SMSA definitions
unless otherwise indicated. U.S. Bureau of the Census, "Social and
Economic Characteristics of the Metropolitan and Nonmetropolitan
Population, 1977 and 1970," Current Population Reports, Special Studies,
Series P-23, No.75, November 1 778; and unpublished comparable data for
1975, 1980, 1981, and 1982..
2The official poverty level amounts to approximately three times the
Department of Agriculture's economy food plan, adjusted for family
size and composition and place of residence. It is increased annually
to keep pace with the Consumer Price Index.
3Statement of David A. Stockman, Director, Office of Management and
Budget, before the U.S. Congress, House Ways and Means Subcommittee on
Oversight, and Public Assistance and Unemployment, November 3, 1983,
p. 6, 8.
4U.S. Bureau of the Census, "Estimates of Poverty Including the Value of
of Noncash Benefits: 1979 to 1982," Technical Paper 51, February 1984.
5Statement of David Stockman, op. cit., p. 11.
6The discussion of spells on welfare is based on two studies by Mary Jo
Bane and David T. Ellwood of Harvard University: "The Dynamics of
Dependence: The Routes to Self-Sufficiency," June 1983, and "Slipping
Into and Out of Poverty: The Dynamics of Spells," August 1983. These
studies are also discussed in David Stockman's testimony cited above,
p. 26-32. For a summary of longitudinal studies of income and poverty,
see Years of Poverty, Years of Plenty, by Greg J. Duncan et al.,
Ann Arbor: Institute for Social Research, University of MicFigan,
1984.
7U.S. Bureau of the Census, "Characteristics of the Population Below the
Poverty Level: 1982," Consumer Income, Series p-60, No. 138, March 1983.
8Statement of David Stockman, op. cit., p. 15-17.
9Ibid., 18-20.
10Ibid., 20-21.
11U.S. President's Task Force on Food Assistance, Summary of Final Report,
January 9, 1984.
Information and opinions discussed here are for the internal use of HUD
officials. They do not necessarily represent Departmental decisions or
policy positions.
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IV-47
12Ibid.
13U.S. Bureau of the Census, "Characteristics of Households and Persons
Receiving Selected Noncash Benefits: 1980," and Advance Data for
1982, Current Population Reports, Consumer Income, Series P-60, No. 131,
May 19 ; an Not , September 1983.
14U.S. Department of Agriculture, Food and Nutrition Service, Management
Information Division, unpublished data. These figures the value of
bonus commodities that USDA donates to the programs.
15U.S. Bureau of the Census, "Characteristics of Households and Persons
Receiving Noncash Benefits," op. cit.
16Intergovernmental Health Policy Project, George Washington University,
"Recent and Proposed Changes in Proposed Medicaid Programs: a 50 State
Survey," April, 1983.
17Data on child care were provided by the Office of Assistant Secretary
for Policy and Evaluation, U.S. Department of Health and Human
Services.
18Data and program information on education were provided by the U.S.
Department of Education.
19Data and program information on crime and law enforcement were provided
by the Office of Legislative Affairs, U.S. Department of Justice.
Information and opinions discussed here are for the internal use of HUD
officials. They do not necessarily represent Departmental decisions or
policy positions.
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V-1
Chapter V
URBAN PHYSICAL ENVIRONMENT
This chapter describes how the Administration's efforts to promote
economic recovery and restore balance in the Federal system have affected
various aspects of the.urban physical environment, including housing,
State and local infrastructure, air and water quality. Responses to
these policies and initiatives undertaken on the State and local level
are also detailed.
President Reagan affirmed the implicit relationship between the
housing needs of the nation and its economic health when he stated that
"I believe that our citizens should have a real opportunity to live in
decent, affordable housing. I pledge to foster good housing for all
Americans through sound economic policies."
With the dramatic drop in interest rates and inflation, housing
starts reached 1.7 million units in 1983, a 60 percent improvement over
the previous year. The outlook for 1984 is equally promising. Starts
in the first quarter of 1984 averaged 1.95 million units on a seasonally
adjusted annual basis. In addition, an estimated 290,000 units of
manufactured housing will be produced in 1984. The dramatic drop in
mortgage rates brought about by the President's Economic Recovery Program,
from 17 1/2 percent to 12 percent for FHA-insured mortgages, has made
homeownership possible for close to five million families previously
unable to afford a house.
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For low-income families, by the end of 1981, approximately 3.3 million
housing units were receiving assistance from HUD housing programs.
Projections are that this number will grow to 4 million by the end of
1985.
For both homebuyers and low-income persons, the Reagan Administration
has focused on making housing more affordable. This focus marks an
important turning point in the nation's housing policy and is the Adminis-
tration's response to current housing trends. Previous policy had aimed
at increasing the supply and quality of housing. However, housing trends
reveal housing adequacy and availability are largely problems of the past
and that affordability is now the nation's primary housing problem.
Housing trends are summarized briefly below.
Housing Availability
The Nation's year-round housing stock increased by 19 percent between
1973 and 1981, an increase of 14.3 million units. Most of the net
additions to the housing stock occurred in the rapidly growing regions of
the South and West and in the suburbs of metropolitan areas (Table V-1).
In the same period, owner-occupied units increased more rapidly than
renter-occupied units, from 64.4 percent of all occupied units in 1973 to
65.3 percent in 1981. This surge in homeownership was all the more
remarkable given the accelerated rate of household formation led by
household types not traditionally homeowners--that is, singles and female-
headed families.
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V-3
Table V-1
Year-Round Housing Units by Location: 1973 and 1981
(Number of Units in Millions)
Number of Units
Change in Units:
1973
1981
1973 - 1981
Number
Percent
Location
All Units
By Region:
75.3
89.6
14.3
19.0%
Northeast
17.4
19.0
1.6
9.2
North Central
20.2
23.2
3.0
14.9
South
24.0
29.8
5.8
24.2
West
By SMSA Location:
13.8
17.6
3.8
27.5
In SMSAs
51.0
60.5
9.5
18.6
Inside Central Cities
24.1
26.5
2.4
10.0
Outside Central Cities
26.9
34.0
7.1
26.4
Outside SMSAs
24.3
29.1
4.8
19.8
SOURCE: U.S. Department of Housing and Urban Development, 1983 National
Housing Production Report, Table 6-2.
Information and opinions discussed here are for the internal use of HUD
officials. They do not necessarily represent Departmental decisions or
policy positions.
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V-4
Federal income tax deductions for mortgage interest and property tax
expenditures continue to enhance the demand for housing. Another factor
fueling the demand during most of the 1970's was the perception that
homeownership was a hedge against inflation, since houses were one of the
most rapidly appreciating investments available. Between 1979 and 1981,
however, as interest rates soared to all-time highs, the purchase of a
home became more difficult, if not impossible, for an increasing number.
of households. As a consequence of this limitation on demand, house
value increases have moderated, falling from the annual increases of 12
to 14 percent in 1976 to 1979 period to around eight percent in 1981.
Gross rents (rent plus utilities) also increased in this period, but
at a slower rate. Although rental markets were tight in some areas, the
market has generally responded to make housing available where it is
needed. Census and Annual Housing Survey data show that slow-growth and
declining areas tend to have low vacancy rates and fast-growth areas tend
to have high vacancy rates as newly built units slowly become fully
rented.
Housing Adequacy
Severely inadequate housing units lack some or all plumbing
facilities, while moderately inadequate housing units tend to need
better maintenance. By either criterion, housing quality has improved
markedly in recent decades. In 1983, only 2.7 percent of all metropolitan
households lived in severely inadequate units, while an additional 4.8
percent lived in moderately inadequate units. These percentages were
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higher for renters than for owners and were higher still for very low-
income renters (those with incomes less than 50 percent of their metropolitan
area's median income). For example, 7.5 percent of these households
lived in severely inadequate units, while an additional 9.7 percent lived
in moderately inadequate units. Another 6.4 percent of these households
lived in physically adequate units that were overcrowded. While there is
continuing need for improvement in housing quality, the most severe
housing problem facing very low-income households is housing affordability,
discussed in the next section.
Housing Affordability
Problems of housing affordability have escalated in recent years,
especially for low-income households and first-time homebuyers. While
income increased for homeowners by 90 percent between 1973 and 1981,
housing costs have risen more rapidly. Although renter income increased
by 58 percent, gross rents (rent plus utilities) increased less rapidly
than income. However, because more households have turned to homeownership,
the proportion of the remaining renters paying a sizable share of their
income for rent has increased. In 1981, 54 percent of all renters paid
more than 25 percent of their incomes for rent compared to 41 percent in
1973. In metropolitan areas, 56 percent of very low-income households
who lived in otherwise adequate housing paid more than 30 percent of
their incomes for rent compared to 10 percent of the remaining metropolitan
renter households. Of the 6.95 million very low-income households in
metropolitan areas with a housing problem in 1981, fully 70 percent lived
in adequate and uncrowded housing, but paid over 30 percent of their
incomes for rent.
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V-6
Rental Housing
Rental housing provides shelter for 29 million American households;
it constitutes more than one-third of all occupied units, but over half
of all occupied units in central cities of metropolitan areas. Unsubsidized
rental units are the major source of housing for renters, constituting
almost 90 percent of the Nation's rental housing stock.
During the 1970's, concern was frequently voiced about a rental
housing crisis, with frequent assertions that the rental stock was
decreasing due to production shortfalls, conversions to condominiums, and
widespread abandonment. In fact, the United States rental housing stock grew
substantially every year, averaging some 400,000 additional units annually.
In 1981, about 600,000 rental units were added. The same general trend
occurred inside central cities as well as outside them.
Preliminary data for 1983 indicate that about 135,000 new,
unsubsidized rental apartments were completed, accounting for almost half
of all new multifamily construction. This represents a 15 percent increase
over 1982. In addition, the rental vacancy rate continues to remain well
above the five percent mark which is considered normal; and for some
types of units, the vacancy rate exceeds six percent.
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Markets do exist in which rent controls, high prices, or other.
market-distorting mechanisms have combined to reduce the supply of rental
housing, particularly for lower-income households. However, the overwhelming
weight of available evidence indicates no current or long-run shortage of
rental housing in the United States although there may be shortages in
particular rental markets'.
Low-Income Housing
As revealed above, the poor primarily are confronted with problems
of affordability: they cannot afford to pay for standard quality housing
that is available. The Administration is pursuing three avenues of remedy
to help poor families: first, it is expanding the number of households
receiving housing assistance; it also is taking steps to assure that
housing aid goes to families that have the greatest need; and third, it
is providing new construction and housing rehabilitation funds to those
few groups and areas whose production and housing stocks needs are not
being served by the private market.
The Reagan Administration has been administering steady increases in
the number of households residing in units receiving assistance payments.
These payments are in the form of direct assistance to tenants under the
Section 8 program, Public Housing debt service, operating subsidy, and
lease payments, payment of interest rate subsidies to projects reserved
for low-income tenants, or some combination of two of the above subsidies.
The number of families assisted by these mechanisms has grown from 3.2
million households in Fiscal Year 1981 to 3.7 million households in
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Fiscal Year 1983. The number of assisted households will approach 4
million by Fiscal Year 1985.
Funds appropriated for housing assistance in Fiscal Year 1984 and
requested by the Department in Fiscal Year 1985 will support approximately
100,000 incremental households in each of these years. The annual increase
of 100,000 units was agreed upon by Congress, the Department and the
Office of Management and Budget as an orderly and significant number
which will provide assistance for the nation's 800,000 "worst case"
households. "Worst case" households have been identified by studies as
having the most urgent shelter needs. They are defined as being households
which are spending more than 30 percent of their income to live in
substandard housing.
The Voucher Program
The cornerstone of the Reagan Administration's assisted housing policy
is the housing voucher program. The voucher program provides an income
supplement that improves a poor family's purchasing power for shelter. This
allows assisted families to seek housing in the open market like any other
family shopping in the private sector.
The voucher program modifies and builds on the Section 8 Existing
program which currently serves over 750,000 households. Both programs
utilize the existing housing stock already in place in a community, thus
sheltering a greater number of tenants on a more economic basis. The free
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V-9
market characteristics of the programs allow tenants a greater choice of
units and communities. That makes both the voucher program and Section 8
Existing program far more effective vehicles for achieving social and
racial integration. Vouchers and certificates open a greater portion of
the community to low-income residency. A recent court decision recognized
this superiority in programs that use existing housing when it chided a
PHA for concentrating on new construction when "the Section 8 Existing
program . . . offered the best opportunity to solve the housing segregation
problem."
The voucher program is basically very simple:
.
- the voucher is issued by a local public housing authority to a family
or an individual eligible for housing assistance.
- the voucher allows the family to shop for decent, safe and sanitary
rental housing and guarantees payment to the landlord for a portion
of the rent.
- HUD pays the difference between 30 percent of the family's adjusted
gross income and a reasonable rent level for a given area.
- The subsidized family has an additional "shopping incentive" that
allows it to balance cash resources with housing goals. The family
may rent below the payment standard (set at 45th percentile of an
area's median rents) and pocket the savings, or it is free to spend
more, should it so choose.
To appreciate the potential for effective housing assistance that is
offered by the voucher program, a simple comparison of the voucher program
with the costly programs of the past is useful. In Fiscal Year 1982, the
federal government provided $4.9 billion in Section 8 new construction
budget authority to subsidize families in 33,000 low-income housing units.
The same amount of budget. authority would have provided 325,000 households
with assistance through vouchers. The voucher subsidy, thus, is nearly
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ten times more effective than Section 8 associated with new construction.
The contrast is even more persuasive when one considers the need for
assistance as defined by the 800,000 "worst case" households mentioned
previously. The 33,000 new construction Section 8 can serve only
4 percent of the "worst case" families, and the aid only arrives after a
12 month to 24 month construction period. Vouchers would have aided 40
percent of the "worst case" families and would have delivered that assistance
much more quickly than building new units.
To guarantee that housing assistance flows to families with the
greatest needs, HUD has required that most future assistance be available
for families at or below 50 percent of an area's median income. In
addition, the Department has made a special effort to target housing
assistance to households that have had particular difficulty in participating
in HUD's programs in the past. Large families traditionally have had
difficulty in locating units appropriate for their needs. HUD has adjusted
its Fair Market Rents for its Section 8 Existing program to allow higher
rents for apartments with three or more bedrooms. Higher rents should
motivate owners of large units to participate in the Section 8 Existing
program. In addition, a new Rental Rehabilitation program and a Housing
Development Grant program will assign a high priority to funding projects
that contain units with a large number of bedrooms.
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Rental Rehabilitation
The Administration emphasis on the use of existing housing to meet
the needs of lower income families is reflected in the new Rental Rehabili-
tation program. Proposed by the Administration and adopted by Congress
in the 1983 Housing and Urban-Rural Recovery Act, the Rental Rehabilitation
program will provide $150 million to localities in both Fiscal Year 1984
and Fiscal Year 1985 to refurbish 30,000 housing units in each year.
The design of the Rental Rehabilitation program is as follows:
- The federal government will provide grants to state and local govern-
ments on a formula basis.
- State and local governments can design their own program to meet
locally determined goals. They can use either loans or grants to
developers.
- State and local governments may choose to supplement their federal
rehabilitation funds with other monies--for example, community develop-
ment block grant funds--or they can leverage private investment. In
any case, leveraging is assured since the rental rehab subsidies will
not exceed half the cost of renovating the units.
- Rehabilitation assistance will be targeted to low-income neighborhoods
where at least 80 percent of the rehabilitated units will be affordable
and available for very low-income families.
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- HUD will provide 10,000 vouchers from the voucher demonstration and as
many as 20,000 Section 8 certificates as an additional resource to. help
communities meet their rehabilitation needs. These vouchers and certificates
can either support tenants in the renovated units or it can be used to
aid tenants displaced by rehabilitation.
The full-fledged Rental Rehabilitation program will build on a very
successful demonstration program. In 1981 and 1982, a total of 185 cities
and counties were selected to participate in the program. These communities
chose to spend a total of $46 million of their Community Development
Block Grant funds to support housing rehabilitation. HUD provided 6,700
Modified Section 8 Existing Certificates as additional support for this
effort. Another 8,000 Section 8 Existing Certificates will support round
three of the demonstration which will run concurrently with the advent of
the regular program. The demonstration program has proved to be a valuable
resource for low-income people. After rehabilitation, 93 percent of the
units were brought onto the market within the Section 8 Fair Market Rents
and 82 percent of the units are occupied by low-income households.
Tax Incentives for Private Production of Rental Housing
Changes in the treatment of income from rental properties under ERTA
have greatly increased profitability of rental housing, with important
implications for urban areas and their large rental stock. New provisions
in the tax code increase the rate at which both new and existing
properties can be depreciated by allowing investors to use a 15-year
capital recovery period.
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The accelerated depreciation rate was increased from 125 percent to
175 percent declining talance for existing rental properties and decreased
from 200 percent to 175 percent for new units. Low-income rental housing
can now be depreciated using the 200 percent declining balance method.
Other provisions established a 10-year amortization of construction period
property tax and interest expenses and reduced the amount of capital gain
taxed as ordinary income on a sale of the property.
At current mortgage rates, it is estimated that with a 13 percent
mortgage interest rate, a long-term reduction in rents of approximately
40 percent may be realized through increased supply of rental units as a
result of these tax changes. Most investment analysts maintain that, in
the long term, at least some of the special tax benefits available to
rental housing relative to competing investment opportunities are passed
through to renter households in the form of reduced rents.
Included in ERTA was an increase in the investment tax credit for
certified historic rehabilitation from 10 to 25 percent; under the new
law a 20 percent tax credit is permitted for rehabilitation of nonresidential
buildings at least 40 years old and a 15 percent credit for rehabilitation
of buildings at least 30 years old. These credits were included specifically
to "help revitalize the economic prospects of older locations and prevent
the decay and deterioration of distressed urban areas."2
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Success of this particular tax subsidy program is evident from the
fact that nearly 2,000 projects qualified for the historic rehabilitation
tax credit during the first three-quarters of FY 1983 alone, representing
total investment of some $1.3 billion. Over one-third of the rehabilitated
historic housing has been made available to low- and moderate-income
households..
Housing Development Grant Program
The 1983 Housing and Urban-Rural Recovery Act also authorizes a
Housing Development Grant program for the construction of new units in
communities deemed to be suffering from a severe shortage of rental
housing. The program is funded at $200 million for Fiscal Year 1984 and
$115 for Fiscal Year 1985. Eligible cities to participate in this program
will be determined by objectively measurable criteria provided for under
the statute: the extent of poverty; the extent of occupancy of physically
inadequate housing by lower-income families; the extent of housing over-
crowding experienced by lower-income families; the level and duration of
rental housing vacancies and, the extent of the lag between the estimated
need for and the production of new rental housing. In addition to eligible
cities, otherwise ineligible cities can submit projects for funding if they
meet a special housing need or contribute to neighborhood preservation goals.
Grant awards will be made to cities, urban counties, or states acting on behalf
of cities and urban counties. Grants will be made on the basis of a
national competition.
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Housing for the Elderly and Handicappped
The Administration recognizes that private production may not be
sufficient to meet the special needs of elderly households. Therefore,
it is continuing to support Section 8 new construction subsidies and
direct loans for the Section 202 program for the handicapped and the
elderly. Since reactivation of this program in 1974, almost $6 billion
in Section 202 funding has allowed construction for 2,451 projects with
147,070 units. In Fiscal Year 1983, 322 projects with 14,035 units
received fund reservations totaling $633.3 million. Approximately
$666 million for the development of 14,000 units will be available for
fund reservation in Fiscal Year 1984. The Administration has requested
funding for an additional 10,000 units for Fiscal Year 1985.
Public Housing
Public Housing is another important component of America's housing
assistance network. The Administration views the existing Public Housing
stock as a valuable resource. Currently there are over 3.5 million people
living in the 1.2 million units of Public Housing. Ninety percent of the
Public Housing units in the United States are well managed, are in good
repair, and are a cost-effective source of assisted housing. For the 10
percent of the units that are having problems, the Administration is
working hard to assure that there are no vacant or substandard units.
The priority that Public Housing has within the Department of Housing and
Urban Development is reflected in the creation in 1983 of an independent
Office for Public and Indian Housing with its own Assistant Secretary.
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The Department is making every effort to preserve and maintain the
existing cost-effective public housing stock. To achieve this goal, HUD
has urged local Public Housing Agencies to start construction on the $2.1
billion in modernization projects that are approved but unstarted. In
Fiscal Year 1983, $2.6 billion in new modernization money was made available.
An additional $1.55 billion in modernization money will be distributed in
Fiscal Year 1984.
Congress has authorized 5,000 units of Public Housing new construction
and 2,500 units of Indian Housing new construction in Fiscal Year 1984.
In addition, the Department is bringing to start all feasible new
construction projects already reserved. In many instances, HUD is offering
local agencies a choice of whether to proceed with new construction or
whether to swap their new construction units for Section 8 Existing
certificates or modernization funds.
HUD provides Public Housing Authorities with operating subsidies to
meet the day-to-day needs of PHA projects and to make the repairs and
replacements necessary for the smooth operation of these projects. HUD
is providing $1.2 billion in operating subsidies for Fiscal Year 1984.
HUD also has encouraged PHAs to adopt cost reduction measures and to
institute management reforms in their use of operating subsidies. For
Fiscal Year 1983, these initiatives helped to reduce obligations
for operating subsidies by $339 million.
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HUD is acting decisively to improve Public Housing management where
local PHAs have needed help. This effort is concentrated on larger
"troubled PHAs"--those with especially severe financial and operational
problems. It includes intensive monitoring and technical assistance.
Although appropriate sanctions are invoked where necessary to obtain PHA
compliance with legal requirements, for the most part this effort involves
cooperation between the locality and HUD toward common program goals. On
the local level, the involvement of the local government, the tenants and
the private sector--as well as the PHA itself--is being stressed. The
Department has sent HUD teams to the localities to improve management or,
in drastic circumstances has installed private management to rescue a PHA
which is in danger of serious financial or physical deterioration. The
paramount goal in these efforts is to protect the availability of the
units and to further the interests of the assisted tenants. Some 21
large PHAs are now classified as "troubled", but 26 other large PHAs have
been able to work themselves out of this classification as a result of
successful Federal-local cooperation.
The Comprehensive Improvement Assistance Program (CIAP) is a
particularly valuable resource, providing funds for special management
and physical improvements for projects with long-term physical and social
viability. Since 1980 HUD has provided $8.6 billion to PHA's to
modernize public housing.
Local authority and responsibility for public housing are receiving
new emphasis under the concept of local-Federal partnership. Although
HUD recognizes its responsibility to ensure compliance with the requirements
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of Federal law, there is a wide margin for legitimate local discretion
to meet the needs and preferences of particular communities.
Working with PHAs, tenants, local governments and the private sector,
the Administration is thus seeking to strike a proper balance between the
roles of the Federal Government and the locality. Particular emphasis is
being given--for "troubled PHAs" and the program in general--to the
role of the local government in providing services, support and technical
assistance to the PHA tenants. New emphasis is also being given to the
provision of tenant services through local public and private agencies.
In summation, the Administration's housing policy for low-income people
is a comprehensive approach which relies primarily on vouchers but also
makes use of construction and rehabilitation programs when unique needs
in local market conditions warrant.
Increasing Homeownership
The Administration's emphasis on making homebuying more affordable
has focussed on serving those Americans who are either unnerved or
underserved in the private market -- first-time homebuyers, low- and
moderate-income homebuyers, and buyers of inner-city properties. For
this group, HUD now allows lenders who insure mortgages through FHA to
use several innovative mortgage-instruments:
? Shared Equity Mortgages, in which investors share the monthly
mortgage payment in return for a share of the tax benefits
and the equity of the home at the time of sale;
? Graduated Payment Mortgages, which allow payments to increase
as the homeowner's income increases, in concert with builder
subsidies of interest rates on these mortgages; and
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? Growing Equity Mortgages, in which the homeowner pays off the
mortgage more rapidly in exchange for a lower interest rate.
i
HUD has also obtained Congressional approval for use of adjustable rate
mortgages, which allow the interest rate to fluctuate up or down to
reflect current market conditions. HUD is evaluating the market
attractiveness of home equity conversion mortgages (Reverse Annuity
Mortgages) for elderly homeowners, and expects to make a report to Congress
in FY 1985. Such a mortgage is designed to reduce the financial hardships
of elderly homeowners by permitting them to tap accumulated equity to
meet such expenses as home maintenance property taxes, utilities, and
other housing expenses without giving up their property.
HUD also has relaxed its underwriting standards to give young families
a better opportunity to qualify for loans. Underwriting criteria for
eligibility has been relaxed from 35 percent for housing expenses and 50
percent of total fixed obligations to 38 percent and 53 percent respectively.
In addition, the Housing and Urban-Rural Recovery,Act of 1983 contains
the Department proposal for lower downpayments on homes with a value of
$50,000 or less. This change will lower the downpayment on a $50,000
house from $2,000 to $1,500, a reduction of 25 percent. This is a
significant improvement for the first-time homebuyer seeking entry level
housi ng.
In addition to targeting FHA insurance, HUD is taking important
steps to make its insurance programs adopt private market practices and,
thus, make its programs more efficient. One such change was adopted in
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the Housing and Urban-Rural Recovery Act. FHA no longer will set a fixed
interest rate for its mortgage programs. Instead, the interest rate
will follow the determination of the free market with the lender, buyer,
and seller settling upon an appropriate rate and points through open
negotiations. The change should help reduce the large number of points
frequently associated with FHA transactions. These points were often
reflected in a higher sales price and caused artificial inflation of home
prices. In some instances, high points made sellers unwilling to entertain
contracts from FHA purchasers. Now FHA purchasers will benefit from
lower home prices and a greater choice of housing units.
To better serve all borrowers, HUD is seeking to privatize its
operations. It is doing this through a partnership with the lending
community. For single family homes, a process has been instituted called
Direct Endorsement. The underwriting of such loans is actually done by
the private lender. The loan package is then returned to HUD where,
after a few basic items are checked, HUD endorses a loan. This change
will provide much quicker service for the homebuyer. It eliminates the
application process whereby both lender and HUD make decisions. The time
is saved that would be spent transmitting documents between the lender
and HUD, often several times in the course of one application. And, of
course, the time which would have been consumed in HUD processing is
saved. Currently, 36 percent of FHA insurance is being placed through
Direct Endorsement.
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HUD considers manufactured housing to be a vital factor in providing
the opportunity for Americans to fulfill their dream of homeownership.
FHA Title I insurance is an important tool for financing manufactured
homes. The Department is continuing to work to improve the Title I
program. The new Housing and Urban-Rural Recovery Act implements many of
this Administration's initiatives on manufactured housing. For example,
the mortgage limit for the purchase of a manufactured home was increased
from a maximum of $22,500 for a single section and a maximum of $35,000
for a multi-section home to a maximum of $40,500 for either size. The
mortgage limit has increased from $35,000 ($47,500 for two or more
sections) to $54,000 for a single or multi-section manufactured home and
lot. The maximum dollar amounts may be increased in high cost areas.
The Administration took another important step for manufactured
housing when it extended Title II mortgage insurance to manufactured
homes built to. the HUD code and placed on a permanent foundation.
Purchasers of a manufactured home now have the advantage of a lower
interest rate and a longer loan term. They can finance a larger amount
for the same monthly payment.
Expanding the Sources of Housing Finance
Led by Secretary Samuel R. Pierce, Jr. the Administration has engaged
in an extensive effort to expand the sources of housing finance by reaching
out to major untapped sources in the capital markets, such as private
pension funds and foreign investors. Each $1 billion of new funding
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V-22
attracted to mortgage investments, through mortgage-backed securities or
other investments in the mortgage secondary market, can provide financing
for as many as 20,000 homes. This outreach effort has been comprised of four
main elements: elimination of regulatory restrictions; a major marketing
effort aimed at pension fund managers, investment advisors and other
capital market participants; improvement of housing investment instruments;
and overcoming barriers to acceptance of American investment instruments
on international capital markets.
In the regulatory sphere HUD has worked with the Department of Labor
since 1981 to bring about a series of exemptions to regulations under the
Employment Retirement Income Security Act (ERISA). These exemptions
enable private pension funds to engage freely in almost all normal
business transactions involving mortgages. This makes it possible for
an increasing proportion of the over $700 billion of private pension fund
assets to be invested in housing. To communicate with major capital
market participants, HUD has developed a pioneering effort, in league
with FNMA, FHLMC, and private secondary market participants, to inform
pension fund executives about the new freedom under Department of Labor
regulations, about new investment instruments in the secondary market,
and about the advantages of mortgage investments. This has been accomplished
through a series of major conferences, intensive work sessions, and
publication of a reference volume on the value of mortgage-related
investments.
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In an example of improvement of housing investment instruments the
Government National Mortgage Association (GNMA) has developed a new,
modernized form of GNMA security, the GNMA II, contributing to this
effort to meet the needs of modern investors. GNMA II provides
GNMA securities, the largest part of the secondary market, with a
centralized accounting and payment system and the ability to efficiently
manage large pools of mortgages. With over half of all mortgages now
originated for sale in the secondary market, such measures provide a
valuable and needed improvement.
Beyond the domestic housing market, HUD has reached out to foreign
markets to strengthen housing finance. GNMA securities are now listed on
two foreign exchanges, in Luxembourg and Singapore, and are being sold in
Japan as well as Europe. All of these activities are expected to contribute
substantially to a consistent, even flow of funds from the capital markets
into housing. As one sign of this type of movement, a HUD monitoring
survey commissioned in 1983 indicated that private pension funds increased
the amount of assets invested in mortgages over 58 percent between 1980
and 1983.
Excessive Regulations
In addition to the addressing long term needs for housing finance,
the Reagan Administration has also confronted another structural problem
which can drive up the cost of housing--excessive regulation. Recent
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studies have found that excessive regulation can increase the final cost
of a home by as much as 25 percent. On the federal level, HUD has among
other efforts streamlined its single and multi-family environmental regu-
lations, and simplified its Minimum Property Standards.
Joint Venture for Affordable Housing
One* of the best expressions of the deregulatory spirit at HUD is
found in the Joint Venture for Affordable Housing program instituted by
Secretary Pierce. The Joint Venture attacks overregulation at the State
and local levels. It provides concrete proof that tangible savings are
possible through the reduction of regulations. Savings come from changes
made almost entirely by local governments, builders and developers,
financial institutions and citizens' groups working together to reduce
local restraints. HUD's role is. as a catalyst--encouraging local
partnerships, providing technical assistance and documenting the process
for other communities to use.
In its first 18 months, the program has had significant accomplish-
ments in three main areas:
- By the end of 1983, more than 30 states had demonstration
project sites. Among the projects which have begun to sell
their homes, the Phoenix, Arizona site had sold more than 175
homes, including all the townhouse units; 60 homes have been
sold in the Sioux Falls, South Dakota project and, 35 homes
have been sold in Marion, Arkansas. Early sales figures show
that the demonstration units are selling at prices $5,000 to
$10,000 below those of comparable units in the local market.'
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The message that regulatory reform can indeed cut costs has
been spread through numerous conferences and publications
organized and produced by such organizations as the National
Governors Association, the National Conference of State Legis-
lators, the Council of State Community Affairs Agencies, the
National Association of Counties, the International City Management
Association, the American Planning Association, and the Urban Land
Institute.
Building on the interest in regulatory efforts reform developed
through the Joint Venture, the National Association of Home
Builders has created its own Regulatory Reform Task Force to
bring the strength of its 800 local home builder association
members to bear on the problems of regulatory reform in their
own communities.
Fair Housing
The persistence of racial segregation and discrimination in American
cities and suburbs constitutes one of the major challenges facing policy
makers today. Preliminary evidence from the 1980 Census indicates that
while racial segregation remains high in America's largest cities, it has
nevertheless declined. Between 1970 and 1980, an index of segregation in
28 cities declined from 87 to 81.3 In some cities, including Nashville,
Tennessee; Richmond, Virginia; Columbus, Ohio; and Oakland, California,
the Index declined by more than 10 points. These declines represent the
first major break in level of segregation, and suggest that some of the
underlying forces supporting residential segregation may have changed in
the last decade.
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One of the major factors related to the racial concentration of
blacks in America has been their virtual exclusion from suburbs. In the
decade of the 1970's, however, blacks have moved in increasing numbers
into suburbs. Blacks were only 4.6 percent of all suburban residents in
1970, but were 6.1 percent by 1980. A total of 5.5 million blacks now
live in the suburbs of 239 metropolitan areas. Much of this dispersal
appears to represent an extension of inner city black neighborhoods, but
blacks are also moving in modest numbers into previously all white areas,
policy positions.
There is ample evidence, however, that racial discrimination persists
in both the rental and sales markets in many cities. In 1977, for example,
a major HUD study using testers found 15 percent of sales agents and 27
percent of rental project managers discriminated against black homeseekers
in 40 metropolitan areas. Another study in Dallas in 1978 found that
Mexican-Americans were likely to experience the same level of discrimination
as blacks. Other studies using testers have found similar levels of
discrimination in Boston, Denver, Baltimore, and Columbus.
Each of these studies indicate that minorities can expect to experience
significant amounts of discrimination in search for housing 15 years
after passage of the Fair Housing Act. Such discrimination constitutes a
fundamental violation of the rights of American citizens to equal treatment,
information, service, and courtesy in the process of finding a new home.
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The Administration is firmly committed to equal treatment for all
citizens through the effective enforcement of laws prohibiting discrimination
in federally assisted programs as well as in the sale, rental, or financing
of housing in the private sector. This commitment has been implemented
through a number of important new initiatives by the Administration. It
has:
? Concentrated its attention and resources on the Federal
Government's role of protecting the fundamental civil rights
guaranteed all individuals by the Constitution and the fair
housing law;
? Acted to reduce duplication, unnecessary reporting require-
ments, inflexible regulations, and ineffective programs;
.
? Increased the focus upon voluntary compliance with civil
rights laws through increased technical assistance and
incentives;
? Strengthened the role of State and local fair housing
enforcement agencies in cooperation with HUD in assuring
fair housing;
? Aggressively pursued new amendments to the fair housing
law to punish violaters who discriminate, including new
protections for handicapped persons;
? Supported recent Supreme Court rulings sanctioning the
use of testers to identify the vestiges of racial
discrimination;
? Funded demonstration programs under which private fair
housing groups provide testing evidence to HUD to increase
the effectiveness of HUD's enforcement process;
? Worked to improve the coordination of Section 504 of the
Rehabilitation Act of 1973 which prohibits discrimination
on the basis of handicap in all federally assisted programs
and activities.
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A number of these initiatives warrant further description. For
example, the Administration has recently proposed that Congress amend the
1968 Fair Housing Act to strengthen its enforcement provisions. The
proposal would (1) measurably strengthen the HUD conciliation process,
(2) greatly enhance the Attorney General's litigating authority by
empowering him to sue on behalf of individual claimants and to seek the
imposition of substantial penalties for violations, and (3) extend to
private litigants a stronger right of independent action that allows for
the award of punitive damages and the recovery of attorney fees where
liability is found.
During 1981 and 1982, HUD continued its efforts to expand the
involvement of State and local agencies in assuring fair housing. HUD
obligated over $5 million for direct grants and technical assistance to
help State and local agencies develop procedures, train staff, and other
measures necessary to process fair housing complaints. As a result, the
number of State and local agencies participating in charge processing
grew from 42 to 61, an increase of 50 percent. Through 1984, HUD expects
to increase the number of participating State and local agencies to 100--
almost tripling the number in the program at the beginning of 1981,
further increasing the number of Title VIII complaints processed at the
State and local rather than the Federal level.
These investments in State and local government capacity will reduce
the incidence of violations which give rise to complaints. When complaints
are filed, more will be resolved by the States and communities in which
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V-29
the parties reside. During 1982, for example, HUD referred 56 percent of
the complaints it received to States and local agencies for processing
(compared with only 13 percent in 1980), and State and local agencies
were responsible for over 58 percent of all voluntary complaint settlements
achieved under Title VIII. As a result of this cooperation between HUD
and State and local agencies, there has been a substantial increase in
the service provided to persons filing complaints under Title VIII, with
41 percent more complaints closed in 1982 than in 1980.
In the areas of increasing voluntary cooperation with fair housing
objectives, this Administration has promoted the first funding or "seed
money" for local Community Housing Resource Boards. These Boards initiate
affirmative marketing and other voluntary efforts to assure fair housing.
Some 600 of these Boards were in existence at the end of 1982, with an
additional 50 organized in 1983.
The Department of Justice's Civil Rights Division is responsible for
litigating alleged pattern and practice violations of Title VIII. During
1981, the Civil Rights Division initiated 60 investigations of suspected
patterns and practices of housing discrimination and completed 45.
Litigation by the Division resulted in court orders and settlements
mandating future nondiscrimination in the sale or rental of over 9,000
housing units.
The Administration is proud of its commitment to safeguard the civil
rights of all citizens in the area of housing. It recognizes that unless
there is equal housing opportunity for all persons, the market will not
function properly, and those who are discriminated against will suffer.
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State and Local Actions
Most States have single family mortgage purchase programs and tax-
exempt financed multi-family construction and permanent finance loan
programs.
Many States have recently taken action to develop and implement new
policy and programs for improving housing for their residents. Some
States have created new secondary mortgage market instruments which can
be used to make State pension funds available for housing finance. For
example, in 1981, the State of Connecticut established Yankee Mac which
purchases mortgages and issues mortgage-backed securities for purchase by
the Connecticut Pension Fund, among others. Yankee Mac operates in a
similar fashion to most conventional mortgage-backed security programs.
Its first offer to purchase was made in June 1981 and by February 1983
the pension fund had invested about $240 million in mortgages, which
provided financing for 2,500 households. New construction accounted for
$80 million of the total, representing 1,200 new homes.
South Carolina has also recently begun to invest some of its pension
assets in securities backed by South Carolina residential mortgages. Its
initial offering in April 1981 was for $25 million at an interest rate of
13.25 percent. By February 1983, the State had committed almost $140
million to this program. This program provides both a secure investment
for the State's pension fund and mortgage funds for South Carolina
residents. In fact, most State pension funds have mortgage investments,
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with some investing a significant portion of their total assets in housing-
related areas, for example, Michigan, 48.6 percent; Missouri, 43.1 percent;
Montana, 43.7 percent; Colorado, 34.9 percent.
Several local governments have also committed public pension funds
to housing investments.. A key example is a $50 million commitment by
New York City of police pension funds to invest in the acquisition and
rehabilitation of about 5,000 multi-family housing units. Funds will be
made available for emergency loans to unemployed homeowners to minimize
loan delinquencies and to avoid foreclosure sales.
Other States have concentrated on other aspects of housing for their
residents. For example, the State of Pennsylvania is developing a plan
to reduce mortgage foreclosures caused by unemployment with a program
called "HAND-UP" (Housing Assistance Needed by Distressed and Unemployed
Pennsylvanians). This program will provide $150 million from lottery
fund revenues to a special account for emergency financial assistance.
Funds will be made available for emergency loans to unemployed homeowners
to minimize loan delinquencies and to avoid foreclosure sales.
The State of New Jersey recently established an Office of Housing
Advocacy which will provide information and planning in the areas of
housing affordability, production, and advocacy. The office also recently
sponsored a conference on affordable housing as well as republished its
highly successful Affordable Housing Handbook. Florida's Department of
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Community Affairs has just published a similar report, Promoting Affordable
Housing: Possible Actions for Local Governments. This report looks at
what local governments can do to encourage the production of more affordable
housing.
Neighborhood Revitalization
Private reinvestment in inner-city neigborhoods increased significantly
during the 1970's as a consequence of both gentrification (investment in
older neighborhoods by middle-income households) and incumbent upgrading
(investment in their neighborhoods by current residents).
While gentrification raised concern about displacement of the poor,
a recent study of 22 metropolitan areas confirms that gentrification has
been confined to relatively few neighborhoods, generally those close to
the central business district or having architecturally attractive housing.
It found that the influx of middle-income households into central cities
between 1969 and 1979 was insufficient to reverse a city's decline in
median income, but it was sufficient to increase the number of Census
tracts having a median income above 125 percent of the metropolitan area's
median. Boston, Los Angeles, Milwaukee, Minneapolis, New York,
San Francisco, Oakland and Washington, D.C., all showed a slight increase
in the number of high-income tracts. Every city studied had some tracts
where median income increased more than five percent; however, none had
more Census tracts with increasing than decreasing median incomes.
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Similarly, every city studied had some Census tracts where the minority
percentage of the population decreased; however, overall, in virtually
all of the cities, the minority percentage of the population increased.
The increasing attractiveness of central cities to middle-income whites
complements the shift occurring in central city economies to service-
based activities; it also complements the increasing attractiveness and
accessibility of suburbs to minority households.
At the same time, many neighborhoods are undergoing revitalization
as a consequence of investment by "incumbent" residents. Occurring in
moderate- and low-income areas, incumbent upgrading usually entails
organizations of residents to instill greater confidence in the neighborhood.
Churches, philanthropic organizations, and civic groups are frequently
the catalysts.
Many vehicles for the promotion of incumbent upgrading exist. One
of the most important is the Community Development Block Grant program.
Another is the Neighborhood Housing Services Program (NHS), established
by the Neighborhood Reinvestment Corporation and focused largely on
resident homeowners. More than 200 local NHS programs have been set up
nationally in areas showing incipient decline and disinvestment. Each
involves the designation of a target area and the formation of an NHS
board composed of target area residents, private sector representatives,
and local government officials. A rehabilitation and improvement plan is
prepared, and citizens are assisted in obtaining private financing to
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upgrade their properties. A revolving loan pool provides below-market
interest loans for some residents who are unable to qualify for private
financing.
HUD's rental rehabilitation program, mentioned in the previous
section, is a vehicle for neighborhood revitalization that will benefit
low-income renters. Under this new program, rehabilitation grants will
be made, on a matching basis, to owners of small rental buildings. To
lower the cost of rehabilitation, rental vouchers will be offered to low-
income families to minimize displacement and assure that the housing
remains available to them. This program will strengthen local efforts to
stabilize and preserve low-income neighborhoods.
The Administration continues to administer a demonstration program
designed to reflect the precepts of the Rental Rehabilitation program.
Almost two hundred cities, counties, and states are currently
participating in the Demonstration, and almost three hundred have
been approved to participate in the third round, beginning in mid-1984.
So far more than 1,300 units have been rehabilitated through the
Demonstration and an additional 5,000 units have been selected by local
officials and are in some stage of the rehabilitation process. The
varying size of the properties rehabilitated through Demonstration is
testimony to the flexibility of the Program's concept. Although the
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rehabilitated properties typically contain between two and four units,
New York City has successfully rehabilitated buildings with more than 25
units and Baton Rouge, Louisiana and South Bend, Indiana have used the
Demonstration to renovate single family rental properties occupied by
lower income persons.
Before rehabilitation most of the properties were occupied, although
in a few cases the Demonstration actually added units to the local
community's housing stock. In New Rochelle, New York a deferred payment
loan was used to supplement an insurance settlement and a market rate
loan from a Savings and Loan and put four fire-gutted units back in the
market. The same locality also used the Demonstration to turn uninhabitable
space above a delicatessen into safe, sanitary, and decent housing.
A principal public source of support for housing rehabilitation is
the Community Development Block Grant (CDBG) program. In fact, rehabilitation
has been the largest single CDBG-supported activity for the last four
years. In FY 1983, for example approximately $921 million, or 36 percent
of all CDBG funding going to entitlement cities, went for housing
rehabilitation.
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President Reagan's 1982 Urban Policy Report documented a decade and
a half of declining levels of capital spending by State and local governments
for infrastructure needs. The trends were even more marked for maintenance
spending and were especially apparent in the nation's large cities. The
decline in capital and maintenance spending was accompanied by erosion in
the condition and performance of the urban capital plants, an erosion
particularly evident in older cities.
Nevertheless, despite these trends and their impact on the nation's
infrastructure, a number of studies undertaken in the past two years have
concluded that the nation's infrastructure problem is generally manageable.
In a joint survey of mayors and city managers, the National League
Cities (NLC) and the United States Conference of Mayors (USCM) concluded:
This survey shows that, overall, the cost of meeting high
priority public facility needs in the nation's cities is
relatively modest. This is a critical finding. This survey
did not attempt to produce a total cost estimate--a "bottom
line"--for all infrastructure needs in America's cities. Such
estimates produced by others have run into the trillions of dollars.
These are daunting figures, almost paralyzing in their immensity.
But this survey shows that a steady but manageable investment over a
number of years could and would enable communities to start work on
the capital assets ranked as highest priorities by the respondents.
There is no short-term, inexpensive, or easy solution to America's
urban infrastructure problems. But there can be a solution, and
it can be managed.4
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A 1983 ACIR study which reviewed other recent studies found that
although "serious problems do exist in various functional categories and
in various places, ther~ is currently no nationwide, general crisis
confronting the public physical infrastructure, nor does a crisis appear
imminent. . . . . Most infrastructure problems (which vary from place
to place) are manageable given existing financing mechanisms."5
These studies are important not only in pointing out the manageability
of the nation's infrastructure problem. The fact that several of these
studies are undertaken not by the usual sort of research institute but
by national public interest groups, State municipal leagues, and governors'
offices, indicates a growing public awareness of the general condition of
our infrastructure, and the important role it plays in the economic
health of cities. Even more important, this heightened public awareness
is helping to bring about a shift in State and local spending priorities.
There is clear evidence that in the past two years States and localities
have been taking action to address their infrastructure concerns. Many
of these actions, which we will examine in greater detail, have been made
possible by the success of the President's Economic Recovery Program,
which has increased the ability of States and local governments to pay
for needed improvements.
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Reagan Administration Initiatives
On the federal level, the Reagan Administration has responded to the
national heightened concern about our infrastructure needs with the
Surface Transportation Act of 1982. This Act increased the federal motor
fuel tax by five cents a gallon. The Act provided for: (1) completion
of all segments of the interstate system by the early 1990's; (2) spending
increases of 144 percent over levels prior to the Act for rehabilitating
and preserving existing segments of the interstate system; and (3) an 88
percent increase in budget authority from 1982 to 1986 for primary highways
and bridges. In addition, one cent per gallon of the new motor fuel tax
provides approximately $1 billion annually for mass transit systems,
discussed in the next section.
The Surface Transportation Act increased funding for the federal-aid
highway system by approximately 50 percent over 1982 levels of $8.2
billion. This Administration initiative, financed primarily by user
fees, has increased federal highway and transit infrastructure funding
from $12 billion in fiscal 1982 to $18 billion in fiscal 1984.
In addition, in accord with other Urban Policy principles, the
Administration has taken steps to foster public/private cooperation on
infrastructure needs and to reduce federal intrusion in State and local
government administration of infrastructure programs.
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To foster public/private cooperation, the Joint Center for Urban
Mobility was established in 1982 at Rice University in Houston, Texas,
through the joint sponsorship of the Federal Highway Administration
(FHWA), Urban Mass Transit Administration (UMTA), the Texas State Department
of Highways and Public Transportation and local public and private
agencies. The purpose of the center is to develop and disseminate
technical information to State and local governments on new approaches to
urban transportation system development and financing.
To encourage local authority and responsibility in the area of mass
transit, the Surface Transportation Act provides cities with a dedicated
and reliable fund of over $1 billion a year for capital improvements.
The new Section 9 formula block grant provides for a single grant
application to be submitted annually by local officials, thus allowing
local governments greater flexibility and control over their transit
programs. The Act also eliminates much of the paperwork burden on local
government. When applying for Section 9 funds, local governments are
required only to certify that they have a local process which conforms to
the minimum guidelines required to meet Federal environmental, safety
maintenance, public involvement and other standards.
For smaller urban areas, Section 9 provides governors with the
flexibility to distribute funds among areas with populations of 200,000
or less.
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Operating Assistance. It has been the Administration's position
that a Federal operating assistance program involves the Federal Government
in the day-to-day operations that are best made at the local level.
Thus, the Administration seeks the gradual phase-down of transit operating
assistance. The 1982 Act froze the amount that could be used for operating
assistance in Fiscal Year 1983 and beyond at a level of $875 million, 16
percent less than in Fiscal Year 1982. This level was established by
imposing a percentage cap based on city size, ranging from 80 percent of
the FY 1982 level for the largest cities to 95 percent for the smallest,
with no cap on non-urbanized areas. This phase down of operating funds
is counterbalanced with increasing levels of capital assistance to urban
and rural communities.
Innovations in Community Transportation. UMTA's demonstration
programs have introduced a number of innovations to improve transportation
in neighborhoods and smaller communities. These innovations are intended
to improve the mobility of individuals who are poorly served by conventional
transit as a result of their locations, their incomes, their age or their
physical condition. When demonstrations have succeeded in providing
services which satisfy particular transportation needs of neighborhood
or communities, the services frequently are continued by local public/private
efforts. Some of the more successful demonstrations include the following:
? A volunteer van pool program which provides vans to low-
income groups who pay routine maintenance and operating
costs and have use of the vehicles for a variety of
trip purposes;
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? A taxi feeder service to provide access to conventional
transit routes in low-density areas;
? A feeder service to provide access to conventional transit
routes in low-density areas;
? User subsidies in the form of tickets which low-income
individuals may purchase at reduced rates, and which taxi-
cab companies may redeem and receive the full fare; and
? Reducing entry controls which limit the number of private
bus or taxicab operators who are permitted to provide
services in a particular locality.
State and Local Actions
Recently State and local governments have begun to act on infrastructure
concerns. They have raised or earmarked funds for construction or maintenance,
improved management of capital resources, and enlisted the aid of the
private sector in the operation of public facilities.
In 1983, 19 states increased their motor fuel taxes and earmarked
these funds for transportation, bringing to 34 the number of states which
have taken similar actions since the beginning of 1981.
In 1983, New York State voters approved a $1.25 billion bond issue
to support extensive construction and maintenance projects of roads and
bridges to be undertaken over the next five years. In New York City
alone, twenty major projects will start in the next year.
Shifts in State and local spending patterns to emphasize construction
and maintenance of infrastructure are apparent, for example, in the CDBG
State Block Grant created by the Reagan Administration. In 1981, under
the old HUD administered Small Cities CDBG program, when States had no
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input into determining small city needs and the Small Cities themselves
were being pushed toward housing rehabilitation by the Federal Government,
total spending for public facilities and improvement was $332.5 million
or 35.9 percent of total funds. In 1982, when the program was turned
over to the States, and cities were allowed to set their own spending
priorities, such spending rose to $382.8 million or 43.4 percent of funds
and continued to increase in 1983. Total spending for public facilities
and improvements in 1983 rose to $422.2 million or 44.6 percent of total
funds. Spending for water and s/wer facilities alone rose from $150.4
million in 1981 to 256.9 million in 1983.
Under the CDBG entitlement program, in the nine years the CDBG
program has operated, local officials have budgeted approximately seven
billion dollars to such activities. The activities supported by the CDBG
program range from broad comprehensive infrastructure improvement programs
to more limited and neighborhood interim assistance projects.
In addition to the CDBG program, the Urban Development Action Grant
(UDAG) program is also used by local officials to make repairs and
improvements to their community's infrastructure. More than one-quarter
of all UDAG grants awarded by HUD since 1978 have involved infrastructure
development needed to support economic development. These projects
represent approximately $778 million in federal funding. UDAG funds for
infrastructure are divided fairly evenly among the construction or improvement
of water and sewer lines, streets, parking facilities, and a combined
category of "other off-site improvements" including pedestrian malls and
walkways and other public-access facilities.
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To assist localities in obtaining needed financing, States are
facilitating local access to capital markets. Some states are creating
"bond banks" which permit cities to use the State's superior credit rating
and access to the bond market to reduce local borrowing costs. Five
States--Alaska, Maine, New Hampshire, North Dakota and Vermont--have
created such banks and are reducing local borrowing costs by as much as
two percentage points. One variant on the traditional bond bank idea is
provided by the State of New Jersey's qualified local bond program which
permits cities to earmark future aid allotments as a guarantee to
bondholders of future repayment. By improving the creditworthiness of
local issues, the program has enabled several New Jersey cities to upgrade
their credit ratings from "BAA" to "A", thereby reducing their interest
costs.6
A financing technique increasingly adopted by both State and local
governments is user charges. User charges establish a sound financing
mechanism which makes access to capital markets easier, provides a
steady flow of revenues for maintenance purposes and ensures that those
who benefit from the services pay the cost. Studies also show that
repair and maintenance practices are better when water and sewer systems
are taken out of the general budget process and entrusted to independent
authorities with dedicated revenue sources. Essentially, this "shields"
infrastructure maintenance from ongoing political and budgetary considerations.
Studies of municipal water distribution systems show that management,
maintenance and conservation practices are much better in cities that
charge for their water services, as compared with cities that finance
water programs from general revenues. Cities that received funding under
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EPA's Construction Grants program are required to establish user charge
systems sufficient to operate, maintain, and replace sewer systems.
Several cities have turned over operation of public facilities to
private firms. A 1983 survey of 379 cities by the International City
Managers Association (ICMA) showed that 222 cities were using private
firms, particularly in solid waste collection and disposal, street
maintenance and construction, hospital operation, and public transit. A
survey of 2,650 cities by the Advisory Commission on Intergovernmental
Relations (ACIR) showed that 36 percent of the cities preferred contracting
with a private firm for provision of services rather than shifting
responsibility to government agencies. While not an option in all cases,
privatizing operation of public facilities provides one way for localities
to make more efficient use of their limited funds for infrastructure.
To sum up, the Reagan Administration has moved effectively to
specifically assist states and localities in dealing with infrastructure
needs through increased funding with increased flexibility and through
technical assistance. To further facilitate State and local flexibility,
the Administration is changing funding formulas to permit rehabilitation
as well as new construction. States and localities are taking advantage
of these administration initiatives and the improved economy to come up
with innovative and cost-effective capital investment and maintenance
strategies.
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THE URBAN ENVIRONMENT
Clean Air
The primary goal of Federal aid quality standards is the protection
of human health.7 Secondary standards include measures to deal with such
problems as visibility degradation and dirt and grime in the Nation's
cities.
Air quality standards fall into two categories: (1) those that
relate to pollutants from mobile sources (automotive vehicles), and (2)
those related to emissions from stationary sources (factories and utility
plants).
The high volume of traffic in urban areas makes automobile emissions
a major source of air pollution. Since the passage of the Clean Air Act
in 1963, considerable progress has been made in reducing these emissions
with new car standards representing a 95 percent reduction in hydrocarbons,
a 96 percent reduction in carbon monoxide, and a 76 percent reduction in
nitrogen oxides.
Exposure to lead has been associated with serious adverse health
consequences, particularly for children residing in cities. A new, more
stringent restriction on the lead content of gasoline effective in October
1982 resulted in substantially lower lead emissions in 1983. There was
10 percent decrease in the amount of lead used in gasoline from the
previous year, producing a marked difference in urban areas.
Information and opinions discussed here are for the internal use of HUD
officials. They do not necessarily represent Department decisions or
policy positions.
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EPA is considering further reductions in the lead content of gasoline,
including a possible ban on leaded fuel. To reduce the improper use of
leaded fuel and the incidence of tampering, EPA is supporting statutory'
language which would make it illegal for vehicle owners to use the wrong
fuel or to disable auto emission controls.
Another means to reduce pollution from mobile sources is the
implementation of automotive vehicle inspection and maintenance programs
in areas which exceed national standards. EPA has made it clear that it
will impose Federal funding sanctions mandated by Congress on those few
areas that do not implement the required inspection programs.
EPA continues to encourage industries to meet or do better than
their environmental requirements through flexible approaches such as air
emission trading. Using EPA's 1982 emissions trading policy, companies
that reduce emissions more than required at some stacks can receive
reduction credit to meet regulatory requirements at other stacks. EPA
has approved or proposed 43 "bubbles" for an estimated $250 million in
savings for the affected firms. About two-thirds of these bubbles have
achieved more reduction than required.
Two major EPA goals for Fiscal 1984 and 1985 are completion of the
review and revision of all air quality standards and development of new
standards for hazardous air pollutants to complement an overall strategy
for identifying and dealing with airborne toxics.
Information and opinions discussed here are for the internal use of HUD
officials. They do not necessarily represent Departmental decisions or
policy POSitinnc
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A major revision to a national air quality standard was proposed in
March of 1984. With this announcement, EPA proposes to set a standard
for inhalable particles as opposed to the existing standard which measures
will provide better protection of public health because. it regulates
particles which may actually enter the lungs or other parts of the
respiratory system.
Sulfur dioxide (S02) and introgen oxide are two of the more common
pollutants from stationary sources, in particular, from coal-fired electric
utility plants. Without Federal clean air requirements, it is estimated
that S02 emissions would have been 50 percent greater in 1980 than they
actually were. Instead, sulfur dioxide emissions have been dropping
after a peak reached in the 1970's.
Both sulfur and nitrogen oxides are recognized precursors of the
acid rain phenomenon. The Administration has requested some $127.0
million in federal funds for Fiscal 1985 to conduct further research into
the causes and effects of acid deposition and to investigate technology
that could aid in controlling its precursors. Acid rain may not only
affect aquatic and forest resources but may also hasten the deterioration
of buildings, statues, and other components of the build environment.
Information and opinions discussed here are for the internal use of HUD
officials. They do not necessarily represent Departmental decisions of
policy positions.
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State and Local Actions
The individual States have become increasingly sophisticated in
their own control efforts. Virtually, all have adopted substantial air
quality improvement programs and have accepted a considerable degree of
delegation of program responsibility from EPA. Indeed, the States, taken
as a whole, now have significantly larger enforcement staff than the EPA
and have undertaken promising initiatives in cooperation with the Federal
Government. For example, in conjunction with organizations representing
State and local air pollution control officials, a national air quality
audit program for State agencies has been developed. EPA will continue
to be involved in these cooperative efforts. In addition, clearinghouses
have been established to encourage exchange of technical information
among State and local agencies on control of toxic air pollutants and
development and implementation of emission control regulations.
Clean Water
Sincer water pollution problems are typically greatest where population
is most dense, the Environmental Protection Agency (EPA) has focused
first on water quality problems in urban communities. EPA operates under
three major laws, the Safe Drinking Water Act (which ensures that drinking
waters are free from harmful contaminants), the Clean Water Act (which
regulates discharges of pollutants into surface waters) and the Marine
Protection, Research, and Sanctuaries Act (which provides for the safe
and effective disposal of wastes at sea).
Information and opinions discussed here are for the internal use of HUD
officials. They do not necessarily represent Departmental decisions of
policy positions.
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One of the ways which EPA approaches solving water pollution problems
is through the construction grants program, a program that provides
funding for municipal wastewater treatment plants. The construction
grants program is one of the largest intergovernmental assistance programs
in the Federal government. During the last year, the Agency provided
$2.43 billion to municipalities and States for the construction of sewage
treatment plants.
Regulations issued in February 1984 simplify and streamline program
requirements and give States greater flexibility in pursuing the most
cost effective ways of meeting wastewater treatment needs. After September 30,
1984, Federal grants generally will cover 55 percent of costs instead of
75 percent, and Federal money will not be used to provide reserve capacity
to accommodate future population growth. Also, collector sewers and
correction of combined sewer overflows will be eliminated as separate
categories of eligibility after that date. States will identify "priority
water quality areas" for use in setting priorities for projects. These
are specific stream segments or bodies of water where municipal discharges
have resulted in significant water quality impairment of public health
risks, and where the reduction of pollution from such discharges will
substantially restore surface or groundwater uses. In this way, States
will concentrate on projects that contribute the most to the achievement
of the Nation's clean water goals.
Information and opinions discussed here are for the internal use of HUD
officials. They do not necessarily represent Department decisions or
policy positions.
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V-50
Increased treatment levels in municipal wastewater treatment plants
have more than offset the increase in pollutant loads that has occurred
because of increasing population, new sewers, and population shifts. In
other words, the total amount of pollutants entering the Nation's waters
from these plants has declined in the last decade, even though the
population served increased by 18 million and municipal wastewater flow
increased by almost 7 billion gallons per day.
Progress is being made in controlling toxic pollutants as well. EPA
studies and sampling efforts show that current levels of control are
removing significant amounts of a number of toxic organic chemicals and
heavy metals from industrial discharges. Furthermore, a survey of
wastewaters entering and leaving municipal sewage treatment facilities
reveals that well-operated plants provide an incidental removal of priority
pollutants such as heavy metals and organics.
Under the Safe Drinking Water Act, EPA has the responsibility to
establish standards to ensure the safety of drinking water while encouraging
States to accept the primary responsibility for enforcing those standards.
In the last year, a primary emphasis of the public water supply program
has been to propose revisions to the existing drinking water regulations
and to develop regulations for volatile organic chemicals. Because nearly
half of the population depends on ground water for its drinking water,
this is an issue that affects many urban communities.
Information and opinions discussed here are for the internal use of HUD
officials. They do not necessarily represent Departmental decisions or
policy positions.
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State and Local Actions
Most States provide either grants or loans or both to assist localities
with wastewater facility funding.8 Some States grants match Federal
funds, while others aid nonfederally-assisted projects. State loans are
most frequently secured by local taxes or sewer charges, but, in some
instances, by future State aid, such as revenue sharing funds, or by
local promissory notes. Loan interest rates are generally lower than
those most local governments could obtain in the bond market. Some
States, such as Minnesota, offer bond insurance to guarantee local debt
service payment and, by lowering the risk, lower borrowing costs. Several
States, including New Hampshire, Vermont, Maine, North Dakota, and Alaska,
have created bond banks that sell revenue bonds and use the proceeds to
buy local governmentas bonds. Other States are considering a combination
loan-grant program: the provision of low or no interest loans from a
revolving fund to municipal borrowers, through which the State would in
effect, be making grant of interest costs.
Local governments are also adopting innovative methods to increase
their financial capability to construct and operate wastewater plants.
These include connection fees, sinking funds, and "mini-bonds." Mini-bonds
Information and opinions discussed here are for the internal use of HUD
officials. They do not necessarily represent Departmental decisions or
policy positions.
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are small-demomination, tax-exempt bonds that are sold to local citizens.
They were first used by East New Brunswick, New Jersey; now other
jurisdictions are following the city's example. Local governments have
also been improving their user charge systems to assure full coverage of
plant operation, maintenance, and replacement costs. Some have begun to
consider private sector ownership and operation of wastewater treatment
facilities which have been made more attractive by the depreciation
provisions of the 1981 Economic Recovery Act.
Information and opinions discussed here are for the internal use of HUD
officials. They do not necessarily represent Departmental decisions or
policy positions.
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CHAPTER V FOOTNOTES
1. Ira S. Lowry, "Rental Housing in the 1970s: Searching for the
Crisis," in John C. Weicher, Kevin E. Villani and Elizabeth A.
Roistacher (eds.), Rental Housin : Is There a Crisis? (Washington,
DC: The Urban Institute Press, 1981.
2. Joint Committee on Taxation, U.S. Congress, General Exploration
of the Economic Recovery Tax Act of 1981 (Decem er 29, 1981), p. 113.
3. The scores in this index theoretically range from zero to 100;
zero would represent a condition in which black or minority residents
of a city or metropolitan area are evenly distributed throughout all
of the census blocks or tracts. A value of 100 represents complete
segregation. The index value, in other words, represents the minimum
percentage ?of blacks that would have to move from one block or tract
to another to achieve perfect integration, or an even distribution.
4. National League of Cities and the United States Conference of Mayors,
Capital Budgeting and Infrastructure in American Cities: An Initial
Assessment, April 1983, p.1v.
5. Advisory Commission Intergovernmental Relations, Public Financing of
Physical Infrastructure, 1983, p. 3.
6. Michael Barker, Rebuilding America's Infrastructure: Financin Public
Works in the 198 s, Durham, N.C.: Duke University Press, 1983, p. 6.
7. The material for the urban environment section was provided by the
U.S. Environmental Protection Agency, except as indicated.
8. The examples in this section are drawn from the Association of State
and Interstate Water Pollution Control Administration, Innovative
Financing for the Clean Water Program: The State Perspective,
Washington, DC, August 1983.
Information and opinions discussed here are for the internal use of HUD
officials. They do not necessarily represent Departmental decisions or
policy positions.
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