Empowerment Zone shows underwhelming results

2011-04-25T00:00:00Z 2011-04-25T15:00:05Z Empowerment Zone shows underwhelming resultsBy Bowdeya Tweh bowdeya.tweh@nwi.com, (219) 933-3316 nwitimes.com

GARY | In a region known for stubbornly insulated communities, the designation of areas in East Chicago, Gary and Hammond as an Empowerment Zone was called a success in regional collaboration.

Community leaders from the cities and President Bill Clinton's administration celebrated the goal of targeting investments to help revitalize the region's urban core.

That was 1999.

But more than a decade after its launch, program critics say the $25.6 million in federal funds spent has had a muted impact on the cities and the residents living in them.

Empowerment Zone supporters say the program did improve employment opportunities and helped spur private investment that otherwise may not have happened.

"The zone has been underwhelmingly successful," said Scott Upshaw, executive director of the Empowerment Zone. "We've not had the impact that the cities foresaw."

The federal program officially ended Dec. 31, 2009, and certain tax credits businesses can claim from these areas expire at year's end.

However, the Empowerment Zone is continuing to operate on income generated from business loans it made. The catch is that proceeds can be invested only in the 16.6-square-mile designated area. Upshaw said about 70,000 people lived in the zone's boundaries spanning the three cities in 2000.

Shaky launch

Twelve years since its birth, who and what has the region program empowered?

The Empowerment Zone launched a training program for home health care workers, an after-school latchkey program for elementary school students in East Chicago, a shuttle to transport students to and from Indiana University Northwest and other institutions, and a computer training program in Gary for youth and adults.

The zone served as administrator for loan programs and managed its own loan portfolio, providing dollars to small and medium-size businesses in the area. The zone also provided dollars to support projects within the cities it served.

Funding for many programs was depleted years ago. Had there been a crystal ball, zone organizers say things would have gone differently.

Upshaw has been director of the Empowerment Zone since July 2007, although he has worked for the group since April 2001 in a number of roles. Officials with the zone retain a soft bitterness that the group has survived, rather than thrived, in part because of what has been described as a lack of proper funding.

That's because second-round zones, including the one here, received far less than first-round counterparts in places such as Chicago, Atlanta and New York City. Businesses in those areas were able to capture only limited tax breaks, but the major grab was the $100 million apiece in social service block grants from the Department of Health and Human Services in 1994.

Under the program's second round administered by the Department of Housing and Urban Development, zone organizers describe having to appeal to Congress each year amid a shifting political climate. Republicans wrestled control of Congress away from Democrats in the mid-1990s and interest in the program waned as concerns grew about whether Empowerment Zones were a wise investment.

Once that funding dried up, so did some of the local partnerships with community and business development groups, Upshaw said.

Where did the money go?

For every dollar of federal funds the Gary-East Chicago-Hammond Empowerment Zone has received, it has been able to generate $3.52 from public, private or charitable sources, according to analysis of reports the zone sent to HUD.

That figure soars to more than $31 for every dollar invested when indirect investments by businesses, federal and local grants, and income reinvested from Empowerment Zone operations are included. The second figure is significantly higher because of large municipal finance packages for projects such as ArcelorMittal's predecessor building a new steel galvanizing facility in East Chicago and U.S. Gypsum modernizing operations at its East Chicago plant.

But economic development goals have been difficult to reach especially in valuing loans to help entrepreneurs expand their businesses. Fewer than half the businesses that received low-interest loans from the zone still are active, and about $2.7 million in low-interest loans is delinquent or tied up in bankruptcy or other legal proceedings.

Ed Glover, co-chairman of the Empowerment Zone's advisory council and executive director of an East Chicago-based nonprofit housing developer, said he has no regrets. He said the dollars provided to businesses -- even if they failed -- were worthwhile risks because other financial institutions wouldn't have touched those projects.

Even if the federal government isn't on the hook for any more money, he said the "social development" projects provided value to residents who used them.

"It actually enhanced the level of economics in the Empowerment Zone," said Glover, who has been affiliated with the zone since its formation.

Missing the mark

The start of the past decade brought enthusiasm to Empowerment Zone operations. There was a marketing push, letters sent to businesses about tax credits and genuine excitement about what could be done, according to current Empowerment Zone officials.

Lakeshore Chamber of Commerce Executive Director Dave Ryan likened his early experience with the Empowerment Zone to herding cats. As co-chair of the zone's advisory council, Ryan said it wasn't an easy task to get three mayors from three different cities with different agendas to work together.

Ryan also said the entity fell short of one goal he had. He thought the zone could serve as the economic development engine for East Chicago, Gary and Hammond, but the effort was too politically difficult to achieve.

To this day, each city has at least one department to handle economic development activities in addition to local chambers and other groups.

"We saw this as a regional type of tool," said Ryan, who at the time of the application worked in communications for NIPSCO.

Former Hammond Mayor Duane Dedelow Jr. said the zone's shortcoming was the business community's lack of faith in politicians working together to improve the three cities.

Dedelow was the sole Republican mayor among the three cities in the zone designation. He said the precedent set early in the zone's history laid the foundation for mayors to work together on other coordinated regional efforts.

His fear is that progress made years ago has been erased.

The funding split of Gary receiving 70 percent of the federal dollars also rankled some leaders in the two other cities. Dedelow defended the distribution, even though his city received the smallest funding share, because he said Gary had the greatest need.

Former Gary Mayor Scott King said the zone's concept was a tough sell to members of the business community in his tenure as executive of the Steel City. King said he wasn't sure of the reasons, but some developers and project managers had trouble getting private financing even if officials were convinced of the public benefit.

"It was incredibly difficult to get a consortium of lenders to get private capital to finance that side of the equation," King said.

Businesses weren't completely absent from funding zone projects. A consortium of banks, charitable groups and other businesses contributed $193,500 to Habitat for Humanity to acquire structures or lots for development in 2000 and 2001. Through the effort, 10 youths received pre-apprenticeship training.

According to Empowerment Zone records, seven of 10 – one short of the goal – resident trainees were placed in jobs.

A checkered history of being involved in stalled or failed projects also worked to smear the reputation of a group attempting to improve fortunes for those in communities hungry for investment.

Of a $58 million pledge largely from local financial institutions to support a revolving loan fund, Upshaw said only one $6.3 million loan was made. The intent was for 45 businesses to receive funds to create 300 jobs. About 110 jobs were created with the loan to develop the County Market plaza in Gary. Upshaw said the bankers withdrew their support over time because the development was a financial failure early on.

Former zone Executive Director Venus Cobb joined the organization in 2001, but left the post amid controversy in 2007. According to Times reports, Cobb bought a home from the Gary Urban Enterprise Association in 2002 for $57,000 after the entity spent more than $190,000 fixing it up. The GUEA received more than $3 million in loans to rehabilitate buildings in the Empowerment Zone in addition to other funds the group received. 

GUEA was a nonprofit designated to oversee commercial, industrial and residential development within the city's Emerson neighborhood, among the city's poorest. But the organization became engulfed in scandal, and nine people associated with GUEA eventually were criminally prosecuted and convicted.

Cobb, who was never charged with a crime in connection with the matter, told The Times in 2007 there was no connection between the loan from her organization to GUEA and the home she bought from the GUEA.

Cobb could not be reached for comment for this story.

King said the problem for the Empowerment Zone was that even if her actions weren't illegal, the perception of impropriety helped undermine the group's credibility.

Ryan, of the Empowerment Zone advisory board, defended Cobb and said she served the organization well during her tenure as its leader.

A mixed grade

At least a third – including Northwest Indiana's – of the 15 urban areas in the second round of Empowerment Zone designations have sent reports to HUD indicating their operations are continuing in some form. HUD couldn't officially confirm how many zones still are in operation.

Washington-based HUD spokesman Brian Sullivan said any remaining funds once part of the nearly $26 million the zones received had to be obligated by July 2010. He said since the federal designation has expired, it's up to each consortium to determine whether they want to continue operating. But without further funding, the zones "become another federal unfunded mandate in history," he said.

The federal government has spent an estimated $1.8 billion in grants for empowerment zones and enterprise communities since 1993, according to a Congressional Research Service report released in February.

But a Government Accountability Office report in 2004 found the economic impact of empowerment zones was hard to determine because of the limited amount of information HUD collected. Companies could receive a federal tax credit for employing workers within areas such as the Gary-East Chicago-Hammond Empowerment Zone, but only had to file information with the Internal Revenue Service when filing their federal tax returns. 

"I think it would've been wonderful that in order to get credit, an Empowerment Zone person had to sign off on it, and we could've better tracked it locally or nationally," said Upshaw, leader of the local Empowerment Zone. 

In a statement sent via email, ArcelorMittal spokeswoman Katie Patterson said the company viewed the region's Empowerment Zone as a "benefit to businesses in the region."

"We employ more than 10,000 people in Northwest Indiana and have been involved with the Empowerment Zone during the past 10 years," Patterson said.

No comment was provided on what extent the company benefited from the credits.

Times reports show Jupiter Aluminum in Hammond benefited from a $35 million industrial revenue bond approved by the Hammond City Council in 2008. The company was able to tap into the funding source because of its location within the Empowerment Zone.

HUD officials even acknowledge it is difficult to judge whether the program was a boon or bust.

"From an absolute sense, how many jobs did they report? You can compare that in an absolute way with others of a like size ... and then draw your own conclusions. ... Even then it may not even be fair," said Sullivan, the Washington-based HUD spokesman.  

One program critic was Indiana Gov. Mitch Daniels, who was director of the Office of Management and Budget during President George W. Bush's administration.

Testimony from a U.S. House subcommittee hearing in 2002 describes a letter Daniels wrote chiding the efforts of the empowerment zones to get more federal funding. He said in a letter to former U.S. Rep. Ted Strickland, D-Ohio, that the zones have been slow to spend funds from the government, and the administration believed tax credits are the driving force behind the programs. With the existing tax credits, he wrote, additional grant funding wouldn't enhance the zones' effectiveness.

An independent analysis of the first round of empowerment zones found benefits from the program.

Research released in 2007 found that the combination of tax credits and grants improved labor and housing market conditions in the zone cities compared to those areas whose applications were rejected. A Gary-led group filed an unsuccessful application in the first empowerment zone round.

The research paper, by Matias Busso and Patrick Kline, said the program "represent(ed) a nexus between social welfare policy and economic development efforts."

Kline, now an assistant professor at University of California at Berkeley, said it's difficult to judge the success of the second wave of empowerment zones, because the comparable data from the 2010 U.S. census and the American Community Survey isn't available.

Final assessment positive

Timothy Bartik, senior economist with the W.E. Upjohn Institute for Employment Research, said $100 million, or even $25.6 million, may seem like a lot of money, but the data show outcomes are better for people than if nothing was done.

"If you're trying to solve the problems (and) do something for those areas, it's going to cost a significant amount of money even if the dollars per person generated are pretty good," Bartik said.

Local officials describe the Empowerment Zone as a force of good in communities.

U.S. Rep. Pete Visclosky, D-Ind., was one of the legislators who saw the political landscape and opinions about empowerment zones change in Washington. He said the second round of empowerment zones should have gotten more money but said he was pleased with the work the group was able to accomplish.

"The empowerment zone programs were intended to empower designated communities to create sustainable long-term economic development through the partnership of public, private and nonprofit groups and with the input of the community's residents," Visclosky said in a statement.

Former Gary Mayor King said the designation helped the city land a separate federal grant to tear down a housing project in the Miller section and construct a building containing low-income and market-rate apartment units.

Gary Mayor Rudy Clay said in a statement the zone has provided "tremendous value" through its economic development efforts and support of the Gary Job Resource Center and its management of the Gary Office of Film & Television.

"I have no qualms," Upshaw said. "Have we done everything right? No, and I (doubt) any entity has done everything right. Have we done some things I'm very proud of? Yes we have. Have I done some things I've regretting doing? Yeah, a couple.

"Everything we've done was because it would have a legitimate effect on the community, and we've done some really good things."

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