THE WHITE HOUSE
Office of the Press Secretary
PRESS BRIEFING
BY OMB DIRECTOR FRANKLIN RAINES
AND MOZELLE THOMPSON, DEPUTY ASSISTANT SECRETARY FOR
GOVERNMENT FINANCIAL POLICY AT TREASURY
AND ELLEN SEIDMAN, SPECIAL ASSISTANT TO THE PRESIDENT
FOR ECONOMIC POLICY
The Briefing Room
5:05 P.M. EST
MR. HAAS: Hi, everyone. We just wanted to make some of our lead officials available to answer your questions. Frank Raines is here, the Director of OMB, Chair of the President's Task Force on D.C., who is spearheading this overall effort. Mozelle Thompson, Principal Deputy Assistant Secretary of the Treasury is here, and Ellen Simon is also here. She's Special Assistant to the President for Economic Policy, a member of the NEC and played a big role in the development of this plan, and we've got Ed De Seve from OMB, the Controller, who also has continued to be instrumental.
We are off-camera, are we not off-camera. Okay, fine. We're just on lights. We don't have any opening statement, so I'm just going to open it up for you for Frank and Mozelle and anyone else.
Q What was the President -- he talked kind of in general terms about helping D.C., but you did have a very specific program you laid out. Is that his speech, to introduce this program? And where is your program in Congress at this point?
DIRECTOR RAINES: Well, the President's plan that related to the city government's finances is doing quite well. We are in the process of agreeing on a memorandum of understanding with the local parties. There's been one hearing on it in the House, and there is an expectation that we're going to be moving forward in the legislative process quite rapidly.
I still hope to have a bill out of the House this spring and to have that bill enacted by Congress this year. So we are on path with the regard to the President's overall plan. Today, what we are talking about is that part of the plan that relates to the private sector, not the government of the District of Columbia, but the private sector of the District of Columbia, and what the President has done is propose a series of incentives for $300 million, available over the next five years, to help build the private economy in the city.
Q Mr. Raines, one of the concerns we all are hearing is that you can create additional jobs, 5,000 more at the Navy Yard. But if those persons choose to live in the suburbs, the city gets no tax benefit except incidental taxes from sales and those kinds of taxes, but their income taxes will still be taxed by Richmond and Annapolis, and you won't help the city economically if those states get the tax money. How will you address that? You have it for the lower-level jobs, income jobs, but not for middle-class jobs.
DIRECTOR RAINES: Well, the President's plan is premised on incentives for activity in the District, the jobs credits are for people who live in the District. And, therefore, in order to qualify for the credit, you must live in the District. And that will go up to jobs paying as much as $28,000. And so that is an incentive that will create jobs in the city as well as tax revenue.
With regard to the businesses, the businesses have to be in the city. And the businesses that are going to be taking advantage of the investment credits or that will benefit from the private activity bonds or other activities of the Economic Development Corporation will be taxpaying entities in the city, so that the plan that the President announced today is heavily focused on activity in the city that will be taxable. The President then went beyond that to say in addition to this effort and in addition to the efforts in helping the city balance its books, the government was doing all we can to maintain economic activity in addition to that.
Q If I could just follow up on the business aspect of it, the business creates or expands to an extra jobs, and 75 percent of those people live in the suburbs, the business pays taxes in the city, but those 75 percent would still pay taxes to the suburban states, is that correct?
DIRECTOR RAINES: They will continue to pay personal taxes where their personal taxes are levied under the various codes. But I don't think there's any denying that 100 new jobs in the city or 5,000 new jobs in the city are all going to be helping to renew the economics of the city, that this city needs to have that kind of economic momentum to encourage other investment. The city saw that momentum in the 1980s and we need to revive it in the 1990s.
Q You give a $2 million cost on the private activity bonds over five years. How does that translate into volume? How many millions of bonds would that be?
DEPUTY ASSISTANT SECRETARY THOMPSON: It depends. It's really hard to say at this point. One of the questions, it's primarily private activity bonds are geared to project-based financing. We're looking at this to be able to provide fairly substantial leverage in order to be geared to individual projects, but it's very difficult to say right now until those projects actually come in.
Q So you're not sure then?
DEPUTY ASSISTANT SECRETARY THOMPSON: It's hard to say. What do you think, Ed, when you start talking about $2 million -- cost. It's very difficult to say.
DIRECTOR RAINES: We'll let Treasury answer this one. We don't want to guess.
DEPUTY ASSISTANT SECRETARY THOMPSON: It's very difficult to say.
Q Is it safe to say under $100 million private activity bonds?
DEPUTY ASSISTANT SECRETARY THOMPSON: I would say at the outset, yes. I would say that that's a safe level.
Q Can you guys walk through the technical explanation for the difference between what your scoring costs would be and what the value of the incentives is? Like $250 million versus $235 million -- what's the difference?
DIRECTOR RAINES: Most of that difference is simply that you can sign up for a credit during the five-year period, but that the actual use of the credit might move over into the sixth or seventh year and we do five-year estimates. So the commitment level will be at the full $300 million that we talked about, but some of the costs will fall outside the five-year period. So -- and also, we assume that some people will sign up for projects and some projects won't happen, and so you'll have some lapse during the time period.
Q Do you consider all of these permanent, or do they trigger off?
DIRECTOR RAINES: These are all permanent --
DEPUTY ASSISTANT SECRETARY THOMPSON: That's right.
DIRECTOR RAINES: Permanent changes.
DEPUTY ASSISTANT SECRETARY THOMPSON: That's right. And the important thing is, the EDC is there for 10 years, that it's going to be continuing its activity. What's important here is this thing was created to provide a structure for focused consideration of economic development issues in the District -- something that it really had to have before. So it's really an opportunity for the private sector and the public sector to blend together to focus on these precise question -- how do you develop the District economy.
Q Just a couple of questions. One, the President, in the tax side of his budget proposal, had a number of proposals to expand the provisions for empowerment zones and to create the financial incentives of the CDFI provisions. Is there anything in here that is different that goes beyond or doesn't go as far as those provisions? And then a second more technical question. In the budget, I believe this was originally scored as $260 million, and now it seems to have gone up $300 million. Is that correct, and if so, what's the difference?
DIRECTOR RAINES: The biggest difference is the capitalization level that we have here, accounts for the biggest difference than what we had before. We wanted to ensure that the jobs credit would also be available in some form to nonprofit organizations since they are such a big part of the local economy, so that we have provided funds to let the Economic Development Corporation mimic that for nonprofits who don't pay taxes, and they could have that same incentive.
But with regard to comparisons to empowerment zones, it's a little difficult. What we tried to do is to take the best features that we thought would work the best in the District and tune them to have the maximum impact in the District. So we drew from the same menu, but there isn't an exact walk between one and the other. This is really a unique combination of things that's designed for the District.
Q How are these 5,000 Navy Yard jobs coming about?
DIRECTOR RAINES: The Navy is consolidating its facilities as part of the defense downsizing, and they're closing facilities in a variety of places and then moving jobs around. What this means is that the Navy is moving 5,000 jobs into the city from outside.
Q And then, for the other part of the President's plan, is he going to have another statement when this other thing gets going we've been hearing so much about in terms of taking over parts of the D.C. government --
DIRECTOR RAINES: The President's already made statements on that.
Q So there's not going to be anything else? This is it -- that you're planning at this point?
DIRECTOR RAINES: I'm hurt that you don't think that my speaking on this is an adequate substitute for the leader for the free world. (Laughter.)
Q No, it's not that, but there are a number of issues -- there is some disagreement over the federal payment. There's some disagreement in Virginia over whether you're going to build at Lorton. And I guess we were looking for something that was kind of concrete, as saying this is the position of the White House and we don't plan to change it.
DIRECTOR RAINES: I don't think we could be more concrete. You must not have been there when I spent three hours speaking to the community on this.
Q Well, maybe you are just very diplomatic, because I got the impression there was room for maneuver when you spoke to Chairman Davis's committee.
DIRECTOR RAINES: No, our plan is before Congress now. A senior member of Congress has taken it as his top legislative priority to move that bill through. The Speaker of the House has asked him to make it a top priority. Both Houses have agreed with the White House that one of five task forces they would set up on important issues would be on the President's D.C. plan.
If you look at what's going on on the Hill, this is about the biggest legislative action that's actually occurring up there. I don't think there's any lack of activity. This one is actually a real bill, being put together by a real committee, that is intent on passing something. So I think we're in very good shape, and we're quite happy with the bipartisan response the President's plan has gotten. But as in any plan, there will be people who would say, I changed this and I changed that, and that's what the legislative process is all about, and I think Mrs. Norton and Congressman Davis are approaching that in a very logical and good fashion.
Q Regarding the jobs credit, am I correct in interpreting that large corporations like Bell Atlantic would benefit from this similarly. This isn't for new jobs, this is for jobs that are already in place?
DIRECTOR RAINES: No, this is for new hires. New hires of D.C. residents, so that if they hire a D.C. resident, whether they are a large company or a small company, they would be eligible for the credit if the individual met the criteria for the credit. And the major criteria is that they -- is where they live and what their pay level would be.
Q How long do they have to be a D.C. resident? Can I move here next week and get the credit?
DIRECTOR RAINES: As long as you keep living here.
Q And what's the income range?
DIRECTOR RAINES: Up to $28,000.
Q Up to $28,000?
DEPUTY ASSISTANT SECRETARY THOMPSON: Right, and as some indication that this intended to be focused on new jobs, it's a first year credit, so it really is geared toward that new hire -- so to bring in people at the low and moderate income levels who are District residents and with District employers.
Q The seven-member board that is to be chosen -- when will that be chosen? And will the requirement be the same as the Control Board that they all be D.C. residents?
DIRECTOR RAINES: They'll be chosen after the corporation's established, after the legislation is passed. And they will be all D.C. residents.
Q The other question -- the President referred to --what is the organization that is now being privatized and gave $18 million for schools construction -- Connie Lee?
DIRECTOR RAINES: Connie Lee.
Q I have trouble with the acronyms. Now, Sallie Mae is being privatized too, right?
DIRECTOR RAINES: That's right.
Q Now, do they also -- do we have some overflow from their privatization process that can be directed toward D.C.? And if -- why don't they do that? And how much of that is there?
DIRECTOR RAINES: The reason that we had funds from Connie Lee is that we owned stock in Connie Lee -- the Education Department owned stock. And so, when they went private, they had to buy our stock. We don't own any stock in Sallie Mae.
Q And my final question is, is there a model of other cities -- I mean, you are our state for this particular purpose -- is there a model of another state to a city that has done something similar, which is somewhat like -- that we can use? Or is the model -- I don't know if it's considered applicable -- the Pennsylvania Avenue Development Corporation?
DIRECTOR RAINES: No, it is not -- the PADC was very much focused on physical development in one area, in a combination of public and private physical development. This is really an amalgam of ideas that have worked in other places. This is -- we hope will work like the best of the empowerment zones.
Q Cite one place that it has really worked that you use as an example. We could call them --
DIRECTOR RAINES: Well, I think, the President often cites Detroit and the commitments that they've gotten from the private sector behind their --
Q Renaissance City?
DIRECTOR RAINES: Well, it's beyond Renaissance City and -- where they have got a large amount from their private sector. But it also borrows some of the techniques that New York State has had in its Public Development Corporation. This is really -- what we asked the Treasury to do was to look at the best ideas out there and let's see if we can put them all together in a mechanism for the city.
Q You include no individual broad tax relief. Some of the residents have said that that's needed to keep the flight of the middle class from getting larger. Do you intend to provide this sort of relief, and-or do you support that idea?
DIRECTOR RAINES: Well, our position on that has been that we have not yet seen a plan that we think is affordable and that is sufficiently targeted in terms of the benefit to the city. Most of the benefit of the plans that we have seen would go to people like me who live in the city already and would not have my activity influenced by the tax reduction. That causes the cost per benefit to be very high. We believe this plan -- that the cost-benefit ratio is quite good, and we get a lot for the dollars that are being invested.
Q A quick follow-up -- on the targeted jobs tax credit or the D.C. jobs credit, one of the big criticism of this sort of thing is that people say that people get replaced. Eligible low-income workers get a job, whereas people who previously had a job who aren't eligible for the credit get dumped out. Why do you think this will create more jobs for the District of Columbia?
DIRECTOR RAINES: Well, that criticism I haven't actually heard of these credits. The criticism I've heard more is that they've been insufficiently targeted. And this one is quite targeted and building on our past experience.
We think that this will provide a real incentive for employers to hire D.C. residents, whereas today they can be relatively indifferent to the residence of their employee. What we're saying is that for a worker whose making less than $28,000 a year -- and there are a lot of jobs in this city that fit into that category -- that they can get a $4,000 tax credit in that first year. And so, whatever concerns they might have about training or anything else, this credit will go to help offset that cost. So we think it should be a very powerful incentive.
Q The $28,000 would be the ceiling for the moderate income?
DIRECTOR RAINES: That's right.
Q My question is how quickly do you think people might be able to actually see the manifestation of this proposal? If it were approved by Congress in its present form, how long would it take for the economic benefits to be visible in the city?
DIRECTOR RAINES: Well, a lot of that, I think, is going to depend on how we rally the business community. These credits are structured in a way that they could be used quite quickly in that there's not -- once the corporation's up and running, there's not a lot of bureaucracy and things to have to go through. And the only act by the employer is really going to be to make the hiring decision. And it will not be that complicated.
And on the capital credit, it's a very powerful capital credit. What it says is that if the -- if you're making a loan that the corporation is endorsing -- that you can get a tax credit equal to 25 percent of the investment, either equity or a loan. That's a very, very powerful incentive. And I think that the real issue for the corporation is going to be in how it is being sufficiently selective so they don't use up the credit on things that don't produce the biggest bang for the buck. So I think these are very powerful tools that the corporation is going to have that will make an enormous difference.
The $95 million that, I think, that we are estimating for the capital credit is almost $400 million of investment that would be leveraged by it. And for the investor, it's very big.
Q But the corporation is not going to oversee the tax incentives, though. Who's going to oversee that? And how much is that going to cost? I imagine a separate -- who is going to oversee who gets the tax incentives because there --
DIRECTOR RAINES: The job credits?
Q Yes. There are qualifiers, like for certain projects it says certain equipment costs. Who's going to determine which equipment --
DEPUTY ASSISTANT SECRETARY THOMPSON: You're talking about the additional expensing.
Q And the D.C. Capital Credit as well.
DEPUTY ASSISTANT SECRETARY THOMPSON: Well, let's talk about the additional expensing first. The expensing is something that IRS does all the time. So, it would be part of their regular course to look at the expensing and what qualifies depending on their regulations.
As far as the job credits go, that would be similar to how we handled the -- credit or whatever. That's administered right now on an overall basis by the IRS and the folks who work with the tax code.
The D.C. Capital Credit is a little different. The Capital Credit, though, because it's a project based credit and it's going to be competitively administered, that's something that the Economic Development Corporation is going to have to develop guidelines for, and it's going to have to go through individual projects to determine which best suits the needs of the District of Columbia.
Q A larger budget question, I can't let you escape without one. You've been doing a lot of outreach on the idea of a CPI panel. Are you ready to say that you found no consensus on that and the chances of the President endorsing that or the formation of that is probably unlikely?
DIRECTOR RAINES: We really haven't come to a conclusion yet. And our conversations continue even today. And so we don't really have a conclusion yet.
Q Did you find sufficient opposition or concern that you think that you think that in that amount of time in those conversations that you had that it's problematic?
DIRECTOR RAINES: Well, I think the issue from the beginning has been one in which people have been looking for broad-based consensus. And if it were -- if the spot of broad-based consensus were obvious, we could have all gotten there right away. So we have found an array of opinion, and we are now trying to see where do we go based on that array of opinion. But we're still out and talking to people.
Q Are you talking to people about alternatives to a panel?
DIRECTOR RAINES: We have been following up on suggestions from members of Congress that we look at various means of dealing with the inaccuracies or lack of accuracy in the CPI as a measure of cost of living. So we have been testing their ideas and we've been testing other ideas all along, and we're still sorting out what we think we've heard.
Q Do you think this plan will help D.C.'s very dismal credit rating?
DIRECTOR RAINES: Well, if our plan is successful, the combined effect should be very beneficial to the creditworthiness of the city if we can stabilize the city's finances and if we can improve the functioning of its private economy, that should both be positives in the assessment by rating agencies of the creditworthiness of the city.
Q But that would take years to come to fruition, right? You don't see a bond rating change for years.
DIRECTOR RAINES: You know, I was in that business for a long time, and depending on how rapidly the city gets its budget in balance and whether or not we can take advantage of some positive trends that are already occurring, it could be a matter of years, but not forever for --
Q But, realistically, at least five years.
DIRECTOR RAINES: I don't know that that's true. It depends -- one of the reasons for the city to balance its budget this year is to get -- let's get this process moving. And I've seen it happen in cities in less than five years.
Q I was unclear about the President's -- the Navy move. Is it now the policy of the administration that the President is on record, or this administration, to stop agencies who want -- government agencies who want to move out of the District and say, no, I want you to stay in the District of Columbia?
DIRECTOR RAINES: We've had out a policy on that for a while.
Q What is it?
DIRECTOR RAINES: That our preference is that if agencies are moving, that if they can move in the city, it's our preference.
Q But will you actually stop agencies who, like the SEC, wanted to leave -- will you actually stop agencies and say, no, we want you to stay here because we want you to remain --
DIRECTOR RAINES: This is Ellen Seidman, who is a Special Assistant to the President.
SPECIAL ASSISTANT SEIDMAN: Yes, the answer is yes. You notice the SEC is still here. Several Treasury agencies have faced a decision on whether to move and where, and recently they've made the decision to stay. This is always a tricky decision because there are people who would like them to move elsewhere, but it's the policy of this administration that they stay here.
Q Well, can the President actually forbid them from moving, saying, well, we will not --
SPECIAL ASSISTANT SEIDMAN: You know, this is not the President's decision alone to make. There are folks in other places who help make these decisions. It's this President's policy, however, that to the extent he can, these people will stay here.
Q And then I have a question, Mr. Raines, about -- you keep on saying that the Norton tax plan is not affordable. That's sort of a litany -- sort of a mantra, excuse me.
DIRECTOR RAINES: But you keep asking the same question. (Laughter.)
Q Let me be a little more creative. Or maybe I've already asked the question so I beg forgiveness for being repetitive. Will the President veto the tax bill that Norton has proposed, or will he literally pick up the phone and tell Democrats not to vote for it because it is "not affordable"? What is the level of animosity toward this bill?
DIRECTOR RAINES: I don't think you would describe our view as animosity. We have said all along that we are prepared to look at alternative proposals that are complementary to the President's plan, and we'll continue to do so. And if there is a complementary proposal we will support it. If we don't believe it's complementary or affordable, then we won't be able to support it.
Q Would you veto --
DIRECTOR RAINES: We don't make veto threats in the absence of knowing something more about the substance.
Q Can I ask an informational question? Who is the senior Republican who is in charge of shepherding this legislation that you referred to -- nameless senior Republican.
DIRECTOR RAINES: Tom Davis is the chairman of the committee of the relevant committee. He has been quite specific that it is his intent to have legislation this year.
Q When are you going to send the legislation to Congress on the economic stimulus package and on the rest of the D.C. proposal?
DIRECTOR RAINES: We have already been working with the committee on the bill specifications, and it may well be that there will simply be a joint piece of legislation developed as opposed to our sending up our own piece of legislation. But we've been working with them from well before my hearing to help them in their own legislative process.
Q Is that Ways and Means, or is that only the D.C. committee?
DIRECTOR RAINES: It's our anticipation that Chairman Davis's committee will have the primary jurisdiction, and that he and the leadership will work out what, if any other, referrals will need to be made.
THE PRESS: Thank you.
END 5:55 P.M. EST