Carter Years
The Carter economic backdrop included inflation (stagflation), leading to a 1980 21.5% prime rate triggered by 1973 and 1979 oil/energy crises. The Second War between the States moved “off-Broadway” by then and “deindustrialization” was called reindustrialization. FIRE sectors and technology were the new gazelles. Before Carter was elected, a Democratic Congress overturned Ford’s CETA veto, extending the Nixonian workforce block grant, embracing the spirit of Nixonian Thermidor.
Democrats held super-majorities in both branches after 1976–with fewer Southerners in committee chairs, and (1977) Boston’s Tip O’Neil Speaker. Carter’s election meant Democrats controlled three branches of the federal government; they would not do so again until 1993.Carter, however, did not overturn Nixon’s Thermidor; no new block grants, but the old ones were constantly tweaked, formulas readjusted, sections added. Between 1975 and 1980, 92 new categorical programs were created, bringing the total to a record 534 (Conlan, 1998, p. 94).
CDBG: In 1977, the Departments of Education and Energy were approved. Extension of the CDBG (1977) tilted block grant formulas from the Sunbelt to Northeastern/Midwestern central cities. New sections attacked red-lining, and CRA Title 9 provided some muscle to activists interested in reversing disinvestment in central city neighborhoods. In 1978 Carter proposed neighborhood level initiatives, including an Urban Volunteer Corps, a Community Development Credit Union, several crime prevention programs and a HUD Neighborhood Self-Development Program. They were not approved.
UDAG: On the whole, UDAG was more Congress’s doing, than Carter’s; it gave new life and direction to central city redevelopment (Nathan, 1980). Administered by HUD, it either conflicted with, or supplemented, EDA’s Title IX and was considered a public/private partnership to revitalize “distressed cities”. UDAG provided critical funds to besieged mayors coping with central city decline. Only twenty-eight per cent of pre-1980 UDAGs (there were 241 by then) went to the Sunbelt. $1.4 billion went to industrial projects, a little less went to office, $300 million went to hotels and less than $300 million to residential projects–in large central cities (Mollenkopf, 1983, p. 279). UDAG ended in 1986.
The Earmark: Pork has a long tradition in Congress; but the “earmark” is a special kind of pork that became so commonplace today earmark and pork are synonymous. Earmark is a specific allocation for a specific project of some description which, by itself, would almost certainly not be approved, but when placed innocently in an unrelated larger bill, along with other earmarks, creates a critical mass for which any number of legislators will vote. The earmark is so designed that lobby firms secure annual retainers for delivery of additional earmarks. (Kaiser, 2009, pp. 69-81) The first legislative earmarks for Georgetown and Tufts Universities was approved in 1976-1977. Over the next several decades will be used more each year, by any number of jurisdictions to achieve all manner of projects, many legitimate economic development initiatives.
White House Conference and SBDCs: In 1978 Carter attempted a major reorganization of ED federal agencies/programs. His legislation would have combined EDA, HUD, SBA with a National Development Bank and other programs in Commerce and Agriculture. It passed both houses but died in conference–testimony to choppy politics. Carter himself repudiated many of its recommendations during the reelection campaign. The National Development Bank, a proposal from Carter’s Urban and Regional Policy Group, intended to make/guarantee loans/grants to depressed urban/rural areas for ED was not well-defined, and less well-received by Congress. See Mohl Urban Policy pp22-23******
Carter’s National Agenda for the Eighties got lost in his reelection campaign. The Agenda attempted to reconcile tensions caused by Sunbelt-Snowbelt conflicts. The Agenda recognized the now-chronic manufacturing plant closings, downsizings and job losses that had prompted the “reindustrialization” debate of the Seventies. Recommendations included relocation of unemployed to areas where jobs were more plentiful. More successful was Carter’s 1980 White House Conference on Small Business which prompted Congress to establish a nation-wide system of Small Business Development Centers as clearinghouses for one-on-one small/startup counseling and business plan formulation. Usually linked with a university or college, these SBDCs steadily grew in number/capacity in the following decades. Also Bayh-Dole reform of patents was approved in 1980.
Foreign Trade Zone: A number of important changes were made to the FTZ. FTZ first established in 1934 (anti Smoot-Hawley tariffs) was administered by the Bureau of Customs. FTZ was a demarcated-area zone (creating a tax-free “island”) that facilitated import-export activities by foreign and domestic firms. In early practice, FTZ amounted to a-little-used tax-free storage of imported goods. In 1970 there were only eight FTZ and 3 sub-zones in operation. The key obstacle to increased usage was the 1934 Act which discouraged manufacturing within the zone (inverted tariffs). Under pressure from its user-trade association (NAFTZ), the FTZ Board in 1980 permitted value-added manufacturing within the zone/sub-zone to be tax free and effectively dismantled the island zone concept. In 1980 approximately 50 zones were in operation; by 1986 there were 150; by 1990 177, and in 2007 approximately 260 zones and 400 sub-zones in operation.
CERCLA-Superfund-Brownfields: In 1980, CERCLA-Superfund legislation was approved by Congress. CERCLA included the Superfund remediation program, but also authorized funds, regulatory procedures and clean up/liability standards appropriate to private and local brownfield remediation as well. Each state enacted its own “voluntary clean-up program” (VCP). The design of the EPA brownfield initiative (as opposed to superfund) was based on cooperation, consensus, and self-interest determined by voluntary agreements funded by grants and tax credits and the explicit acknowledgment of the leading role of state/local officials in cleanup efforts (Hula, 1999). By the end of the 1990’s most states had enacted such programs. State variation in brownfields programs was huge.
Variations included: eligibility, whether project was voluntary or compulsory, extent and form of liability release, process for approvals, who issued approvals, third party liability relief, support available to participants, degree of flexibility in clean-up standards, and reopener clauses. Participants who had actually created the site (PRPs) could be treated quite differently from state to state. Some states were so strict, the intent seemed more to punish polluters than remediate sites. Other states provided support and incentives to PRPs. Michigan, for instance, empowered-authorized localities to create a “Brownfields Redevelopment Agency” (a Quasi EDO) with key powers, liability relief and access to relevant state programs and support. Others states dragged PRPs to court. The issue was the inherent complexity underlying brownfields remediation: its legal nature, its required compliance with established chemical formulas, and the inability to provide any involved party, including banks and other potential funders, long term security (“reopeners”)–all rendered brownfields remediation an immensely complicated, fragile, and time consuming affair.
Reagan Devolution
In a three way race (John Anderson and Jimmy Carter) Reagan-Bush won a landslide (winning 44 states). The 1984 election was even worse from the Democratic perspective–49 states went for Reagan-Bush. Not even Massachusetts voted for Mondale-only his home state Minnesota. Dukakis-Bentsen did better in 1988, winning 10 states, but Bush-Quayle squeaked by with the other 40. All in all, 1981-1993 was the longest period since 1920 when Privatist Presidents governed. Yet Reagan-Bush years were an era of divided government. They were, however, years of increasing disunity within the Democratic Party. The formerly solid Democratic South shifted Republican. Democrats retained control of the House, but the Senate went Republican for the first time since 1953. This pattern repeated itself in 1984 and 1986, but Democrats regained control of both Houses in 1988.
Reagan’s administration never formed a formal urban or sub-state ED approach. Reagan intended, and to a certain extent succeeded, in pulling the federal government from sub-state policy areas and ending Great Society direct city-federal relationships. Sub-state jurisdictions were the states’ responsibility, forcing States, willing or not, to assume a greater role. Its key concept was “devolution” whose spirit was expressed in his first inaugural address:
It is time to check and reverse the growth of government which shows signs of having grown beyond the consent of the governed. It is my intention to curb the size and influence of the Federal establishment and to demand recognition of the distinction between the powers granted to the Federal government and those reserved to the states or to the people[i].
To accomplish this promise, Reagan set forth a sweeping agenda of budget reductions, tax cuts, personnel freezes, block grants and deregulation initiatives. Remarkably successful in his first two years, he found the going got tougher after:
Federal income tax rates were cut 25 percent and business taxes were reduced an additional $50 billion; federal spending for domestic programs was reduced by $35.2 billion with savings over subsequent years totaling over $130 billion; nine new block grants were established, consolidating seventy-seven programs and sixty-two additional programs were terminated (Conlan, 1998, p. 96)
Reagan’s devolution disrupted urban ED greatly. Gone was revenue sharing ($1.8 billion), job training and public service jobs were cut by 69%, CDBG halved (54%), urban mass transit reduced by 25%, and UDAG by 41%. In 1980 federal dollars constituted 22% of Big City (over 300,000) budgets—by 1989 it was 6%. State governments didn’t pick up the slack; their percentage was 16% in 1980 and the same in 1989. (Dreier, 2002, pp. 126-7) The residue of OEO (War on Poverty) was converted to the community services block grant and transferred to the Department of Health and Human Services (1981)—by 1985 its funding had been reduced by $1 billion. Between 1981 and 1992 federal aid to cities was cut by 60% (Domhoff, 2013, p. 246). Public housing programs and Section 8 were cut, at one point, by 80%. Two private sector-dominated task forces (President’s Commission on Housing and National Urban Policy Report) issued reports in 1982 clearly detailing the Reagan approach to sub-state ED/CD—wherever possible it should be left to the “free and deregulated” private sector.
EDZ: Although Robert Kennedy in 1968 initiated legislation roughly similar to the 1981-Kemp-Garcia enterprise zone, the idea originated from the United Kingdom. Ironically, this most Privatist of ED programs was initially proposed by social democrat Peter Hall in a 1977 Royal Town Planning Institute conference. Hall called a Hong Kong-style Freeport (sort of an American FTZ) for distressed British urban areas`. Picked up by Sir Geoffrey Howe, a highly placed Conservative MP, given the label “enterprise zone”, Howe retained tax abatements, reduced planning approvals and included wage/price exemptions. The concept was to reduce taxes and regulation in clearly-defined distressed geographic areas hopefully resulting in a private investment surge and, yes, innovation. Enterprise zones assume micro-economic cost reductions will triumph over geographic and demographic constraints.
Embraced by the Heritage Foundation’s Stuart Butler[ii], Butler reshaped the zone to address housing reform and neighborhood revitalization rather than British-style job creation through startups. This change attracted Congressman Jack Kemp and Bronx Democrat Robert Garcia. In June 1980 (Carter years) Kemp and Garcia introduced Kemp-Garcia Urban Jobs and Enterprise Zone Act (Benjamin, 1980). The Act blended business job creation with people-based housing/neighborhood redevelopment; the federal role included significant federal tax abatement and depreciation allowances. Reagan did not back the 1981 Kemp-Garcia. Instead, in 1982, Reagan supply-siders returned the concept to its original job creation economic development Privatist roots. For Reagan:
The urban enterprise zones concept was pure supply-side economics… identify and remove government barriers to entrepreneurs who can create jobs and economic growth. It will spark the latent talents and abilities already in existence in our most depressed areas. Both public subsidies and the easing of environmental and zoning restrictions were important components of the enterprise zones proposal… few zones were proposed (75) (Judd, 1984, p. 361)
The bill’s reliance on startups and hiring low-income zone residents was inspired by David Birch’s, the Job Generation Process (Birch, 1979). Perhaps surprisingly, the EDZ bill generated bipartisan support, particularly from the Black Caucus and a number of ED professional associations (NASDA and, to a lesser degree, CUED). Reagan’s bill, however, was regarded by Progressives as ineffective, resting as it did on tax abatements to firms (Butler, 1982). Abatements were believed unlikely to motivate a firm’s location decision. The bill would simply reshuffle firms from one site to another. Other concerns were the EDZ’s reliance on tax credits (useful only for profitable firms). Quality of jobs was questioned, as was whether jobs would flow to zone residents or outsiders. Committee chair, Dan Rostenkowski bottled up the bill; he did not uncork the legislation until 1993. EDZ was never approved in the 1980’s.
IDB: IDBs were easy targets for Reagan reform legislation. The 1968 Revenue and Expenditure Control Act had sharply limited IDB issuances and eligibility by establishing two IDB “types”: exempt and small issues. Small issue IDBs declined dramatically during the seventies. “Reforms” were approved in 1982 (TEFRA) and 1984 Deficit Reduction Act (DEFRA) climaxing with the 1986 Tax Reform Act. Each Act regulated (and limited) IDB issuance—and restricted eligibility to small manufacturers and nonprofits. IDB restrictions were primarily intended to enhance revenues. “Tax exempt bonds were under constant attack throughout the 1980’s as an inefficient subsidy and unacceptably large drain on federal revenues. The revenue loss totaled $20.4 billion in 1983”. (Conlan, 1998, pp. 137-8)
JTPA: The 1982 Job Training Partnership Act (JTPA) replaced the Nixonian CETA block grant. JTPA was a bipartisan effort reform intended to fix an unloved CETA.
Although CETA provided jobs for more than a million unemployed persons and work experience for thousands more, by 1978 the program had become for many a ‘dirty four letter word’. Stories of corruption and mismanagement–directed mainly at CETA’s public employee titles–undermined support for the entire legislation. Moreover careful evaluations of CETA training programs often failed to detect substantial improvements in the future earnings of trainees (Conlan, 1998, p. 166).
Congress had attempted reform since 1978; several Democratic/Republican reform bills were under review in 1981-82. A 1982 compromise bill, sponsored by Senators Quayle and Kennedy, formed the nucleus for JTPA.
The bill reduced trainee benefits and subsidies, expanded state/local roles, intensified participation of business, and capped state administrative/support expenses by requiring 78% of the state appropriation be transferred to the locals. The CETA system of local “prime sponsors” was terminated and units of local government with populations greater than 200,000 were designated as “service delivery areas” (SDA), each administered by a “private industry council” (PIC) responsible for a locally approved plan and fund allocation–subject to approval by its chief local elected official (CLEO). JTPA decentralization and augmented private sector input did change the process. The role of the states remained meaningful. The delivery system, while different from CETA, was not a radical departure and the inclusion of the CLEO augmented political and partisan dynamics into local administration of the federal workforce program[iii]. Cynically, JTPA was a work in progress in many respects, but remained the cornerstone of the nation’s job training and youth employment approach.
SBA: In 1981, SBA launched its now well-respected, “504 Certified Development Program”. The 504 Program, closely mirroring the earlier SBIC organizational structure, was “fixed asset” financing (real estate, machinery, inventories). Like SBIC, the 504 Program was administered through a SBA licensed, nation-wide network of private, usually nonprofit entities that packaged, issued and serviced the SBA loan/lien. The loan structure was, similar to SBIC, involved multiple participants (owner-10%, bank lender (at least 50%), and proceeds from the SBA-issued debenture (up to 40%). Thus the 504 program was designed to partner with banking institutions to offer conventional-like financing to businesses unable to meet bank standards. Retail, companies experiencing recent growth, or counter-business cycle pressures found the 504 to be especially useful. Rural areas also benefited from financing made available by regional, multicounty certified development corporations. By the first decade of the 21st century, the 504 Program had licensed nearly 300 Certified Development Companies; 70,000+ loans, totaling more than $28 billion had been closed, and a small, but vibrant, secondary market had evolved. A professional association, NADCO, founded in 1981, represents nearly all the licensed CDCs and provides lobby support for the program and technical expertise.
Ignoring conservative screams, Reagan in 1982 signed the Small Business Innovation Research Act (SBIR)[iv]. SBIR facilitates small business startups and commercialization of new technologies, processes and innovation. SBA serves as the coordinator, overseer, reporting agency, and contract point for several federal agencies[v]. Annually a (presently) 2.5% set aside from federal R&D appropriations funds SBIR grants to eligible firms that compete in annual application cycles. Each department technically oversees approved grants/projects. SBIR is a three phase program: Phase I (based on technical merit, feasibility and commercial potential); Phase II (up to two year development of Phase I projects); Phase III leads to commercialization, and is funded by individual Departments. Through FY 2009, SBIR funded 112500 awards dispersing nearly $27 billion, assisting 15,000 companies, 50000 patents, and involved approximately 400000 scientists and engineers (Rosenbloom, 2007).
CDBG Small Cities: Reagan consolidated 54 categorical grants modifying or creating nine block grants including CDBG and the Community Services Block Grant. CDBG was modified to create a “small cities” (under 50,000) program to third/fourth tier cities. The small cities program was decentralized to states who set priorities, application process and approved allocation. Small cities probably fared well, better than larger “entitlement cities’ whose share declined, about 5%.
PTAP: The1985 Procurement Technical Assistance Program (PTAP) administered by the Defense Logistics Agency assists companies to obtain contracts with federal, state and even local governments. Funded in a cooperative agreement with the Department of Defense, a nation-wide, state-based, network of Centers for free or low cost, provide information, support and training to companies desiring to bid, register and secure governmental contracts. The centers are usually nonprofit, EDOs, Tribal, university-based or governmental–depending on the state.
UDAG: Reagan had consistently opposed or defunded UDAG—he also annually defunded EDA—but Congress put it back in, at lesser amounts. To attract more support for UDAG, Congress prodded HUD to broaden eligibility to include more localities. Some states (New York and its UDC subsidiary for example) copied the UDAG program. Congress did not fund UDAG in 1988 (Reed, 1993) and it went gentle into the cold, dark night. Direct federal financial involvement in urban renewal ended.
Manufacturing Extension Partnership:
Throughout the 1980’s it seemed American manufacturing was having its lunch eaten by the Japanese and Europeans. American industry was losing its competitiveness—even in its gazelle-like technology (electronic) sectors. American goods were perceived as inferior quality, and management closed and stagnant, resistant to new processes and innovations. How we made goods, “managed workers” and innovation seemed in need of rethinking. In this atmosphere, the Hollings (from its sponsor Senator Hollings, South Carolina) Manufacturing Extension Program (MEP)—committed to providing customized, shared cost services in partnership with small/medium-sized manufacturing firms and enhancing technological competitiveness was launched. An obscure section of the 1988 Omnibus Trade and Competitiveness Act authorized the founding of manufacturing extension centers and services, (eventually in 1994) run out of National Institute of Standards and Technology (NIST).
Initially, MEP focused on technology-transfer of technologies developed in federal laboratories. A substantial refocus of services to meet client needs and demands over the first decade followed (Sargent Jr., 1915) Quality control, productivity innovations, integrating Japanese-proven techniques (Sigma 6, lean manufacturing) and process innovations (ISO 9000 started in 1987) were its chief foci. In later years it expanded into technology and startup initiatives (Masterman, 2009). In these first years, centers were initially set up in South Carolina, Ohio and New York; by 1994 44 centers existed—today MEP is found in all fifty states.
Impact of Reagan/federal government on Sub-state ED/CD
Two sets of comments need to be made: those concerning the Reagan Years and those concerning the role of the federal government in state/sub-state ED/CD. Said and done, Reaganism pulled the federal government back, not out, of sub-state economic development. Ideology and philosophy aside, the impact was primarily fiscal. Federal cash flow to cities/ED/CD was severely cut. Cutbacks stressed economic development to help “pay the bills” and intensified ED politicization. CD had a bit of the rug pulled away—the price of dependency on the feds. Mostly, states and cities did not replace federal funding with own-source revenues. That is particularly true of CETA public service employment programs—which were zeroed out. Some commentators (Kleinberg, 1995) asserted the more hidden impact was to preference Sunbelt growth cities—perhaps–but it is not at all evident what the proper role of the federal government should be regarding regions and regional change. If national ED/CD preferences are also a public policy, than elections and policy-making determine who gets what.
The more interesting observation is how much was left intact of federal involvement in state/sub-state. Certainly the vehicle (block grants) differed from the categorical direct linkage of the Great Society, but federal involvement in the strategy/program persisted. Categorical grants, however, continued in surprisingly high numbers—mostly due to a Democrat Congress expressing itself programmatically. A variety of new ED-related initiatives started during these years (CERCLA, Manufacturing Extension Program, Bayh-Dole legislation, FTZ, block grant formula changes and more). A little noticed example of a Public Works bill, passed by Congress in 1987, subsequently vetoed by Reagan, overturned by Congress, provided federal support for likely the largest local infrastructure/highway project in the nation’s history: Boston’s Big Dig. This seriously challenges the prevailing wisdom Reagan Years were years of an unremitting “No”. Whatever Reagan intended, the federal government emerged from these years as an active player in state and local ED/CD—maintaining a strong and durable presence in key strategies such as workforce, employment assistance, export, small business and CD. An aggressive federal government involved in sub-sate ED/CD continues as a fault line between our Two Ships.
[i] Ronald Reagan, “First Inaugural Address” in Congressional Quarterly Almanac, 1981 (Washington DC, Congressional Quarterly 1982) pp. 11-e–12-e
[ii] Butler, from Britain, was executive director of London’s Adam Smith Institute in London. He embraced the EZ in 1979, and, after visiting the South Bronx, linked the enterprise zone to housing reform. His book, The Enterprise Zone: Greenlining the Inner Cities (1981) caught Kemp’s attention.
[iii] For an early review of 1983-1990 JTPA “An Assessment of the JTPA Role in State and Local Coordination Activities“, U.S. Department of Labor, Research and Evaluation Report Series 91-D, 1991.
[iv] A similar program had been started by NSF in 1977
[v] Departments of Agriculture, Commerce (NIST and National Oceanic and Atmospheric Administration), Defense, Education, Energy, Health and Human Services, Homeland Security, Transportation, EPA, NASA, and NSF,
Ron W. Coan 