Bank With an Open Door

The Clinton Administration is pouring nearly $450 million into a nonprofit community development bank intended to stimulate investment and create jobs in Los Angeles’ riot zones and other poor communities. It is old-fashioned liberalism, but with a wise twist of pragmatism.

Vice President Al Gore and Andrew Cuomo, assistant secretary for housing and urban development, delivered the good news Wednesday in the form of grants and loan guarantees. The federal money is aimed at the once-proposed empowerment zone--20 square miles in South-Central Los Angeles, Watts, East Los Angeles and Pacoima, areas that share the problem of high poverty rates.

The new bank won’t have tellers or checking accounts. It will have millions of dollars from the feds and even more from some of the region’s largest commercial banks. This rich public-private partnership will make the majority of its loans to other banks and nonprofit community development organizations, which in turn will make loans to start up or expand businesses, provide technical expertise, buy down interest rates or provide venture capital.

The lending criteria will be more lenient than ordinary, so capital-starved communities like South-Central Los Angeles will have greater access to loans. Historically, redlining and racism on the part of some banks and inexperience and poor credit records on the part of some would-be entrepreneurs have caused not-so-benign neglect of poor black and Latino neighborhoods.

The 1992 civil strife prompted then-Mayor Tom Bradley to create Rebuild L.A., giving it a mandate to rejuvenate the riot zones. RLA deserves credit for wooing some big banks and businesses to areas where many major investors and retailers had once feared to tread. The riot fires also motivated then-President George Bush and Congress to promise an empowerment zone and other aid to Los Angeles. Unfortunately, partisan politics interfered and those promises were never kept.

The Clinton Administration also made promises to cities, but Los Angeles lost out on a coveted empowerment-zone designation. That designation would have meant investments, tax credits and new social spending for poor neighborhoods from Watts to Pacoima. The loss stung, but it resulted in the creation of the economic development bank.

If the best is to come from this hard-won development, Mayor Richard Riordan and the City Council must avoid any hint of political favoritism in how the bank makes loans. Though the city is not dispensing any of the money, the mayor and the council members will name the bank’s board of directors. The bank must be truly independent to take risks, make loans and come up with flexible business decisions to help job-starved communities.

Jobs remain the best antidote to poverty. The Clinton Administration has delivered. Now it’s up to Los Angeles.