Small and medium-sized businesses that invest in the inner city or other distressed areas will be eligible for special grants, low-cost loan guarantees and investment tax credits under an urban policy package the president proposed yesterday.
A National Development Bank, which couldlend a private firm up to 75 percint of its capital need "to locate, expand or remain in economically destressed places," is the centerpiece of the president's program to attract and keep private industry in economically rundown areas.
The bank, in the early stages of urban policy planning, was to be an "urban development" institution, but its scope was widened to include urban and rural distressed areas. The change was made largely to broaden its support in Congress, where tensions are already growing between the basically urban Northeast states and the Sunbelt states of the South and Southwest.
The bank would be run as a semi-in-dependent agency with the Secretaries of the Treasury, Commerce and Housing and Urban Development as its board of directors.
Commerce and HUD both fought hard to include the bank as part of their respective agencies.
Sources said that while planners decided Commerce was better-equipped than HUD to run the bank, the presedent decided to make it a semi-independent agency in part to avoid offending HUD and its urban consittuency and in part to insure that the congressional banking committees would handle the necessary legislation.
If the bank were locatd in the Commerce Department, the proposal would have to go through pulic works committees, which are more rural in their orientation, sources said.
The bank would be able to gurantee up to$2 billion in low-cost loans. Any one firm would borrow no more than 75 percent of its needs (up to a maximum of $15 million).
However, the Commerce Department's Economic Development Administration and HUD's Urban Development Assistance Grant program will each receive $275 million in special assistance money to be granted to the same businesses that receive loan guarantees from the development bank. (See BUSINESS, D10, Col.4) (BUSINESS, From D8)
Administration officials said that businesses that want to take advantage of the bank and EDA and HUD grants would contact local Commerce Department or HUD offices, or in the case of large cities, go directly to their local economic development agencies.
One official said that administration planners expect businesses on average to put together 80 per cent of the financing totheir investments through government grants and guaranteed loans and borrow the remaining 20 per cent from banks.
The development bank will also create a secondary market for bank loans to government-assisted projects and to similar projectsthat are not assisted. Banks would then be able to sell the loans to ther buyers and relend the monies to other eligible companies.
The president also called for a special investment tax credit for companies that invest in new machinery and equipment, build new plants or modernize old ones in "economically distressed communities."
Companies would be able to apply to the Department of Commerce to obtain a "certificate of necessity" similar to ones issued during World War II and the Korean War, then designed to encourage companies to put their funds into defence projects.
Companies that receive a "certicicate of necessity" from the Commerce Department for investing in distressd areas would recieve a special inventment tax credit of 5 percent. All firms are already eligible for a 10 percent tax credit, so a certified company would receive a 15 percent credit for its investment.
That means that the firm can deduct 15 percent of the value of the investment from taxes owed the government, ifif the business invested $10 million, it would receive a tax credit of $1.5 million.
The investment tax credit program would be done on an experimental basis, the president said, and would be limited to a maximum of $200 million in tax credits over that period.