Interim Assessment of the Empowerment Zones and Enterprise Communities (EZ/EC) Program

Executive Summary

The Empowerment Zones and Enterprise Communities (EZ/EC) program was designed by the Federal Government to encourage comprehensive planning and investment aimed at the economic, physical and social development of the neediest urban and rural areas in the United States. Under the initial round of funding announced in December 1994, 71 urban sites received EZ/EC designation. ¹ The major share of the federal funding went to the six sites designated as Empowerment Zones (EZs) and the remaining funds went to Enterprise Communities (ECs). Although considerable latitude has been afforded to these sites regarding the selection of specific strategies and activities to pursue, each funded community's efforts at zone transformation were expected to reflect four key principles:

• Economic opportunity
• Community-based partnerships
• Sustainable community development, and
• A strategic vision for change.

In 1996, the U.S. Department of Housing and Urban Development selected a team led by Abt Associates to conduct an Interim Assessment of the first round of urban EZ/EC sites. The assessment examined the activities of these EZ/EC sites and the progress that they achieved after the first five years of program operations. As its name implies, the Interim Assessment was not intended to provide a definitive evaluation of the extent to which EZ/EC program activities contributed to outcomes reported. That task is expected to be the focus of a separate study conducted after 10 years of program operations. Nonetheless, the data reported in the Interim Assessment provide some preliminary insights into how the EZ/EC activities may be contributing to the transformation of the targeted neighborhoods.

The Interim Assessment has been a multi-faceted study, including the analysis of data from performance reports for all 71 first round sites and detailed local analyses in a sample of 18 intensive study sites, all six EZs and 12 of the Ecs. ² It has also included a time series analysis of indicators of business activity and surveys of business establishments in the EZ sites. Key findings from the various components of the study are summarized next.

Summary of Study Findings

The findings of the interim impact assessment were mixed in their implications. Among the findings that are consistent with a positive impact of the EZ/EC interventions are the following:

Business, Job, and Employment Growth

• Job growth occurred in five of the six EZs and in the six EZs in the aggregate. (Employment grew in New York, Philadelphia, Baltimore, Atlanta, and Detroit, and declined in Chicago.)
• Job growth in four of the six EZs outpaced job growth in comparison and contiguous areas. (The Chicago and Philadelphia EZs did worse than their comparison areas.)
• The number of EZ residents employed in EZ businesses has increased markedly.
• The number of both EZ resident- and minority-owned businesses increased substantially across the six EZs.

EZ Initiatives and Business and Workforce Outcomes

• Business and workforce development activities were widespread across the 18 EZ/EC intensive study sites.
• Business owners in the EZ sites reported that the climate for doing business in their zones had improved.
• Workforce development activities have assisted and placed as many as 16,000 EZ/EC residents in jobs, both inside and outside of the EZ/ECs in the 18 intensive study sites.

Other Important Findings

• The 18 EZ/EC intensive study sites conducted a broad array of "sustainable community development" activities, including a variety of human services and education activities, physical improvement projects, housing and health initiatives, and public safety efforts.
• Federal requirements for citizen participation increased opportunities for residents and community organizations to be involved in the EZ/EC decision-making process.
• Extensive private and State and local government resources were leveraged as part of local EZ/EC Initiative activities.

Findings that are consistent with little or no positive impact of the EZ/EC Initiative, or of the significant challenges faced by EZ/EC grantees, include the following:

Business, Job, and Employment Growth

• During the period studied (1995-2000), there was a general economic upturn in the Nation generally and large cities specifically, making it difficult to attribute employment growth to the EZ initiative. The analysis of comparison and contiguous areas for each EZ site was an attempt to partially address this issue.
• In only three of the six EZs were increases in employment correlated with specific EZ programmatic activities. Moreover, in some of the EZs, such as Atlanta, employment increases may have been attributable to non-EZ activities.

EZ Initiatives and Business and Workforce Outcomes

• The EZs continue to struggle with the special challenges of placing the long-term unemployed in jobs. Although many sites used EZ resources to implement workforce development activities targeted to this population, this remains one of the most significant hurdles for EZs to overcome.
• Businesses in the six EZs made only limited use of the program's Federal tax incentives. Eleven percent reported using EZ employment credits; four percent reported using Section 179 expensing; and three percent reported using Work Opportunity Tax Credits (WOTC). (However, larger firms, especially those with more than 250 employees, reported using tax incentives more frequently.)
• More than half of the relatively few businesses using tax incentives reported that the credit was of little or no importance in affecting their hiring or investing decisions.
• In the survey of zone businesses conducted in 2000, 65 percent of all EZ businesses reported no benefits from being in the EZ.

Other Important Findings

• Citizen participation in local EZ/EC initiative decisionmaking generally decreased from the strategic planning process to the program implementation stage.
• There is little evidence to indicate that major reform or "reinvention" occurred at either the Federal or local level as a consequence of the EZ/EC initiative.
• Zone programs have relied heavily on engagement with nonprofit and private partners. Creating and maintaining these partnerships has required significant time and effort. Building internal capacity within community organizations to undertake such long-term partnerships has been an area requiring special attention, but not many sites invested heavily in such efforts.

The following sections present the Interim Assessment's findings on how the 18 intensive study sites (particularly focusing on the six EZ sites) implemented the four key EZ/EC principles: assessing the creation of jobs and economic opportunity for zone residents; developing community-based partnerships; sustaining community development; and developing a strategic vision for change.

Economic Opportunity and Vitality

Although the EZ/EC program supports the pursuit of a variety of locally-defined revitalization goals, improving the economic vitality of targeted communities and increasing the economic well-being of their residents is the program's central purpose. For insight into the experience of the zones relative to employment growth during the five years since designation, the study analyzed Dun & Bradstreet establishment level data for the six first-round EZ communities. This analysis found that:

• Between 1995 and 2000, total employment grew in five of the six EZ areas and in the combined six-area total.
• Moreover, for five of the six zones and for the six-area total, the employment trend in 1995-2000 was more favorable than it had been in 1990-1995, the period prior to EZ designation.

These findings indicate that the zones are generally experiencing the kinds of employment growth that had been desired when the EZ/EC program was first proposed. To determine whether such patterns were the result of metropolitan-wide or national economic trends or of changes specific to the zones themselves, the study assessed the experience of the zones against that of comparison areas within the same cities, and of areas contiguous to the zones. This analysis found that:

• During the period 1995-2000, four of the six zones, and the six-area total, experienced a higher rate of employment growth than the corresponding comparison areas.
• Further, in these four EZs and in the six-area total, employment accelerated faster between 1990-1995 and 1995-2000 than in the comparison areas.

Similar results were found in the contiguous areas. Although the observed employment trends are consistent with a finding of favorable EZ program effects, one cannot draw this interpretation on the basis of the Dun & Bradstreet analysis alone. The use of comparison areas and outcomes measured in rates of change are relatively crude techniques for isolating program effects. Undoubtedly, there were other developments unrelated to the local EZ program, but coincident with it, that may have had favorable or unfavorable effects on the zone area but not in the comparison or contiguous areas.

Also, although the Dun & Bradstreet analysis can demonstrate that some zone areas outperformed their comparison area and contiguous area counterparts relative to employment growth, these data do not help to explain how the EZ program might have been influential in contributing to the changes observed. Nor does the Dun & Bradstreet analysis provide any information regarding whether zone residents are the beneficiaries of the employment growth observed.

The local EZ programs have many dimensions that could potentially contribute to improvements in the economic climate and activity within the zone. These include: Federal tax incentives; financing, technical assistance, training and other forms of support available through the local zone program; and the additional attention and resources devoted to the area as a result of designation. Despite this array of potential tools, however, it is important to recognize that the EZ program still represents a relatively limited intervention that is seeking to influence local economies in very poor areas involving thousands of establishments and tens of thousands of employees.

To develop a plausible argument for the contributions that are being made by the EZ sites, the study sought to gather additional information on the local economies and zone program interventions in two ways. One method involved the administration of two rounds of surveys (one in 1997/98 and one in 2000) to a representative sample of business establishments in each of the six EZs. A second approach entailed detailed local analyses of zone activities and accomplishments in 18 "intensive study" sites, including the six EZ sites.

The data for the individual EZ sites from these other study components provide evidence that bolsters confidence in the basic accuracy of the Dun & Bradstreet findings in most instances, although also alerting one to the limitations of the Dun & Bradstreet analysis. Moreover, these data also support the plausibility of a conclusion that, in at least three of the four EZ sites where employment in the zone grew faster than in the comparison and contiguous areas, the EZ program made substantial contributions to the positive employment trends that were observed.

The data from the business establishment surveys showed that the number of residents employed in the EZ business establishments increased markedly in all six zones between 1997 and 2000. However, the percentage of residents in total zone business employment did not increase substantially between the two periods surveyed, suggesting that the primary force driving the increases in resident employment was the overall growth in the EZ economies.

The establishment surveys also revealed that residents shared in the economic opportunity created in the EZ economies through entrepreneurial activity:

• The number of zone business establishments owned by residents increased by over 150 percent across the six zones, with growth rates in individual EZs ranging from 61 percent to 265 percent.
• In addition to resident ownership, minority ownership of businesses also increased substantially in the six zones from 1997/98 to 2000.

Adding to the significance of these trends is the finding that resident owners and minority owners were statistically more likely to hire other residents in their zone businesses than were non-resident or non-minority owners of zone businesses. Growth of these types of businesses promotes a prime EZ/EC Initiative objective, increasing the employment opportunities of zone residents.

One of the key research questions addressed by the study was whether the EZs were becoming more attractive places to do business. Underlying this question is the belief that if the economic climate within the zone can improve, the odds of achieving and sustaining economic vitality in these areas will increase. Accordingly, as part of the establishment surveys, business establishments were asked to rate the zones as locations for their businesses. In general, the business establishments were relatively positive about the zones:

• In 2000, in the six zones combined, 55 percent of businesses rated the zone as "very good" or "somewhat good" places to do business. The proportion was 54 percent in 1997.
• Moreover, there was a clear pattern of business establishments reporting more positive improvements for the three year period of 1997-2000 than they had for the three years prior to 1997/98, a period before most zone program activities got underway.

The surveyed establishments in the six EZs were also asked about their knowledge and utilization of both the Federal tax incentives and other site-specific forms of assistance available to businesses from the local zone program (the latter included financing, technical assistance, and non-Federal tax incentives). Both familiarity with and use of these resources varied considerably from site to site, perhaps suggesting that some sites are doing a much better job than others in marketing these incentives and supports.

Knowledge of site-specific forms of assistance among business establishments in 2000 ranged across EZs from 11 percent to 63 percent, and actual use from one percent to 12 percent. Although these percentages are relatively modest, it should be kept in mind that in the aggregate these figures may each reflect hundreds or even thousands of individual establishments. For example, the annual performance reports for the EZs indicate that in these six sites alone more than 900 zone businesses had received financial assistance and over 7,300 establishments had received some form of technical assistance in the period through June 30, 2000. The results relative to the knowledge and use of Federal tax incentives by zone businesses were somewhat similar to those for the site-specific forms of assistance. In 2000, awareness of the Federal tax incentives among establishments across the six EZ sites varied from 30 percent of businesses knowing about the Section 179 expensing provision (which provides for increased deductions on eligible investments) to 53 percent of businesses being aware of the EZ employment tax credit. Thirty-three percent of businesses across the six sites were aware of the third major tax incentive available, the WOTC.

Only a small proportion of the businesses that were aware of the incentives took advantage of them, sometimes because of assumed or actual ineligibility to use them. Eleven percent of businesses in 2000 reported using the EZ employment tax credit, four percent reported using the Section 179 expensing provisions, and three percent used WOTC. Larger businesses were far more likely to take advantage of these Federal tax incentives than their smaller counterparts.

In assessing the EZ/EC experience, a key policy issue for the Federal Government is the extent to which these tax incentives have shaped business behavior, in terms of promoting investment in the zones and the hiring of zone residents. According to the 2000 survey, 45 percent of those businesses that used the EZ employment tax credit and 55 percent of the businesses using WOTC indicated that it was "very important" or "somewhat important" in their hiring actions. Similarly, 40 percent of the firms using the Section 179 expensing provisions reported that this credit was important in their investment decisions. When considered in association with the relatively low utilization of these credits, these data are consistent with a finding that the tax incentives has only modest effects on business behavior in the zones.

When asked about the overall impact to date of zone designation, across the six EZs the responses of establishments were more positive than negative, but most businesses expressed an ambivalent attitude - that the impacts to date were "neither good nor bad." The ambivalent assessment of the business community could be the result of a variety of factors. It could be a reflection of the relatively modest percentage of businesses that have received direct assistance from the zone programs to date. Or it could be a result of the fact that the EZ programs are only part-way through their transformation process, and many of the community-wide changes envisioned by the local program designers have not yet been realized. It might also be a result of a drop-off in media coverage of zone activities, so that local businesses may not be aware of the role that the zone program is playing in promoting specific improvements in the area. Finally, the ambivalence could reflect the substantial challenges that still remain to revitalizing these very poor areas.

Community-Based Partnerships

The rationale for encouraging the local EZ/EC sites to pursue collaborative approaches was the complexity of the task facing the individual zone sites, and the need to mobilize across sectors and populations to accomplish the desired changes. Collective engagement was seen by the Federal EZ/EC program designers as creating a process that would allow the knowledge and skills of each group of local stakeholders to be utilized and the needs and concerns of all parties to be addressed. The study examined several dimensions of the collaborations that occurred at the local EZ/EC sites.

Resident participation in the change process is at the core of the EZ/EC initiative, and was seen by the program designers as central to individual and community empowerment. Residents could exert influence on the EZ/EC programs through a variety of mechanisms. These include involvement in the strategic planning process, through membership on the governance board (or on the boards of community-based organizations that had seats on the zone governance board), or through personal ties with members of the governing body or with zone program staff.

Across the sample of 18 intensive study sites, the extent to which residents participated and influenced the EZ/EC governance process varied greatly. However, it appears that the Federal mandate for resident participation and community-based partnerships had the desired effect in many of the sites. The Federal expectation of citizen participation in the local EZ/EC sites increased the chances that residents and community-based organizations shared in the decisionmaking about zone priorities and programs.

Nonetheless, there was a tendency for resident participation to drop off over time at the EZ/EC intensive study sites. This can be seen as a typical pattern of what happens when an initiative moves from planning to an operational phase, since it is far easier to find ways to actively engage large numbers of individuals in comprehensive planning activities than in the on-going management of discrete projects. There is also more enthusiasm during the planning phase of an initiative, and this enthusiasm can wane over time. Accordingly, it is often difficult to maintain the active involvement of non-compensated stakeholders when an initiative stretches out over several years, particularly when all the key decisions have already been made (especially a possibility in ECs). In some sites, however, the decline in resident participation was more abrupt, and appeared to reflect a decision by local officials that once funding had been secured, a different (and generally more limited) set of actors would determine the direction of the initiative from that point forward. However, even in sites that were open to the notion of maintaining the participation of a broad set of stakeholders, attention to building the capacity of zone residents to participate in zone governance was uneven.

"Community-based partnerships" was also the rubric under which the national program sought to promote the streamlining of government practices in implementing programs that would benefit designated zones. The first manifestation of this was expected to be the regulatory waivers that communities applying for zone designation could request from Federal agencies. Although the 18 intensive study sites filed a total of 244 waiver requests as part of this process, only five percent were fully or partially approved, most frequently because the request required a statutory change. Overall, in terms of the reduction of "red-tape", the Federal waiver experience did not appear to be particularly satisfying for either the EZ/EC applicants or the Federal reviewing authorities. There were also a number of examples at the local level, as the zone programs tried to get underway, of the difficulties entailed in trying to streamline local procedures or to ensure cooperation among agencies within a locality.

Nonetheless, during the process of local EZ/EC program implementation, local nonprofit organizations (both community-based organizations and larger, city-wide groups), government agencies, and private enterprises formed numerous collaborative arrangements to conduct activities to foster zone transformation. The EZ/EC sites found that developing partnerships, particularly partnerships among diverse stakeholders, is challenging and requires structures and processes that balance disparities of power, access, capacity and resources. However, the intensive study sites also have learned to appreciate the value of these collaborative efforts, in terms of mobilizing different perspectives, networks and resources to bring to bear on the problems being addressed.

Sustainable Community Development

Although improved economic opportunity was seen as a critical initial step in the process of achieving community transformation, the Federal EZ/EC program framework assumed that economic development by itself could not be successful or maintained unless combined with a broader effort to develop the human and physical capital of the community. This concept of "sustainable community development" was only defined in general terms in the Federal guidance on the EZ/EC program, and initially each site had to decide how it would operationalize this principle. Across the 18 intensive study sites, these local interpretations have evolved over time, in part through the learning processes that have occurred at each site about what "works" or is feasible (and partly because the Department's reporting framework for the EZ/EC sites has specified which substantive activities need to be reported as "Sustainable Community Development" efforts).

At both the commencement of the EZ/EC program and at a point five years into program operations, there has been considerable variation among the intensive study sites in how "sustainable community development" has been locally interpreted. Over time, there has been an increase in the number of sites that view the use of market forces as part of the approach to be followed to assure sustainable community development. In general, however, most intensive study sites have interpreted sustainable community development as synonymous with multi-faceted community improvement efforts. Under the label of sustainable community development, the sites have undertaken a broad array of activities, including a variety of social service and education activities, public safety efforts, physical improvement projects, housing initiatives, and community-capacity building.

To a considerable extent, how the intensive study sites have defined "sustainability" has been a reflection of their funding levels and grant terms. The EZ sites explicitly designed their programs to be 10-year efforts, and received funding ($100 million in Title XX funds) somewhat commensurate with that timeframe. Accordingly, many of the "sustainable community development" projects at these sites are seen as long-term efforts, and are on-going.

For the non-EZ sites, the issue of sustainability has perhaps been both more "immediate" and more problematic. EC sites received $3 million in Title XX funds and, despite the federal view that they were making a commitment to a ten-year initiative, most designed their programs on a three-to-five-year timeframe. Once that time had elapsed and those funds were exhausted (and particularly the administrative funds to support core staff), the EC sites were faced with the question of how to provide for the continuation of their activities.

Some EZ/EC sites have looked to community-based nonprofits as a strategy to achieve a level of sustainability. The intensive study sites have relied on nonprofits to a significant level to carry out their sustainable community development program activities, and to a greater extent than they did for their economic opportunity activities. According to the local analysis, a few ECs will leave behind such new institutions to continue to carry out all or part of their zone mission, e.g., an economic development bank, but, overall, the ECs have made only a limited investment in building the capacity of nonprofit agencies, in part because of their shorter time perspective on the EZ/EC Initiative.

There has been somewhat more effort in this regard among the EZ sites, most notably Baltimore's efforts to establish Village Centers. In Baltimore, there was an explicit strategy to strengthen existing community development organizations and create new ones in the form of six Village Centers to provide an organizational base for managing a broad range of zone initiatives and sustaining them over time. But again, overall, most EZ sites have viewed nonprofit organizations primarily as service providers that would be used as long as they were effective, rather than as strategic investments to build long-term community capacity.

Those EZ/EC sites that have tried to build the capacity of their local nonprofit network have recognized how challenging this task can be, and acknowledge that it often requires a long-term commitment and considerable resources to achieve even basic functioning in new nonprofit organizations. Further, each time a nonprofit organization takes on a new function, additional technical assistance may be required. Nonetheless, these networks of nonprofits have allowed the zone programs to offer a more varied array of services and to reach a broader population base. From this standpoint, and from the perspective of achieving the long-term sustainability of the zone initiative, it would seem to be sensible for the EZ/EC sites to devote additional attention to building this community infrastructure.

Strategic Vision for Change

The designers of the Federal EZ/EC program believed a strategic, long-term vision for change was necessary to achieve successful revitalization of distressed communities. They felt that a clear vision of the transformation process was essential to be able to communicate the initiative's basic mission in a form that the community could understand, so that sufficient resources could be mobilized in a coordinated way to support the initiative's objectives. In addition, the Federal program guidelines allowed for considerable local discretion in how the four underlying principles of the EZ/EC program could be interpreted and made operational. This was seen as a way to allow a community's strategies to take into account unique local features—both challenges and opportunities—and to create a vision that resonates with local stakeholders so that they feel a sense of ownership.

Although it is still largely anecdotal, evidence has emerged from the study that confirms the value of having a local strategic vision. That is, the study suggests that communities with a clearer strategic vision of comprehensive change, and one that could be effectively communicated to affected stakeholders, were in fact more likely to be successful at mobilizing support and in achieving progress in their zone activities. The experience in the intensive study sites suggests that it is important that the vision be more than just an articulation of themes or concepts; it needs to provide a guide for how the vision will be operationalized in specific programs and activities. Consequently, the basic vision must be concrete enough to lend itself to identification of strategies for implementation. Communities in which the vision lacked strategic clarity, or where the strategic plan failed to describe mechanisms for implementing the vision's basic concepts, often experienced delays and diffusion of effort, and missed opportunities to leverage other resources.

In many of the intensive study sites there was a refinement of the strategic vision over time, or a change in the principal focus of the local program as the sites came to terms with what was truly feasible within the time and resource constraints of the initiative. Although public awareness of the basic zone vision was generally fairly high following the initial planning and application process in the EZ/EC sites, the refinement of the vision and strategies over time has often been much less transparent to the general community. Accordingly, in many of the intensive study sites, the level of resident understanding of the zone mission has declined over time. This demonstrates part of the difficulty of establishing and maintaining a broadly understood and shared community revitalization strategy. However, given the value of a broadly understood and shared strategy in terms of mobilizing community resources in support of the initiative's objectives, the EZ/EC sites should be encouraged to maintain their efforts to communicate their vision to the public.

FOOTNOTES

¹ At the same time, Economic Development Initiative funds were also given to five Enterprise Communities and Los Angeles (City and County), California, creating a total of 72 sites generally regarded as associated with the first round of the program, but only 71 received formal designation as specified in the authorizing legislation.

² The six Empowerment Zones were located in: Atlanta, GA; Baltimore, MD; Chicago, IL; Detroit, MI; New York City, NY; and Philadelphia, PA-Camden, NJ. The Enterprise Communities studied were: Cleveland, OH; Boston, MA; Burlington, VT; Charlotte, NC; Dallas, TX; Louisville, KY; Minneapolis, MN; Oakland, CA; San Diego, CA; San Francisco, CA; Seattle, WA; and Ta-coma, WA.

Publication Categories: Community and Economic Development     Federally Funded State and Local Programs