Enterprise zones, stressing an absence of costly government taxation and regulation, caught the American political and economic fancy just as budget cuts were eliminating or sharply reducing older, expensive programs to revive inner cities. The zones stress a reduced Federal role in the cities, funding through tax incentives rather than through grants, and an emphasis on small business. Until an Administration proposal was introduced in Congress in 1982, interest centered on the Kemp-Garcia bill, whose refundable tax credits resembled grants. Meanwhile many States had launched their own initiatives. In Connecticut, zones enjoy an 80 percent property tax abatement for 5 years, with the State repaying the typically tax-poor city 75 percent of the loss. Designation of zone areas creates particular problems: selecting cities, determining how many cities to select, drawing boundary lines within the cities. Two other problems faced when cutting taxes for enterprise zones are dilution of the effect by general tax-cutting and the fact that tax policies seem to have little effect on business decisions to relocate. The authors question whether present incentives are enough to influence employers to create enough jobs in the zones. They note that deregulation, part of enterprise zone theory, seems to have little place in the evolving American enterprise zone pattern. Noting that the mere designation of a zone increases property values, they endorse continued experimentation while adding several recommendations: Federal funding should be made available for infrastructure improvement, a source of venture capital should be provided through tax policy, technical assistance should be provided to zone businesses, and zones that work with established neighborhood groups should be favored.

Potential Legal Pitfalls Facing State and Local Enterprise Zones, ACCN-4587 Michael Allan Wolf
1985,84pp.
Unpublished paper to be published by Urban Law and Policy.
Currently available from HUD USER, P.O. Box 23268, Washington, D.C. 20026-3268
Phone: 1-800-245-2691

The author identifies and discusses six areas in which there is potential conflict between enterprise zones and State or Federal constitutions and statutes; he suggests ways of improving State and local programs by considering the legal questions addressed. Tax exemptions or abatements may not constitute "equal and uniform taxation" or may not meet the requirement of several States for affirmative constitutional authorization for such exemptions. In a few States, officials are forbidden to contract away sovereign taxing power. Revenue bonds for private purposes may be challenged in some States, as may tax increment financing. Preferential hiring (as for zone residents) may violate congressional authority to regulate interstate trade, absent Federal legislation endorsing the zones, or the "privileges and immunities" language of the fourth amendment. Granting competitive advantages to distressed areas could be held to illegally restrain trade. The decision to designate one area and not another as an enterprise zone could in certain cases be held to deny equal protection under the law to an area denied designation. The elimination or relaxation of regulations in enterprise zones might be held "arbitrary and unreasonable," and the use of eminent domain to take property zone tax impact model. "The tests to ease blight in enterprise zones might be held a taking for private rather than public purposes. Substantial public input into the drafting of enterprise zone statutes or regulations is viewed as one firms considering expansion way of convincing the courts that no rights were violated or the public purpose sacrificed to the private.

Impact of Enterprise Zone Tax Incentives on Selected Small Businesses, ACCN-4577 Coopers & Lybrand Economic Studies Group
1982, 58pp
Available from HUD USER, P.O. Box 23268, Washington, D.C. 20026-3268
Phone: 1-800-245-2691

The study considers the combined impact of selected Federal and State enterprise zone incentives for firms of different sizes in each of three industries. The firms were "small," with up to $1 million invested and less than 20 employees, and "large," with up to $10 million assets and 50 employees. One of each was hypothesized from industry data in three fields: manufacture of printing equipment; wholesaling to firms in laundry service, barber and beauty, and janitorial service; and retail restaurants and food services. Federal incentives applied were depreciation investment tax credits and wage credits for employees hired; State credits were 80-percent property tax abatement, State corporate income tax credits, wage grants for new jobs, and similar provisions. The six sets of hypothetical yields were tested against the research group's proprietary "enterprise zone tax impact model." The tests indicated that the incentives have only a marginal impact on cash flow during a new firm's first years; thus the incentives would be of most value to established firms considering expansion.

Small Business Participation in the Economic Development of Depressed Urban Sites, ACCN-4574 Glen Weisbrod, Carol Schwartz, and Henry Pollakowsky
1983, 218pp.
Available from HUD USER, P.O. Box 23268, Washington, D.C. 20026-3268
Phone: 1-800-245-2691

To guide enterprise zone planning, the report traces the types of business activity surviving in depressed central city areas, the changing job structure in these areas, the attractiveness to business of various incentive policies, and the impact of improved infrastructure on various businesses. The areas studied are characterized by rates of business entry roughly comparable to the rest of the central city but with significantly higher exit rates, creating overall decline. The types of new businesses surviving have been those that characterized the neighborhood earlier. The areas reflect national trends in the relative growth of service industries and decline in manufacturing. The relative number of blue-collar jobs has been declining, and the employment distribution of area residents is more comparable to that of firms with decreasing employment than to that in new and growing firms. Economic incentives are more successful in attracting to the area the types of firms already surviving there or the types that can be found in central city areas outside the target sites; it is doubtful these incentives will attract the types of firms that have been moving to the suburbs. Businesses having relatively low levels of land and utility requirements are more likely to be compatible with inner city areas than heavy manufacturing businesses. Most businesses need highway access; therefore, infrastructure improvement is likely to attract business. The appropriate mix of programs for attracting existing large employers is quite different from that needed to encourage small business.

The Entrepreneurial Spirit, ACCN-4586 Lee L. Verstandig Legislative Policy, (Fall 1985): 10-15 Available from HUD USER, P.O. Box 23268, Washington, D.C. 20026-3268
Phone: 1-800-245-2691

The author, former Undersecretary of HUD, reports that enterprise zones are becoming increasingly crucial in State and local economic strategies. Accomplishments of Michigan City, Indiana, New Haven, Connecticut, Tampa, Florida, Chicago, and rural areas of Kansas, Mississippi, Louisiana, Arkansas, Missouri, Minnesota, and Florida are cited as examples. More could be accomplished, he writes, with enactment of Federal enterprise zone legislation, adding Federal tax and regulatory relief to the incentives of enterprise zone programs. Federal legislation would supplement, not substitute for, existing urban and rural programs.

The States Forge Ahead With Enterprise Zones: Program Maturation and Administrative Adjustment, ACCN-4575 R. Lawson Veasey and Hayward D. Horton 1986, 17pp. Unpublished paper Available from HUD USER, P.O. Box 23268, Washington, D.C. 20026-3268
Phone: 1-800-245-2691

State-fostered enterprise zones differ from previous efforts to revitalize deteriorating communities through reduced Federal effort, funding through tax incentives rather than direct awards, and emphasis on small business. The authors foresee that increased emphasis on deregulation will develop in the widely varying programs. The biggest achievement thus far has been creation of jobs. "Incubators," facilities within zones that offer reduced rents, shared services, and flexible space to entrepreneurs, are seen as tools for enhancing the partnership aspect of enterprise zones. A similar concept is the "research park" within a zone. Although still experimental, enterprise zones should spur development of even more comprehensive future programs .

State Enterprise Zone Programs: Variations in Structure and Coverage, ACCN-4589 Roy E. Green and Michael Brintnall 1986,37pp. Unpublished paper Available from HUD USER, P.O. Box 23268, Washington, D.C. 20026-3268
Phone: 1-800-245-2691

The cumulative impact of enterprise zones can be judged on (1) the extent to which they emphasize a freer marketplace to meet public need rather than greater government intervention; (2) the extent to which they emphasize entrepreneurial opportunities rather than a government focus on preconceived needs along which entrepreneurs would be directed; (3) the extent to which they create incubator environments for small, new ventures rather than relocating existing ones; and (4) the extent to which the zones focus on business creation and growth rather than a more diversified social agenda. The authors find that enterprise zones have flourished in States that had relatively lower taxes in the past and have not emerged in States with a tradition of liberal activism in past public policy. To a lesser extent, the authors found enterprise zones attracted by States that are beginning to slow or lag in population growth.

Enterprise Zones: Outlook 1986 Robert M. Sparks
Area Development: Sites & Facility Planning, v. 2 1, n. 2 (February 1986): 12-13, 26, 44

An overview of the 5-year development of State-fostered enterprise zone programs is followed by a discussion of some of the issues involved in evaluating the success of the programs. Since the zones address longstanding problems, long-term evaluation is suggested, divided into evaluation of direct and indirect results. One analysis of eight zones suggests a preponderance of activity in the small-business category and favorable economic results in six of the eight zones. The author suggests that an integration of Federal, State, local, and private activities, embodied in enterprise zones, will continue to be encouraged and that the zones should achieve the desired results if they are carefully blended with other programs addressing the investment climate of their target areas.

Enterprise Zones: The jobs and Investment Numbers Continue To Grow, But the Criticisms
Remain Eric Peterson with Dora Hatras and Alison Hayes I
Business Facilities, v.19, n.5 (May1986): 26-33,90,92-94,98

Although impressive figures reflect many jobs created or retained, some enterprise zones still show net job loss. Analysis suggests that growth of smaller firms offering employment opportunities has coincided with loss of large employers and that zones have helped achieve economic stabilization in cities where rapid declines would otherwise be expected. Close targeting of zone goals (or of entire State programs) seems to generate successful results. In cases where gains are less impressive, stability alone has been a tangible achievement. Thus zones are characterized as "a basic economic development tool." In an accompanying article, a State-by-State directory describes programs in 27 States.

Judgment Policies Used in Assessing Enterprise-Zone Economic Success Criteria Paul Miesing and Thomas C. Dandridge
Decision Policies, v.17 (1986): 50-64

The authors describe 11 criteria for selection of an enterprise zone, including transportation, zoning and land use, vacancy of property, labor potential, unemployment, city competency and history, commitment of employers, commitment of business, commitment of residents, property ownership, and planning and development. The authors prepared 27 unique combinations of these attributes, describing each criterion as "poor," "adequate," or "good," and presented them to 20 New York State officials-legislators; regional or county commissioners of economic, industrial, or urban development; and city planners, managers, or council members. The respondents were asked to rate in each of the 27 cases, on a scale of 0 ("no chance") to 100 ("sure thing"), the likelihood of the area's becoming a successful enterprise zone. Only five of the attributes (transportation, labor potential, competency, and commitment of employers and of business) proved significant at the .001 level as indicators of potential success. A sixth (extent of development) was significant at the .05 level. The more visible and powerful respondents tended to be less optimistic about success than the lower level administrators. But in a separate comparison, those less involved with economic development were less optimistic than those extensively involved.

Enterprise Zones: An Evaluation of State Government Policies

Rodney A. Erickson and Susan W. Friedman with Richard E. McCluskey January 1989, 170 pp. Available from NTIS, U.S. Department of Commerce, 5285 Port Royal Road, Springfield, VA 22161

Although enterprise zones are no panacea for economic distress, notable improvements have occurred in many zones, according to this study of 17 States with the longest standing programs. More than 25 percent of the zones achieved a gross job gain growth higher than the national rate during comparable periods. Moreover, these gains have occurred in distressed areas with far worse unemployment, poverty, and economic and demographic stagnation than found elsewhere. Typical zone investments added several new businesses and aided existing ones, and zone residents held most of the jobs gained. New firms and the expansion of existing ones accounted for more than 80 percent of the investments. Of course, some zones outperformed others. The zones that performed better than expected had four common characteristics: high development potential; enterprise designation, which helped stabilize the area; a broad set of incentives; and strong local cooperation and zone marketing efforts. In general, the State and local incentives used in enterprise zone programs were relatively low-cost inducements such as tax incentives, revolving loan funds, and job credits.

Enterprise Zone Tax Incentives: Their Value to Firms and Their Cost to the Federal Government, ACCN-5470

Clifford R. Kern and Philip Spilberg December 1983, 35 pp. Available from HUD USER, P.O. Box 23268, Washington, D.C. 20026-3268
Phone: 1-800-245-2691

A mathematical formula is used to forecast the potential effect of Federal tax incentives on efforts to promote investment and employment growth in enterprise zones. Because the proposed Federal enterprise zone program would use tax incentives rather than direct budgetary outlays as the active ingredient for economic development, the cost of the program is not predetermined. Consequently, the cost depends on the ability of zones to absorb the tax credits. The size of these incentives per dollar of sales provides a measure of their power to promote economic activity and can be used in estimating Federal revenue losses.

Setting the EZ Record Straight: What Can We Learn from the States?

Michael Allan Wolf Tax Notes (March 27, 1989) pp.1657-1660

An analysis of State programs is used to assess the potential for a Federal enterprise zone program. At the time the article was written, 36 States and the District of Columbia had implemented a wide array of programs offering tax concessions to attract business and retain economic activity in distressed areas. Among the most familiar incentives under State programs are sales tax relief, employee and employer income tax credits, favorable treatment for capital gains, and investment tax credits. While there are similarities in name and general approach, the variegated State experience should not be used to predict the success or failure of Federal enterprise zones. However, there are a number of lessons from the States' experiences that should be heeded in developing a Federal enterprise zone program. For example, eligible areas should be encouraged to compete for enterprise zone designation. Also, incentives should be kept to "a manageable few" to avoid complicating the program with too many variables.

Do Enterprise Zones Work?

Patrick G. Marshall Editorial Research Reports (April 28,1989)pp.230-243 Available from Congressional Quarterly, Inc., 1414 22d Street NW., Washington, DC 20037

Various political and economic factors are analyzed to assess the potential for implementation of Federal enterprise zone legislation. Perennial enterprise zone legislation to provide Federal tax breaks to businesses willing to locate or expand in economically distressed areas has failed to win Congressional approval for nearly a decade. But in 1989, the political climate may be more favorable for enactment of Federal enterprise zones. Among the encouraging elements cited in the report are strong support from President Bush and HUD Secretary Jack Kemp, the sponsor of the original 1980 enterprise zone bill, and Congressional willingness to consider tax relief-based economic development policies. However, a number of issues have yet to be resolved. For example, how much the program will cost depends largely on the success of zones in creating new jobs as opposed to relocated jobs. Then, there is the question of whether tax incentives are enough to coax businesses into distressed areas. The States' experiences with enterprise zones provide clues about how a Federal program might work and what problems it would face.

Federal Tax Incentives for Enterprise Zones: Analysis of Economic Effects and Rationales, ACCN-5490

Dennis Zimmerman
June 15, 1989, 20 pp.
Available from HUD USER, P.O. Box 23268, Washington, D.C. 20026-3268
Phone: 1-800-245-2691

An analysis of the potential economic effects of six enterprise zone bills introduced in the 101st Congress concludes that Federal tax incentives could stimulate increased economic activity in distressed areas; however, the tax breaks would result in a loss of national income. Consequently, such a program must be justified on the basis of social benefits-business investment and employment in depressed areas. Nevertheless, the congressional enterprise zone proposals present several difficulties in attempting to maximize social benefits per dollar of Federal revenue loss. Enterprise zone residents will derive few direct benefits from the capital subsidies (money spent to buy equipment and build structures) and the labor subsidy. Although enterprise zone residents would receive some indirect benefits from the investments stimulated by the incentives and an improved tax base, land prices would increase, raising the cost of living in the area and offsetting some of the improved public services or reduced tax rates financed by the new investment.

Zeal for the Zones

Robert Guskind National Journal (June 3,1989) pp.1358-1362

Comments from experts, including HUD Secretary Jack Kemp, and examples of State and local programs present arguments on both sides of the enterprise zone issue. Nearly a decade after enterprise zones entered the American political arena, there are no conclusive data on their effectiveness in attracting business investment in distressed areas. Nevertheless, around the country, there are more than 500 active State enterprise zones. Most programs offer businesses in enterprise zones a combination of local property tax abatements, tax credits for hiring disadvantaged workers, sales tax relief, and deductions for capital improvements. Some offer low interest loans and grants to businesses willing to locate in distressed areas. Some programs are geared toward attracting small businesses, but most States have opted to use enterprise zones as an offering in their industrial recruitment packages of tax breaks, loans, and grants. While more than two-thirds of the States have implemented their own programs, the debate, which began in 1980 when then Congressman Kemp proposed the first Federal enterprise zone legislation, has come full circle. It remains to be seen whether Congress and the Administration will finally enact Federal tax incentives for enterprise zones.

Federal Enterprise Zones: The Prospect for Economic Development

J.F. Hornbeck June 26, 1989, 8 pp. Available from Congressional Research Service, Library of Congress. Can be ordered only through a Member of Congress.

State enterprise zone programs are examined to evaluate the prospect for economic development in distressed areas if Federal tax incentives were enacted. Congress established a Federal enterprise zone program in 1987, following the apparent success of similar efforts in several States. The defining statute stipulates that up to 100 zones be created in economically distressed areas. A major issue, however, is whether to legislate Federal tax credits or other incentives to foster business development in the zones once they have been designated. The long-term economic consequences of the program and related costs are the subject of some debate. If the anticipated creation of new business in enterprise zones promotes job growth and economic redevelopment, the program may become an important new Federal tool for assisting economically distressed areas, according to this Congressional Research Service report. The economic benefits and costs of the program, however, have been disputed. Some critics note that relative tax costs are only one factor that businesses evaluate in making site selections. Experience with State efforts suggests that non-tax incentives may be equally, if not more, important to a zone's ability to draw business investment. Consequently, if the proposed Federal enterprise zone legislation is sufficiently generous to create a business response, particularly when added to existing State incentives, it is considered likely that an enterprise zone program could influence business location decisions.

Enterprise Zones in States With Competitive Programs-Performance and Effectiveness: A Survey of 22 State Enterprise Zone Coordinators, ACCN-5471

U.S. Department of Housing and Urban Development, Office of Program Analysis and Evaluation June 1989, 16 pp.
Available from HUD USER, P.O. Box 23268, Washington, D.C. 20026-3268
Phone: 1-800-245-2691

A survey of 22 State enterprise zone program coordinators found that tax credits for hiring new employees and sales and use tax exemptions for building materials, equipment, and machinery are the most effective incentives offered to attract business investment in distressed areas. A high level of support from local elected officials was rated as the most effective program component provided by local enterprise zone programs. The 22 States in the HUD survey have operational enterprise zone programs in which zone designation is based, at least in part, on competition among applicants. These States have more than 500 operational enterprise zones that have attracted nearly $5.5 billion in private investments in businesses that have created almost 100,000 jobs. The survey found a high positive correlation between the number of jobs created or retained and reported levels of business investment.

An "Essay in Re-Plan": American Enterprise Zones in Practice

Michael Allan Wolf The Urban Lawyer (Winter 1989) pp. 29-53

The results of an analysis of State enterprise zones are reported in this examination of tax-based economic development programs. The use of enterprise zones-geographically targeting tax, financing, and regulatory incentives to a depressed area to encourage economic development or neighborhood revitalization-is firmly established in 37 States without the effective assistance of the Federal Government. Lawmakers, administrators, and bureaucrats have promulgated and implemented a diverse array of incentives designed to attract employers and investors to the Nation's most distressed regions. Existing programs have been modified to make State and local redevelopment and revitalization efforts more successful. With existing State and local programs slated to continue far into the 1990's and interest stirring in other States, it is noted, enterprise zones will likely be around for at least the next decade.