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Section I—Enterprise Zones:

Posted Date:   
March 31, 2005

Section I—Enterprise Zones:
Historical Perspective and General Background

The Enterprise Zone Concept: British Origins, American Adaptations

Peter Hall
1981, 45pp., Working Paper
No. 350
Available from the University of California. Berkeley, Institute of Urban and Regional Development
316 Wurster Hall, Berkeley, CA 94720

This publication contains three papers on the concept and implementation of enterprise zones in England, and how these approaches might be applied in America. The first paper, the widely cited address to the Royal Town Planning Institute Annual Conference, 1977, titled "Green Fields and Gray Areas," discusses the reasons for inner city decay and assesses possible strategies for halting, the decline of urban business and industrial activity. Among the latter is the free port idea, modeled on the example of Hong Kong. It involves freeing small, selected areas of inner cities of most constraints including customs duties, United Kingdom taxes, and industrial and other regulations in order to encourage business activity by entrepreneurs. The second paper, delivered approximately 1 year after the establishment of seven initial enterprise zones in England, discusses criteria the author believes should be used in judging their performance. The third paper addresses the task of selecting suitable locations for industry in the contemporary American economy-factors that contribute to growth in some cases and decline in others.

Enterprise Zones: Greenlining the Inner Cities Stuart M. Butler
Available from Universe Books, 381 Park Avenue South, New York, NY 10016

This book discusses the full implications of the enterprise zone concept and suggests specific applications. It reviews many causes of urban decay and traces the results of key government efforts to date. The author shows how changes in thinking about the nature of the city led to the enterprise zone proposal and evaluates the first British and American approaches and aims. Also discussed is the Kemp-Garcia bill, which was introduced in Congress in 1980. The author views the creation of employment for inner city residents as the principal goal of the enterprise zone concept. He contends that evidence shows that small businesses are the most effective generators of the kind of jobs needed. Furthermore, the best method of encouraging small business enterprise is deemed to be creation of a climate in which obstacles to business establishment are removed.

Many Faces of Enterprise Zones: Some Transatlantic Comparisons, ACCN-4578 Jack Underhill and Mike Savage 1985, 10pp. Unpublished paper Available from HUD USER, P.O. Box 23268, Washington, D.C. 20026-3268
Phone: 1-800-245-2691

Much of the continuing debate over Federal enterprise zone legislation has not taken fully into account the recent actual experience with such zones in both Britain and the United States. After tracing that history, the paper suggests a typology of enterprise zone programs, showing variation by assistance type and zone selectivity, and discusses possible approaches to evaluation issues. The typology sets program categories as primarily oriented toward (1) encouraging capital investment, (2) encouraging hiring, (3) covering capital and labor even-handedly, (4) providing other types of assistance, such as franchise tax credits and reduction of motor vehicle and licensing fees. Degree of selectivity is typed as (1) most selective, with a very limited number of zones, (2) somewhat selective, with competition among applicants but more designations to be made, and (3) less selective, with no limit or a very high limit on the number of zones. The authors suggest as one evaluation measure the degree to which zone designation and incentives had strong probability of creating or saving jobs. Similar questions can be posed for investments in plant and equipment. If little activity occurred before the zone was created or in other comparable areas, it would lend credence to zone effectiveness.

Monitoring Enterprise Zones: Year Three Report Roger Tym and Partners, London; Llewelyn-Davies Weeks, London; PEIDA, Edinburgh; and
IFF Research Ltd., London
1984, 151pp. plus 85pp. appendixes
Available from Roger Tym and Partners, 25 Craven Street,
London WC2N 5NA, England

This report is the third of three annual reports, constituting an initial evaluation of the 10-year British experiment with enterprise zones. The evaluators addressed three major questions: How much new activity has been generated that would not have occurred without the enterprise zone measures? What "disbenefits" have been incurred? Which enterprise zone measures have been influential in generating activity? The study concludes that the amount of economic activity attracted to the zones has increased from 295 firms and 2,884 jobs in 1981-82 to 474 firms and 5,035 jobs in 1982-83. Although probably three-quarters of the firms would be operating in the same county and 85 percent in the same region if there were no zones, between 4 and 12 percent of the new firms would not have been started without the zones. Perhaps 10 percent have achieved higher levels than they would have without the zones. The zones create small pockets of advantage in local economies that are much larger. The sites chosen for zones have frequently been unattractive ones, but the zones have not lowered environmental qualities. Nearby firms in similar businesses have lost some competitive edge to firms located in the zones. Zones have been particularly beneficial to business in the tax relief they provide and in fostering public-private cooperation.

Tax Incentives Targeted To Distressed Areas, ACCN-4563 Hearing before the Committee on Ways and Means, House of Representatives, 98th Congress, on November 17,1983. Serial 98-57. 738pp. Available from HUD USER, P.O. Box 23268, Washington, D.C. 20026-3268
Phone: 1-800-245-2691

The hearing considered four bills calling for enterprise zone programs or similar tax incentive programs. The hearing announcement listed the following key issues: (1) how targeted areas should be identified and defined, (2) what tax incentives would be most likely to aid in revitalization of depressed areas, (3) how the revenue implications of such proposals should be assessed, (4) the relative advantages and disadvantages of tax incentives in distressed areas compared with direct spending programs, (5) whether the use of certain industrial development bonds should be limited to distressed areas, and be limited to distressed areas, and (6) whether it is fair to have special preferential tax rates apply to a limited number of areas. Three Cabinet members presented favorable statements - Secretary Regan of Treasury, Secretary Baldrige of Commerce, and Secretary Pierce of Housing and Urban Development. Among 52 other witnesses were Congressmen Kemp and Garcia of New York, Marc Bendick, Jr., of the Urban Institute, Stuart M. Butler of the Institute, Stuart M. Butler of the Heritage Foundation, and Mark Frazier of the Sabre Foundation; of the five, only Bendick opposed a zone program. Sixty-nine individuals, governments, or organizations made submissions for the record.

Enterprise Zone Debate David Boeck
Urban Lawyer, v. 16, n. 1 (Winter 1984): 71-173 This article provides a thorough comparison of the detailed provisions of major enterprise zone legislative proposals up to 1984. The various proposals would create zones of 4- to 24-year duration, operating at varying levels of population, building density, poverty, zone residence, and other eligibility criteria. Proposed tax incentives include income tax credits, favorable accounting methods, and carryovers of losses to subsequent tax years. To encourage adequate capital, capital gains tax reductions, investment tax credits, and accelerated depreciation have been proposed, as have State and local actions to ease licensing requirements and construction permits. Since the tax cost of earned income to a welfare recipient is the highest to any economic group and since employer costs in creating employment are high, proposed incentives to job creation have included social security tax reduction, exemption from minimum wages, tax credits either to zone employers or employees, and direct or indirect job training subsidies. Lacking consensus are the size of tax and regulatory concessions that States and cities should make to zones and to what extent Federal agencies could require them. How and how much would community corporations be encouraged? What housing assistance would be extended within the zone? Because so few concepts are agreed on, and to gather more experience, an experimental program is urged. Two leading legislative proposals would limit a Federal program to establishing 25 enterprise zones a year for 3 years.

Enterprise Zone and Alternative Area Redevelopment Legislation Dennis Roth
1986, 8pp.
Available from Congressional Research Service, Library of Congress. Can be ordered only through a Member of Congress.

This report sketches provisions of enterprise zone bills and legislative proposals competitive with them introduced in 1985 and awaiting congressional action in 1986. The original 1980 proposal sought to open the way for broader tax cuts for business; current legislation seeks tax incentives from one or more levels of government to lure business to specific areas and thus create jobs. Although zones would not increase the Federal budget, according to a Treasury Department estimate in 1985, they would reduce revenues by a total of $4.4 billion beginning in 1986 through 1990. A enterprise zone bill introduce in the 99th Congress by Senator Riegle is based on the Administration's 1983 bill and incorporates subsequent Administration changes and suggestions. It would require specific State or local action to be eligible for the Federal incentives, limit the zones to 75 over 3 years, and require that at least one-third of the zones be in rural areas. Five pending bills and several alternatives are reviewed; four other Congressional Research Service papers are listed as references.

Enterprise Zones Groundswell Dick Cowden
Journal of the Institute for Socioeconomic Studies, v. X, n. 3 (Autumn 1985): 68-82

Although enterprise zones were first proposed as a Federal policy, they have instead become a rising trend in State and local economic legislation. At least 450 cities have zones and at least 26 States have zone policies. State legislation in the early 1980's was designed to mesh with the expected Federal bill. Although Florida and Louisiana simply gave the name "enterprise zone" to economically distressed areas, most States followed the lead of Connecticut in limiting the number of State enterprise zone designations. The resulting competition inspired cities to make stronger commitments to the zones. In mid-1985, a HUD estimate found 50,000 jobs created and $2 billion invested in the State-created zones since 1982. States added many successful variations, including linking public works to local improvements, creating special job training funds for the zones, giving the zones priority in allocating reduced urban assistance, and establishing business "incubators." Much original legislation has been improved; Florida is canceling its original 180 zones to redesignate 20 or 30 by competition. Contrary to theory, States have given tax incentives low priority. The author suggests Federal policymakers should consider that (1) zones influence business decisions to locate in inner cities rather than suburban industrial parks, (2) localities care little for economic theory concerning enterprise zones but see them as a useful allocation system, (3) zones have caused no harm to local residents or other businesses, (4) most administrative systems for operating zones with Federal participation already exist, and (5) zones "are not going away." Thus, he argues, State action has prepared the way for a Federal supporting role.

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