The "urban enterprise zone" hustle

...Despite the novelty of the zone concept, the bill draws on a familiar approach: it provides direct benefits to business, and then hopes this will help cities, neighborhoods, and poor people...

...It has not worked in the past, and there is little reason to expect it will this time...

...Sir Geoffrey Howe, Thatcher's Chancellor of the Exchequer, championed the idea in the cabinet, but, interestingly, drew valuable support from Peter Hall, a professor of urban studies at Reading Universiy, and a socialist, who first proposed the zones as an experiment in "non-planning" in an article published in 1969...

...This, in yet another guise, is the profoundly status-quo-oriented and conservative method of trickling aid to poor people and communities through businesses...

...The unemployed...

...But as the case of Puerto Rico makes clear, economic growth is only part of the task...

...At worst, he calculates, if no new business was stimulated by the act, the tax breaks would only cost the Treasury from $ 1 to $1.4 billion a year...

...On top of this, businesses were exempted from most local taxes...

...Small businesses...

...Poverty could be defined by one of three different measures: 1. an unemployment rate at least twice the national average for the preceding two years, and a rate of at least thirty percent of the families below the official poverty level...

...Much of this is to be torn down to make room for the Cadillac facility...

...To the contrary, many areas likely to be eligible for zone designation will be more like Poletown in Detroit, a neighborhood that includes land the city wants to clear and lease to General Motors for a new Cadillac plant...

...Small, relatively mobile businesses may choose to move into a zone and out of surrounding areas, much as office tenants have tended to move out of older buildings into the new, more attractive, glass towers in cities like Atlanta and Detroit...

...Nor does it state how long employees must have lived in the zone before they are employed in the business...

...Kemp has responded that the 1980 census data, with new measures of neighborhood conditions, should solve part of the problem...

...Critical of the maze-like planning requirements that he felt had grown up around local development, and impressed by the freedom of action enjoyed by both nineteenth century capitalists and contemporary Hong Kong entrepreneurs, Hall proposed a partial recreation of those conditions in the most decayed sections of British cities...

...Enterprise zones, if they work at all as their supporters think they will, could inflict similar large-scale physical disruption on a neighborhood, and would not even include any of the relocation assistance that came with urban renewal...

...The cost of the bill, Kemp says, should be minimal...

...Neighborhoods...

...As part of the application, the local government would have to demonstrate its own commitment to lifting the weight of taxation by agreeing to a permanent reduction in property taxes in the zone by at least twenty percent...

...His solution has been to wed the simple truths of Adam Smith to the taxing powers of the modern state...

...I IN SUMMARY, the Kemp-Garcia proposal presents already hard-pressed local governments with up-front costs and uncertain future benefits, threatens some still-vital neighborhoods with both physical and social disruptions, offers the wrong kind of aid to new small businesses, and offers minimal promise of employment for people in the zones who need it the most...

...The tax benefits in the bill all work to reduce a business's operating costs after it is underway, not to help it get started...

...The legislation freed U.S...

...There, last summer, the Thatcher government initiated an experimental program conferring zone status on areas of roughly one square mile in seven cities, and offered tax advantages and freedom from many land-use planning requirements to businesses that locate in the areas...

...Finally, a zone may undercut the stability of adjacent neighborhoods...

...Ex-ACTION head Sam Brown calls it "colonialism brought home...

...In some instances the property tax requirement may simply preclude cities from applying, since several state governments prohibit localities from assessing property at less than full value, or applying different rates in different parts of the city...

...Kemp has said that the key to solving the urban crisis is finding out what leads to economic growth in cities...

...In other instances the city, unable to sacrifice any revenues or to afford development costs, may be too poor to apply...

...All this prompted John Hebers, in an article in the New York Times, to sense a "tenuous consensus" emerging in support of the proposal, and a strong likelihood that some version of the bill will RICHARD MOUNTS is a policy analyst at the Center for Renewable Resources in Washington, D.C...

...The proposal may be hard to classify in Washingtonian "liberal" and "conservative" categories but that may say more about the quality of political analysis in the city than it does about the bill...

...In that spirit, representatives of a number of groups in Washington have been meeting with staff from Kemp's and Garcia's offices to work out amendments...

...In this country, Hall's ideas have fit in well with Kemp's and other supply-siders' views that government taxation and regulation are most responsible for our low rate of growth...

...For local governments any potential benefits of receiving zone designation for parts of the city must be balanced against two immediate costs...

...Local governments would apply to the Secretary of Commerce for designation...

...Enlightened trickle-down is still trickle-down...

...The bill simply requires that fifty percent of the employees of a "qualified business" be residents of the zone...

...The Heritage Foundation, which has provided a good deal of the backup analysis for the bill, urged that regulatory relief, such as a lower minimum wage and freedom from local zoning rules, accompany tax relief inside the zone...

...One is those who own potentially developable sites in a zone...

...A CLOSE LOOK AT REAGAN'S FRESH IDEA The 'urban enterprise zone' hustle RICHARD MOUNTS OVER THE PAST thirty years billions of federal dollars have gone into efforts to improve economic conditions in cities, with minimal success...

...A firm trying to avoid the costs associated with training and employing low-skilled workers should still be able to find ways to qualify for the tax benefits...

...What sort of proposal is it that joins the leader of"populist'' supply-side Republicans with a Democratic representative of one of the most depressed urban areas of the country, and then draws support from both a header of the full employment movement and the man who promises to use his position at OMB to lead an all-out attack on social spending...

...Perhaps the best evidence of this, and of the ultimate failure of the approach as a basis for development policy, comes from a brief review of Operation Bootstrap, the economic development policy that guided Puerto Rican development programs for over thirty years...

...As soon as the "green line," as Kemp refers to it, is drawn around an area, land values should increase...

...Kemp and Garcia have responded to criticisms by saying that the bill is only a first draft, and that they are open to suggestions for improvements...

...Development includes economic growth, but it also includes building up the capacity of local institutions, both economic and political...

...corporations on the island of U.S...

...Even so, he admits that a local government would still have to invest funds in sample surveys to get more precise poverty and unemployment figures...

...emerge from the 97th Congress...

...The bill should be titled the "Urban Capital Subsidy and Enterprise Zones Act," since the incentives are weighted much more in that direction than they are to jobs...

...In addition to dislocation from physical redevelopment, the bill may add its weight to the push towards economic displacement in both the zone and in nearby neighborhoods...

...taxes, and at the same time permitted them to ship finished goods to the mainland freed of import duties...

...In sum, it means greater equality in a more autonomous and self-reliant local economy...

...A decision to launch a new business depends more on one's ability to find financing than on expectations of post-tax profits...

...We rarely think to look to the Republicans for fresh ideas on urban policy, but here is the Reagan administration coming into office with what many consider one of the most interesting new ideas in some time...

...Despite several years of effort, unemployment figures are neither reliable nor valid below the Standard Metropolitan Statistical Area level...

...But can the bill really be made to work for those who need the help the most...

...Republican Congressmember Jack Kemp with the original idea, which is the heart of the legislation he has co-sponsored with Democrat Robert Garcia of the Bronx...

...By one set of measures Operation Bootstrap was a remarkable success...

...The bill contains just one means of reducing labor costs (the politically volatile proposal to lower Social Security taxes), while it contains at least three subsidies for equipment and plant (lower capital gains taxes, lower property taxes, and accelerated depreciation...

...In fact, in its present form the act is likely to be of little immediate benefit to any of these groups, and could, in some instances, turn out to do more harm than good...

...He expects the bill to increase tax revenues as land that is being kept, so to speak, fallow, is cleared and put into productive use...

...City officials could find themselves making what could turn out to be a series of politically unpopular decisions as they reallocated tax burdens to make up for what is being gambled in the enterprise zone...

...Most new firms struggle through several years before they reach that position...

...THE BILL outlines the requirements for zone designation and stipulates the incentives to businesses in the zones...

...But most new businesses go for several years before they have much tax liability...

...2. for non-corporate property, a fifty-percent reduction in the capital gains tax rate by increasing the allowable deduction from sixty to eighty percent on the sale of personal property in the zone...

...Could well-considered amendments lead it in the right direction...

...2. an unemployment rate at three times the national average for the preceding two years...

...Last summer, the New York Times reported the results of a study by Richard Nathan and James Fossett that found that cities considered "distressed" in 1960 were in the same or worse condition in 1978, and that much-touted cases of urban revitalization were limited to small sections of cities and should not be taken to indicate more general improvement...

...In fact, he does not expect the government to lose anything...

...Surprisingly, the enterprise zone idea is being looked at seriously and with some degree of support by individuals and groups on both the right and the left...

...The zone criteria are supposed to have been defined in such a way as to apply to areas including only about five percent of the population...

...In some instances property tax relief could be helpful, but many, if not most, small businesses rent the facilities they occupy, and the landlord may or may not choose to pass on the property tax savings...

...In that same year, seventy percent of the people were eligible for food stamps, and sixty percent were receiving them...

...But it could take at least that long, and probably longer, before new businesses would produce new tax revenues...

...3. for corporations, a reduction in the capital gains tax rate to fifteen percent on property in the zone...

...In 1957, 500 American plants were employing 40,000 workers, and by 1977 the numbers had risen to 2000 plants and 140,000 workers Corporations had invested more than $14 billion in the island...

...Discussions so far have tended to focus on ways to loosen the requirements for property tax reductions, to simplify the data requirements for poverty and unemployment, to avoid the massive political problems connected with the Social Security tax reduction, and to tighten the employment requirements...

...The basic problem is that good, reliable numbers for these conditions do not exist for such small units...

...They might be particularly inviting to a firm, inspired by the example of multinational corporations, looking for tax havens to shelter profits...

...The first involves certification of the unemployment and poverty conditions in a zone application...

...Reagan credits Buffalo, (N.Y...

...Reagan proposed to create "urban enterprise zones'' which he says, should create large numbers of new jobs and produce dramatic improvements in the most distressed parts of the cities...

...Meanwhile, as businesses sought to locate in the zone, the city would be faced with new capital costs for streets and bridges, water and sewage systems, as well as higher costs for police and fire protection in the area...

...Local governments...

...He presumes that the benefits of a zone designation should be enough incentive to convince the city to make the investment...

...Here the trickle-down character of the bill shines through...

...Black columnists Carl Rowan and William Raspberry have both commented favorably on the bill...

...A potential zone would have to include at least four thousand people, a substantial number of whom are poor...

...But another set of figures, as well as evidence from everyday life, tell a different story...

...Hall further anticipated that, while these firms would employ mostly highly-skilled workers from outside the zone, the presence of new firms in the zones would generate service businesses that would employ semi-skilled and unskilled residents...

...To some extent this would occur as white collar administrative and professional employees sought housing closer to work, and to some extent it would occur as land values and rents increase, forcing resident and small shop owners to find more affordable space...

...Under legislation signed by President Truman in 1950, the island gained status as a commonwealth and at the same time became a very attractive location for businesses...

...KEMP AND Garcia have begun a national speaking tour touting the bill as a way to improve the fiscal health of badly distressed cities, revitalize neighborhoods, promote small business startups, and employ the jobless...

...Realizing this, real estate interests, always a powerful group in local politics, should take a strong interest in the process of zone delineation...

...3. more than fifty percent of the families below the poverty line...

...illiteracy disappeared...

...The answer is "probably not," at least not as long as its sponsors remain committed to an approach that denies the central importance of government planning and investment and prefers to work through large corporations...

...The basic idea for the bill has been imported from Great Britain...

...and meeting the most pressing local needs...

...The area, which takes its name from early Polish residents, is a distressed but still vital neighborhood including several active churches, a hospital, small commercial businesses, and large sections of decent moderate-income housing...

...The second is the required twenty percent reduction in property tax rates in the zone...

...It was a case, as Sidney Lens neatly summarized it, of "growth without development...

...What is going on...

...The bill then lays out five different tax benefits for businesses, employees, and property-owners: 1. a reduction in Social Security payroll taxes for employees and employers by ninety percent for workers under twenty-one, and by fifty percent for workers twenty-one and older...

...In 1977, the official unemployment rate was twenty percent (compared to thirteen percent in 1960), but the governor's office estimated that it was probably closer to thirty...

...The "Urban Jobs and Enterprise Zone Act," as the bill is known, proposes delineating zones in urban neighborhoods like the South Bronx-part of Representative Garcia's district-and offering substantial tax incentives to private businesses that locate there...

...Even Representative Augustus Hawkins has called it a "bold, innovative approach...

...Tax benefits are attractive only when a firm earns enough to face a significant tax liability...

...At the end of November mayors and city councilmembers from around the country, meeting in Atlanta at the National League of Cities annual convention, spent considerable time examining the bill, and by and large liked what they saw...

...General revenues would be used to make up what was lost to the Social Security fund...

...Why, one could ask, should a business stay and pay normal taxes in a neighborhood with ten-percent unemployment when it could pay much less by moving a few blocks to one with fourteen-percent unemployment...

...The solution to the urban crisis is probably a much more complex and longer-term process than anything Kemp appears to have in mind...

...There is some likelihood that the increase could end up offsetting the benefits of lower property taxes...

...But a careful look at the bill and some guesses about how its various components may work raises some questions...

...Two groups appear to have the best chance of improving themselves under the bill...

...Puerto Rico's gross national product nearly quadrupled between 1950 and 1976...

...The act would permit the city to phase in the reduction at a rate of five percent a year...

...Therefore, the zones should look most attractive to executives of large, multi-branch firms thinking about opening another branch...

...Perhaps too impressed with the devastation of the South Bronx, supporters of the bill seem to presume that all depressed neighborhoods consist of acres of rubble, deserted buildings, and a few trapped residents who would abandon the area in a minute if they only had a way out...

...Not everyone joins in the consensus...

...This article is reprinted from Democratic Left, published by the Democratic Socialist Organizing Committee (854 Broadway, New York, N.Y...

...Kemp's explanation would be that the idea of enterprise zones is neither liberal nor conservative, but simply pragmatic, and thus can be supported by anyone interested in helping the cities...

...That will have to be worked out in a combination of federal, state, and local legislation that looks very different from the Kemp-Garcia proposal.that looks very different from the Kemp-Garcia proposal...

...and car ownership came close to overwhelming the island's roads...

...Kemp, however, has not included deregulation measures in the bill, arguing that they would stand in the way of getting labor and local government support...

...At the same time, nearby businesses that cannot move into it may end up being undercut by competitors able to operate in the zone with significantly lower costs...

...4. a reduction in corporate income tax rates by fifteen percent...

...Who would benefit from the bill...

...health standards improved...

...The bill is likely to bring new economic activity into the zones, but it is not clear whether this will be a net addition to the total economy, or simply a shift away from some other part of the city or country...

...Many of the companies that had first been attracted by low wages and low taxes were now leaving, looking for the same advantages in the Philippines, Taiwan, and South Korea...

...A poor but diversified and self-sufficient agricultural society at the turn of the century had become by the late 1970s a poor and dependent industrialized society, importing $800 million a year in foodstuffs (while three-fifths of the arable land was out of cultivation), and receiving more than a billion dollars a year in aid from the U.S...

...This, and the discretion allowed local governments, should create some marvelously gerrymandered zones in attempts to include politically important parcels of land...

...A second group of beneficiaries should be larger, established businesses...

...In many ways the model of Third World economic development suggested by the Puerto Rican example may be more appropriate...

...It is also not clear that the bill will do much for any of the interests it claims to serve-city governments, neighborhoods, small businesses, or the unemployed...

...It would have been worse but for the migration of about three-quarters of a million people to the mainland...

...Moreover, there is no guarantee that the jobs created by this investment would go to the unemployed in the zone...

...Free of regulations, and spurred by tax incentives, many of the new science- and technology-based firms would move into the zones...

...5. permission to depreciate the first $500,000 worth of property purchased each year over a three-year period...

...drawing on unique local resources, both natural and human...

...Kemp has put particular emphasis on what the bill could do to aid small business startups...

...10003...

...Firms had located on the island, and some people had found jobs, but Puerto Rico, after three decades of trickle-down development, was further than ever from a stable, self-sustaining economy...