Nearly 3,000 enterprise zones operate across the United States. They go by various names depending on the location - Empire Zones, Pine Tree Development Zones, and Economic Target Areas, to name several. For more than two decades, enterprise zones have been key drivers of economic development in many states.
"Enterprise zones are designed to stimulate business growth and job creation in economically distressed communities, where market forces would not normally operate," says Jim Colson, president of site selection for Angelou Economics in Austin, Texas. Some states have only a few enterprise zones, while others have hundreds. Still other states, such as Kansas, have designated the entire state as an enterprise zone. Core benefits of enterprise zones are tax credits for capital investment, research and development, new jobs, and hiring local workers. The exact rules and details for these incentive packages, however, vary from state to state and often have additional county and municipal regulations to follow. Benefits may also be tiered, where the best credits go to companies that do business in communities or regions that are the most economically distressed.
Other incentives linked to enterprise zones are state loans, property tax credits, investment tax credits, tax increment financing, improvements to public infrastructure and services, venture capital funding, and income tax credits. When added together, tax credits from enterprise zones can total millions of dollars every year over a given time period. This aggregate tax break makes a huge difference to business startups and expansions, which often require large capitalization expenditures that would otherwise be difficult to afford.
Take, for example, Baltimore County's Southwest Enterprise Zone in Maryland. Established in 1996, this zone now has 62 thriving companies that have invested nearly $100 million and added 920 new jobs. In 2007 and 2008, according to state officials, new companies created 670 jobs in the Southwest Enterprise Zone. The 51-acre, $30 million Hollins End Corporate Park, a former grocery warehouse-distribution center, is being redeveloped to include multi-tenant, bulk, and service warehouse buildings. A total of 1.3 million square feet in eight buildings will be available when the project is completed. Service Express and Fed Ex Ground have recently signed leases there. Environmental Quality Resources (EQR) an environmental construction company, moved to the Southwest Enterprise Zone in August 2007. "We just received our first credit after being here one year - an 80 percent reduction in our property taxes," says Martin Varghese, the company's human resources director.
Enterprise zones are set up for various lengths of time, typically 10-15 years. As legislative authorization for many of these programs are beginning to expire, many states are starting to take a hard look at the economic paybacks: Are the lost taxes worth the economic development that results in the enterprise zones? Which ones aren't producing? Are there ways to streamline administration to make the enterprise zones more cost-effective?
The Portland Development Commission (PDC) in Oregon temporarily shut down its North/Northeast Portland Enterprise Zone in 2007 to study its performance and streamline its rules and regulations, which had become overly burdensome. "It is the biggest tool in our toolbox," says Erin Flynn, economic development manager for the PDC. The main goal was to make the tax incentives less complicated and to do a better job of customizing work force development for individual companies. To date, 35 companies have invested $437 million in new buildings and equipment and created or retained over 4,000 jobs, making it one of the most productive enterprise zones in the state. In return, businesses saved a collective $26 million in taxes. Notable companies in the zone include Oregon Steel Mills, Columbia Sportswear, YoCream International, and Widmer Brothers Brewing.
New Mexico has both region-specific and statewide incentives to maximize its appeal to new businesses. The state provides a tax credit for high-wage jobs in small communities - 10 percent of the combined value of salaries and benefits for each new job paying a minimum of $28,000 per year in areas with populations less than 40,000 persons. The credit cannot exceed $12,000 per year per job and can be taken for a maximum of four years. Manufacturers anywhere in the state are entitled to a tax credit of 5 percent of the value of qualified equipment and other property used in their operation. Businesses may also claim a credit on research expenditures of four percent (eight percent in rural areas). An additional 4 percent may be applied against state income tax if base payroll expenses are increased by at least $75,000 per $1,000,000 of expenditures claimed.
Pleasantville, New Jersey, near Atlantic City, has launched a new member recruiting campaign to promote its enterprise zone, which has been retooled to include more targeted, professional communication and streamlined processing for new members. City officials have have also branded the zone benefits into what they call a "tool kit" that clearly spells out benefits to member businesses.
Maine established its eight-zone Pine Tree Development Zone (PTDZ) program in 2004 to entice businesses with the opportunity to greatly reduce or virtually eliminate paying state taxes for up to 10 years. In September 2007, the state made the Pine Tree Development Zone incentives available to any qualifying manufacturer who sets up new operations anywhere in Maine - essentially making the state a single enterprise zone for manufacturers.
A Changing Game
zones overall aren't as eye-catching as they once were, because nearly
every state provides them and they are all basically the same.
"Companies today are looking for much more flexibility and higher-value
incentives," says Colson. "Communities are getting more creative with
the incentives they offer, especially with payroll taxes. Cities can
use their bonding capacity to create financial structures for capital
improvements. Building permits are being approved more quickly."
the inception of Wisconsin's enterprise zone program in 1997, 150
businesses have received enterprise development zone awards totaling
$203 million in allocated tax credits. These projects represent a total
of $3.3 billion in capital investment and the creation of 30,510 new
jobs. Wisconsin was also one of the first states to create Technology
Zones to build its biotechnology and high-technology sectors. Now,
according to Tony Hozeny, communications director for the Wisconsin
Department of Commerce, Wisconsin is combining all its tax credit
programs to make the state more attractive to companies. "The proposal
is before the legislature right now," he says.
the enterprise zone approach is continuing to evolve away from a strict
focus on economically distressed areas. "We're seeing more of this
overseas in places like India, where the government is setting up
enterprise zones in areas that have the best potential for continuous
growth and long-term success - which aren't disadvantaged." He says a
similar approach is being taken by southeastern Michigan in
establishing an "aerotropolis" centered on the Detroit airport, where
enterprise zone-like incentives will apply to the entire region, not
just poorer communities within it. Wayne County, Detroit Renaissance,
the Detroit Regional Chamber, and the seven communities in the corridor
are collaborating to establish and market this area.
A Word of Caution
Canup, managing principal of global location strategies for Fluor in
Greenville, South Carolina, cautions that enterprise zones are created
for very real reasons. "Either these areas were losing significant
amounts of existing business and industry, or they had never succeeded
in attracting development," he says. "Most enterprise zones are very
weak from a work force standpoint. Many have high poverty levels." He
suggests that when doing a site selection analysis on an enterprise
zone, try not to be swayed by focusing only on the money. "First, be
sure that you can be successful there without the incentives. If the
other key factors - labor, labor skills and trainability, access and
logistics, infrastructure - all come together and you have a choice of
similarly qualified sites, that's where the enterprise zone incentives
can really make a big difference in the decision-making process."
enterprise zone is not necessarily a silver bullet," says Mel Tull,
director of the Silver Spring Enterprise Zone in Maryland, which was
established in 1996. "It is a very good incentive, but you usually need
other things to go along with it to really make the deal happen." He
also points out that enterprise zones can be the tool that gets
discussions started. "Offering an enterprise zone can initiate a very
important dialog with company executives that will hopefully lead to
finding out what they really need."