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The Attraction of Enterprise Zones: Tax Benefits and Incentives for Businesses

Locating a business in a designated enterprise zone can often provide incentives unavailable in other areas. But the incentives offered are beginning to change - and there may be tradeoffs that could devalue the financial advantages.

Nov 08
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A Changing Game
Enterprise 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."

Since 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.

Colson indicates 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
Buzz 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."

"An 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."

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