State Enterprise Zones
Enterprise Zones (EZs)
Enterprise zones (EZs) are geographic areas in which companies can qualify for a variety of subsidies. The original intent of most EZ programs was to encourage businesses to stay, locate, or expand in depressed areas to help revitalize them. EZ subsidies often include a variety of corporate income tax credits, property tax abatements, and other tax exemptions and incentives. Zones range in size from hundreds to several thousand acres.
Most states have their own versions of enterprise zones. State zone programs are usually called “enterprise zones,” or “empowerment zones,” but some states have their own names such as Michigan’s “Renaissance Zones.” States began enacting enterprise zones in the U.S. in the early 1980s though some places have since eliminated them.
How state EZs work
State law sets out the criteria an area must meet to be designated an enterprise zone. Each state’s EZ program is slightly different. In order to qualify as an enterprise zone, an area typically has to meet a state’s definition of distress or blight, usually defined as having a relatively high rate of unemployment and/or job loss. Other common criteria include low income or education levels, population decline, high vacancy rate of buildings, or high proportion of old housing stock.
Many states require companies to meet performance standards to qualify for zone incentives. In addition to being located within the zone’s boundaries, a company may be required to create new jobs or make a substantial capital investment within a zone. Some states mandate that to collect credits, a certain percentage of the company’s new hires must be zone residents and/or be paid above a certain wage. Some encourage companies to hire “disadvantaged” workers and provide tax credits in return.
Enterprise zones offer businesses a bundle of state and local incentives. EZ subsidies are entitlement subsidies – that is, any company that meets the qualifying criteria is eligible to collect them. Common subsidies for which an EZ company may qualify include:
- Property tax abatements
- Investment tax credits (against corporate income tax)
- Job creation tax credits (against corporate income tax)
- Inventory tax exemption
- Sales, franchise, and use tax exemptions or reductions
- Lower utility rates
- Financial assistance through low interest loans and/or bond financing
- Training grants
State EZs are administered and monitored by a local zone association or central zone-coordinating agency that may help select the designated zones, produce periodic reports, and supervise the financing of the program. Each zone also has local governance. In some states, local zone administrators are given discretion over the choice of benefits offered, while in others only state-level incentives may be provided.
Accountability and outcomes
State enterprise zones have been studied extensively by academic researchers, other evaluators, and by government agencies such as the General Accounting Office. The results are not encouraging. They show that zones generally induce little new economic activity, and that even when zone employment increases, job gains for zone residents are quite modest.
EZ subsidies cost state and local treasuries a lot of lost revenue, and like many subsidy programs, it is often unclear whether the developments would have happened in the area anyway. Critics of enterprise zones fault the program for failing to create new jobs; if companies do come to an area, they typically relocate existing jobs from one site to another.
Another criticism of enterprise zone programs is that they are not targeted enough to help distressed areas attract investment. Many states have loosened their zone criteria to the point that virtually any area in the state can qualify, and the zones no longer serve their original anti-poverty intent. Political favoritism, rather than need, means companies, existing and new, are the only real winners.
Information on enterprise zones may be obtained by reviewing state zone regulations, interviewing the zone association director, reading the zone association’s annual reports, and talking to academics, legislators and state agency officials who are familiar with the process. Most states provide detailed information on enterprise zones on their websites, including criteria for eligibility, benefits offered, and relevant statutes
State enterprise zones generally require a public review process at the time they are created. Before a zone may be designated, a local government must submit an application to a state development agency. In some states, there must be a notice and a public hearing, followed by adoption of a local ordinance before the application can be submitted. The state agency then determines if the area meets the criteria laid out in the enterprise zone law.
Information about the activities of private companies located in EZs is often harder to come by, though some states disclose recipients as well as wage and employment data collected from EZ companies (start by checking Good Jobs First’s Subsidy Tracker). Facts about some subsidies, including local tax abatements, direct loans, or industrial revenue bonds from a municipal or state entity, are part of the public record.