CUED
Center
for Urban Economic Development
University of Illinois at Chicago
Discussion Papers on Enterprise Zones
Project Number: 185
Report Date: August 1982
Author(s): Charles Orlebeke, Robert Mier
This report contains three separate articles written about Enterprise Zones. The first is "Administering Enterprise Zones: Some Initial Observations" by Charles Orlebeke. Enterprise zones, although simple in concept, may not necessarily be simple to administer. Enactment of enterprise zone legislation will confront the federal government with a series of administrative tasks. These include (1) defining the selection criteria and managing the competition among jurisdictions for federal designation, (2) designing and implementing procedures for activating the main federally confer ed benefits-regulatory relief and tax incentives, (3) monitoring state and local jurisdictions' performance with respect to follow-through on their promised contributions, and (4) planning for the evaluation of program results. Potential problem areas include the cumbersome process by which state and local jurisdictions must petition individual federal agencies for regulatory relief in zones. In addition, the impracticality of applying the zone revocation penalty leaves federal officials without effective sanctions in dealing with nonperforming zone jurisdictions. In this report, discussion will be organized around four topics that represent a rough chronological ordering of administrative tasks: (1) designation, (2) activation, (3) compliance, and (4) evaluation. These topics also may be put in the form of the following questions:
(1) How will enterprise zones come into being?
(2) How will the main benefits-regulatory relief and tax incentives-be activated?
(3) How will the federal government respond if local or state governments fail to deliver on their parts of the enterprise zone bargain?
(4) How will the federal government approach the task of evaluating enterprise zones?
The second article is "Enterprise Zones: a long shot" by Robert Mier. This paper discusses various aspects of the Enterprise Zone legislation and the potential benefits, effects, and consequences of those aspects. One aspect is the tax incentives for capital investment, capital retention, and the employment of the disadvantaged. These tax packages are examined to see who will profit from them. Another component discussed is the implied shift of development responsibility from the federal to the state and local level. The federal law grants enabling powers to the state and local governments but not implementing powers. This article examines one effort that has been made to pass legislation on the state level designed to address these problems. It is the conclusion of this article that like other urban policy proposals in the past, the enterprise zones promise more than they can deliver. They cannot combat structural unemployment or underemployment, and they ignore other social and economic problems of our cities: insufficient private and public investment, inadequate educational opportunities, concentrations of the elderly and of people who have never experience work, a deteriorating physical environment. These problems cannot be solved by substituting "free enterprise" for government. Finally, it must be remembered that the enterprise zone program will be very costly in terms of tax revenues foregone and new administrative burdens. For all these reasons, it is essential to keep enterprise zones in perspective. They are not an easy solution to complex, long-standing problems. And yet, carefully developed and implemented, with a strong neighborhood development emphasis, they might very well be one signpost to the future. The third article is "Statement of Concern about Senate Bill 819 and 1299, The Enterprise Zone Act, as amended by Enterprise Zone Study Group University of Illinois at Chicago Circle." This report discusses the Enterprise Zone Act that was introduced into the Illinois Senate in May 1981. The purposes of this bill were commendable. However, we found the bill to be inconsistent with regard to those purposes. We are concerned that the Act would create more development disincentives that incentives. Similar questions on the incentives for enterprise zones have been raised regarding federal enterprise zone legislation, and have lead to both executive and legislative reformulations for the enterprise zone bills. Similar care must be given to the Illinois enterprise zone act. Although this critique focuses mostly on the economic implications, social and administrative problems are also analyzed. The conclusion of this report is that Senate Bill 819 and 2199 would not adequately promote economic growth. Both bills are inconsistently development and could be socially destructive.
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