Urban Enterprise Zones: Will They Work?

Abstract

In this issue, the Department highlights a policy initiative identified with supply side economics and the Reagan Administration: urban enterprise zones. Richard Mounts, currently a program director specializing in energy and economic development with the U.S. Conference of Mayors, offers his views of pending legislation which would employ a variety of tax incentives to induce businesses to locate in zones designated by the Secretary of Housing and Urban Development. As Mounts points out, the proposals are quite in keeping with the spirit of deregulation and the belief that previous federal urban programs have been ineffectual, wasteful, and frequently counterproductive.These criticisms notwithstanding, Mounts is skeptical that the proposed zones (&dquo;shameless free enterprise&dquo;) will greatly improve matters. They focus on only one facet of the phenomenon of urban decay: economic deterioration. Moreover, previous attempts to use tax incentives to shape urban outcomes give little reason for optimism. In any event, Mounts suspects that the success or failure of the zones will be heavily (if not totally) dependent on the fortunes of the general economy. Ultimately, however, Mounts' criticisms rest upon a conviction that economic development through unfettered capitalism is not likely to undo the social and cultural concomitants of urban blight (and may even worsen them, even as some believe that it has contributed to their emergence).A former administrative assistant for Los Angeles, Mr. Mounts has done graduate work in political science (University of Colorado-Boulder) and worked for the Washington offices of the National League of Cities and the Center for Renewable Resources prior to taking his current position. The views presented here are those of the author and do not represent the official stance of the U.S.

State enterprise zone programs: have they worked?

“…These arguments included 1) that incentives had little or no influence on business investment and location decisions; 2) that the incentives offered in enterprise zones would tend to benefit larger capital-intensive firms and not the smaller labor-intensive firms which are more likely to create new employment; 3) that zones would result in a worrying increase in the tax burden on non-zone businesses and residents; 4) that enterprise zones would result in capital shifts into zones but not in new capital formation; and 5) that enterprise zones would draw resources away from more direct ways of helping to solve urban problems. See variously Birdsong (1989), Clarke (1982), Estes and Hammond (1992), Glickman (1984), Goldsmith (1982), Hawkins (1984), Humberger (1981), Jacobs and Wasylenko (1981), Ladd (1994), Levitan and Miller (1992), Massey (1982), Mier (1982), Mounts (1981), Pierce, Hagstrom, and Steinbach (1979), Rubin and Zorn (1985), Vaughn (1979), and Walton (1982). To these criticisms we would add those of the American Planning Association, which argued that since land-use regulation did not cause blight, the relaxation of land-use controls was unlikely to remove blight.…”

A program evaluation of the Louisville Enterprise Zone : a study of local planning and economic development.

“…It is argued that their incentives in the form of foregone tax revenues and possibly more public capital spending increase the tax burdens for nonzone firms and residents by shifting these higher tax burdens onto the non-EZ firms and residents (Armstrong, 1981;Humberger, 1981;Mounts, 1981;Clarke, 1982;and Hawkins, 1984). Also, according to critics, the zones might only tend to transfer capital investment from one location to another, rather than creating new investment (Peirce, Hagstrom and Steinbach, 1979;Clarke, 1982;Massey, 1982;and Blair, 1995, pp.…”