Tax plan does not help cities, counties

The tax plan that is part of the budget bill recently agreed to by Congress and the White House does not hold much promise for cities and counties. Spurring economic development was just not that high a priority.

What there was on that score was easily lost amid the billion-dollar commitments for the reduction in the capital gains rate, the tax credit for working families, estate tax reform and the educational tax credits. They were the headline-makers.

President Clinton’s three tax incentives for cities and counties were “small print” kinds of things. The proposals did not contain any fresh thinking; they simply expand on current programs that have been something short of barn-burners.

The three provisions included expanding the number of empowerment zones and enterprise communities (the areas within poor sections of cities and towns that qualify for federal tax incentives); allowing companies that develop brownfields to claim tax deductions for cleanup costs; and making available $100 million in non-refundable tax credits to companies that make equity investments in community development financial institutions.

The final tax bill creates 20 new empowerment zones: 15 urban and five rural. There will be no new enterprise communities (the Clinton administration had requested 80, 50 of them urban.)

Historically, the zones have enjoyed more tax incentives than the communities, including a $3,000-per-employee tax credit employers can take for wages paid for new jobs created within the zone. However, in these 20 new zones, that wage credit will not be available.

Even with that credit, the current six big-city empowerment zones, established in 1994, have fallen far short in the results department. “Things are not moving as swiftly as the mayors had anticipated,” says Larry Jones, assistant executive director of the U.S. Conference of Mayors. Still, in a press release issued on July 22 in conjunction with a visit by Vice President Al Gore to Boston, the Department of Housing and Urban Development announced that the private sectors in those six zones have generated more than $2 billion in new investments and another $1.2 billion in commitments. However, HUD spokesman Bill Connelly said his department had no statistics on the number of new jobs created in those zones.

Progress on brownfields redevelopment has also proceeded at a glacial pace, primarily because companies have been hesitant to rush in and build office parks or anything else on these sites because of questions about environmental liability that could arise in the future. EPA is helping out through a pilot program under which it is cleaning up some 115 of the 450,000 brownfields (the General Accounting Office estimate) so they can be developed. Twenty-nine of those have thus far been completed.

Previously, only the company that polluted the site qualifies for tax credits. The new bill includes $1.5 billion in tax credits over three years for any company that sets up shop on a “qualified” site.

Larry Jones thinks that $1.5 billion will help get some redevelopment projects off the ground, but notes that for 450,000 sites, it is “a drop in the bucket.”

Additionally, the tax bill would have been the perfect place to make a clear, affirmative statement about the right of cities and counties to tax Internet service providers, a hot issue in Congress lately.

But this is one more issue in which the needs of local governments – as compared to those of the Compuserves, Prodigys and Microsofts – have taken a back seat. More action is expected on that issue when Congress returns this month.