Program may help fight urban decay >By Stephen Barlas
Empowerment zones (EZ) and enterprise communities (EC) were supposed to be the answers to inner city decay. The programs, begun in 1994, provide federal grant money to help cities attract businesses to depressed areas. Companies in EZs also are eligible for federal employment tax credits.
But four years later, the success stories are few and far between. Each of the nine EZs has $100 million in grant money to draw on, but that has not made much of a difference anywhere.
Cameron Whitman, senior legislative counsel for the National League of Cities, says the EZ/EC programs have sometimes produced little more than “smokestack chasing.” The zones and communities, he says, often have competed against each other for companies that were ready to establish a presence in (or relocate to) the area whether the EZ or EC existed or not.
Additionally, Diane Lupke says that sometimes, applying for the tax credits costs more than the credit is worth. Lupke, testified for the National Council for Urban Economic Development before the House Ways and Means oversight subcommittee last October.
She says, “Businesses that have tried to use the credit [say that] a difficult certification process makes using the credit not cost-effective. And even if a company qualifies, the cash only arrives at the end of the fiscal year.”
A small item in the little-noticed Small Business Administration reauthorization bill signed by President Clinton in early December, may help. The brainchild of Sen. Christopher Bond (R – Mo.), chairman of the Senate Small Business Committee, HUBZones are inner city and rural census tracts designed to attract small businesses through a “set aside” pool of federal contracts (1 percent of all federal contracts for fiscal 1999 rising to 3 percent in 2003.) Median household income in the HUBZones is 80 percent or less of the state’s poverty level.
To qualify for the federal contracts, companies must agree to hire a minimum of 35 percent of their employees from the HUBZone in which they are located or from surrounding HUBZones. EZs and ECs are under no such employment constraints. This adds a “welfare-to-work” component missing with EZs and ECs.
Bond’s staff has not actually done a national count of eligible HUBZones. But it has estimated the numbers for some states. Missouri, for example, has 145 eligible urban tracts, New Jersey has 221 and Utah has 29. A smaller number of rural areas within each state also will qualify.
HUBZone companies must be small. Bond’s intent is to help cities and counties attract companies that can win particular types of Defense Department contracts – whether for mattresses or tank turrets – and spur the relocation of many small subcontractors and support businesses (fast food joints, laundries and drug stores).
“The welfare-to-work component of this program, plus the immediacy of the up-front capital investment, will do much more for these depressed communities than after-the-fact tax incentives,” Bond says.
At least for some cities, HUBZones may be short-term solutions to economic decay. But businesses, cities and counties will have to get together quickly and come up with a game plan. That may mean deciding which kinds of contracts HUBZone companies want to go for.
The broad range of Pentagon contracts that will constitute the 1 percent of federal contracts available as of next October 1 should draw considerable interest. “There is going to be a race for those contracts,” Bond says. “It will be like a football game. If a HUBZone scores two touchdowns in the first quarter, it is likely to win the game.”