March 18, 1991 A PEOPLE-ORIENTED ENTERPRISE ZONE FOR DENVER By Dwight Filley Independence Senior Fellow in Narket Principles Unrealized Promise of Enterprise Zones Enterprise zones, pioneered in Britain in the 1970s and popularized in the United States by Stuart Butler of the Heritage Foundation, are an economic revitaliza- tion and anti-poverty strategy based on removing some of the taxes and regula~ tions fron selected depressed areas, thereby encouraging entrepreneurship and permitting residents of these areas to rise out of poverty. U.S. legislation for enterprise zones was rst introduced in 1980 by congressmen wack Kemp (R-NY) and Robert Garcia ( NY). Enterprise zone bills were defeated every year until 1987, when mostly sym- bolic legislation was passed as part of the Community Development Act. It au- thorized the Department of Housing and Urban Development (HUD), to designate 100 federal enterprise zones and allowed the Secretary of HUD to waive or modify any HUD rules or reguiations in these zones. Kemp, now Secretary of HUD himself, indi- cated just how symbolic this provision is when he spoke in Denver last fall. It is frustrating, the secretary said, to rea- lize that ‘the reform mayor of Moscow, (Continued on Page 3) Note: Research and field work for this | issue paper were conducted by Barry Brinton, an associate of the Independenc | | Institute and its Colorado Opportunity Network, under a grant fron the Anschutz | Fanily Foundation. | ce In eri Enterprise zones now existing under Colorado law overenphasize tex breaks for new or existing businesses, with little direct benefit to low-incone people. * Better anti-poverty results could be achieved by systematically removing al government barriers to econonic acti- Vity in. the most depressed nei ghbor- hoods. * U.S. Census data suggest that two | Denver neighborhoods along Champa | Street, northeast of downtown, would be | a good. test area for this approach. These tracts already sit in state- | designated enterprise zone, but addi- | tional action by city government could | make then a truly people-oriented EZ. + Property, sales, and head taxes in thé experimental tract should be lifted, 2 Yong with zoning restrictions on such | matters es signs and hore employment, and regulatory restrictions on small ventures such as day care. * Economic benefits to EZ residents, with resultant lessening of service cenands, are expected to outweigh revenue losses to the city. * objections of unfairness to nonpartici- pating residents of the zone, or to Persons and firms outside the zone, ie- | nore the greater unfairness of status | quo policies that let stagnation con- | | © approaching @ mayoral election, Denver should debate the merits of an EZ ex- | periment in its northeast neighbor- | |__hooes. | ‘Note: The Independence Issue Papers are published for educational purposes only, and the authors speak for themselves Nothing written here is to be construed as necessarily representing the views of the Independence Institute ov as an attempt to influence any election or legislative action.Gavril Popov, may succeed in launching real enterprise zones for his country before we achieve them here. As federal efforts lagged, roughly 38 states, including Colorado, have passed their own enterprise zone legislation. The Colorado act (CRS 39-30), passed in 1986, provides for 13 zones, each of which must have Jess than 50,000 in population, and meet at least one of the following criteria of distress: 1. An unemployment rate at least 25 percent above the state average. 2. Population growth rate less than 25 percent of the state average. 3. Per capita income less than 75 percent of the state average. The Enterprise Zone Application Guidelines for Colorado state the zones should provide "incentives for private enterprise to expand and for new businesses to locate in economically depressed areas of the state.” These incentives include: ° A three percent investment tax credit ° A $500 job tax credit or refund ° A three percent research and development tax credit ° Exemption of manufacturing equipment from state sales and use taxes Denver's existing enterprise zone (see map, page 2) consists of an inverted "L" shape area roughly following the Platte River, then angling across the north part of Denver on either side of I-70. Significantly, the Denver zone includes all of Stapleton International Airport, all of downtown, and all of the industrial sections along the Platte and I-70 corridor. It seems obvious that rather than being aimed at poor people, this enterprise zone in Denver is designed to benefit primarily the industrial and commercial districts of the city. Critics of enterprise zones charge that the existing strategy has accomplished little. According to Business Week magazine: “Paltry tax breaks rarely’ affect where a company builds a plant."* The unstated assumption of this criticism is that the purpose of an enterprise zone is to lure existing businesses into distressed areas -- an activity which tends to bring in outside labor and force out existing residents. Benefits to the disadvantaged are minimal. The notion of enterprise zones as helping the disadvantaged has been subverted by the political process, which is, of course, more influenced by business lobbyists than by disadvantaged people -- people who often have little idea of even the concept of lobbying, let alone its practice. As a result, enterprise zones, to the extent they exist at all, are aimed at attracting or assisting larger existing businesses. After all, of what use is a tax credit to @ business start-up, which probably will lose money its first few years, thus paying no taxes, and therefore not benefiting fron tax credits? n't Put Plants in the Inner City, Business Week, February 27, 1969,° Lowest household median income * Lowest income of female householders with own children under 18 ° Highest percentage of people for whom poverty status is determined to be 75 percent of poverty level ® Lowest median rent United States census tracts have about 4,000-8,000 people per tract, and remain stable in areas with little population growth, such as the City and County of Denver. That_is, we can expect the same tracts to be used in future censuses. hen the six lowest scoring Denver census tracts are selected in each of the above categories (see table below), four tracts are worst in three of the four categories, and two of these four worst tracts share a common border and are about the same size. These are tracts 24.01 and 25 (see map, next page). Tract 24.01 is bordered by 23rd Street, Champa Street, Downing Street, 26th Street and Mashington Street. Tract 25 is bordered by 23rd Street, 20th Avenue, Broadway, 20th Street and Champa Street. Because these two tracts share 23rd Street as a border, they present an excellent opportunity to test the effectiveness of the enterprise zone proposal which follows. Their populations are similar, and both tracts are primarily residential, with no industrial zoning. Thus if the proposals were implemented in one but not the other, the effects could be observed, relative to a “control group,” i.e. the other tract. These two tracts have the additional advantage of both being within the existing Colorado enterprise zone, thereby eliminating any distortions caused by the benefcial effects (if any) of the state zone. Not only are census tracts convenient units for measurement purposes, but they are large enough to provide a realistic test, yet small enough to make implementation politically feasible. It bears repeating, however, that these tracts were selected using 1980 data. | Tract Lowest Lowest Loves. sncome bigness remenmectan of enale parowns | Feat Fovserolé hourenalaer Persons | | fncone Sithomenvidren below naar ib 3 parcent Ea poverty Sere!