By DANIEL TAUB
Staff Reporter
When Vice President Al Gore announced that Los Angeles would get its long-awaited federal empowerment zone in 1999, local officials hailed it as a remedy to many of the economic problems in such areas as Pacoima and South Central L.A.
But similar zones have been tried before both in L.A. and other cities with limited success. Most of the areas in the Los Angeles empowerment zone continue to be plagued by high unemployment rates and vacant lots that could be factory sites.
In Los Angeles, a state revitalization zone was established in 1992 in South Central Los Angeles, the northeast San Fernando Valley, the Harbor area and Venice. The zone provided businesses a varying degree of tax credits for such things as hiring residents living within the zone.
But a survey conducted for the city’s Community Development Department three years after the revitalization zone went into effect found that only 9 percent of the 1,042 businesses surveyed in the zone had used the program.
Of those businesses that hadn’t used the program, 72 percent of respondents said they were not aware of it. The five-year revitalization zone ended last year.
So if the area has made little use of past zones, why does it need a new federal empowerment zone?
Local officials say the new zone offers greater tax benefits than the revitalization zone and L.A.’s five state enterprise zones, located in Central City, the Eastside, the Northeast San Fernando Valley, Watts and the Harbor.
Therefore, they say, it is a better tool for encouraging economic development than the state zones.
“It’s far more significant,” said Rocky Delgadillo, deputy mayor of economic development for the city of L.A. “The thing is that most companies don’t have as much state tax liability as they do federal tax liability. So the federal tax credit is far more important.”
For companies within the empowerment zone, the program offers a tax credit of up to $3,000 a year for each employee who lives within the zone.
By comparison, the state enterprise zones have much more stringent qualifications for tax credits workers, for example, must have been in a job training program, be disabled or be Native American and the credits only apply to a company’s state taxes, which are typically much lower than its federal taxes.
Also, the state enterprise-zone benefits only last for five years, while the federal benefits last for 10.
Delgadillo and others admit that the empowerment zone is not a panacea to solve all of the region’s woes.
“I think empowerment zones, in and of themselves, don’t do the trick,” said L.A. County Supervisor Zev Yaroslavsky, whose district includes the Pacoima section of the new zone. “But when you do it in combination with some of the other things that are going on in the Northeast San Fernando Valley, I think it’s a comprehensive strategy in which an empowerment zone is only one part.”
Yaroslavsky and others said that the empowerment zone, in combination with the still-remaining state enterprise zones and the $430 million Community Development Bank which was given to the city to make business loans within the empowerment zone will help convince businesses to stay within the zone, and to grow there.
“On top of all the other benefits that we have, this is a very welcome icing on the cake,” said City Councilman Richard Alarcon.
Alarcon added that he expects the Community Development Bank which has been criticized for issuing a relatively small number of loans, closing less than $25 million in loans by the end of last year to also increase its loans as businesses within the zone start taking advantage of the federal tax credits.
But the zone has another issue to contend with: Of the six empowerment zones previously created in the U.S., only two those in Baltimore and Detroit are considered to have fulfilled their promises. The zones in Atlanta and Camden, N.J., on the other hand, have been riddled with problems, and have created few new jobs, said Peter Navarro, a professor at UC Irvine’s Graduate School of Management.
“It’s been a very mixed bag,” Navarro said. “It’s the difference between several hundred jobs, and several thousand jobs. (In Atlanta and Camden), the jobs are in the hundreds rather than in the thousands.”
But Assemblyman Tony Cardenas, D-Panorama City, said he does not expect the L.A. empowerment zone to have the same problems experienced by others.
“One of the reasons why this one’s going to be successful,” he said, “is because we’re learning from the success of others, and the failure of some others.”
Delgadillo said many people fail to use state programs because they are unaware of them, but that won’t be a problem here. L.A.’s Business Team, an arm of the Mayor’s Office devoted to business retention and attraction, is gearing up to educate businesses in the empowerment zone about the new federal program, he said. (The Business Team had yet to be created when the earlier zones went into effect.)
“You have to have relationships with businesses,” Delgadillo said. “You have to market this like you would any other product or service. And we have L.A.’s Business Team poised to do that.”
