Hd Zoned Out

It's the feel-good economic stimulus that's relatively easy to implement and gives elected officials the sense real or imagined that they're actually doing something to bring back long-forgotten inner-city neighborhoods.

It is, of course, the empowerment zone. Earlier this month, the Clinton administration announced that portions of Los Angeles would get a federal zone, while last week, the Los Angeles City Council approved a new set of business tax incentives for the city's own empowerment zone.

On the local, state and federal level, there is no shortage of these designated areas they have been around for years, along with tax incentive programs designed to bring in businesses.

But do they work? And conceptually, do they make sense?

Not likely.

Simply put, there is scant evidence that incentive zones of any type draw significant business activity into a region. UCLA economist Carol Zabin told a City Council hearing last week that "this is among the least effective types of business assistance."

One needn't look any farther than Los Angeles, where a state revitalization zone was established in 1992 in South Central, the northeast San Fernando Valley, the Harbor area and Venice. A survey conducted three years after the program went into effect found that only 9 percent of the 1,042 businesses within the zone had actually utilized any of its features. And of those businesses that hadn't used the program, 72 percent said they were not even aware of it.

It would be incorrect to suggest that the zones do no good whatsoever. Federal zones in Baltimore and Detroit, in particular, are considered to have met their goals for reviving impoverished areas. But zones in other cities have been riddled with administrative problems and resulted in very minimal job creation.

That's not a big surprise. But the more important point is that they are poorly conceived. Business owners, by and large, do not move into an area solely to realize lower taxes. Certainly, it's a factor as shown by the success of suburban areas like Thousand Oaks and Burbank but there are many other factors, including the area's skilled work force and its overall quality of life. (Sometimes, it comes down to how far a CEO wants to commute each day.)

Placing all the government cards on artificially created enterprise zones and related tax incentive plans is simply a poor bet. And when the zones don't result in any appreciable gains, it perpetuates the belief that inner-city communities are beyond salvation. Of course, nothing could be further from the truth, as illustrated by the huge marketplace power within the South Central region.

Government, of course, does have a role in revitalizing economically depressed areas, but it involves a more back-to-basics approach starting with high-quality education and effective law enforcement. Selected incentive programs should be considered, but only as a backup to the more fundamental matters, like better schools and effective job training.

Admittedly, none of this is fancy and it might even involve higher taxes but there's really no other alternative. It's clear that empowerment zones will not be the driving motivation for businesses to set up shop in disadvantaged neighborhoods. It's about time the policymakers began to realize that.

For reprint and licensing requests for this article, CLICK HERE.