Nearly three years after Los Angeles lost out on a bid for a federal empowerment zone, the city is now expected to get the designation as part of the new federal budget bringing tax breaks to businesses in the poorest parts of the city.
The question is whether local business owners will take notice.
Local officials acknowledge that many businesses are unaware of existing zones that offer similar tax breaks.
“I do think there’s confusion about the benefits and who is eligible and who is able to take advantage of the programs,” said Regina Birdsell, executive director of the New Los Angeles Marketing Partnership, a program that promotes L.A. County as a desirable place to do business.
The city already has five enterprise zones and a revitalization zone. Businesses in the zones receive state tax credits for the purchase of machinery and equipment, construction costs and the hiring of workers who live within the zones. Also, banks and other lenders who gives loans to businesses within the zones receive deductions on interest they are paid.
Steve MacDonald, director of L.A.’s Business Team, a section of the mayor’s office devoted to L.A. business retention and attraction, acknowledged that letting business owners know what benefits are available to them has been a challenge over the years.
“I think in general the companies tend to be confused about the different programs out there, and that’s why we on the Business Team try to work with them on it,” MacDonald said.
In existing empowerment zones, businesses receive up to $3,000 a year in federal tax credits for each employee who lives and works within the zone. The credits apply to existing employees as well as new hires, so many companies received tax breaks as soon as the zone was put in place.
The credit as with the worker tax credit in the state zones is given to encourage companies within the empowerment zones to employ workers living in the region’s most impoverished communities.
In addition, businesses are able to write off the purchase of new equipment up to a value of $37,500 a year in the first year the equipment was bought, rather than over the normal five-year period.
Also in existing empowerment zones, tax-exempt bonds were available for manufacturers and commercial developers up to $3 million a project, and up to $20 million per business. The bonds have been used scantily in other zones because of complex employment requirements, but those problems are expected to be ironed out by the time L.A. gets its empowerment zone.
In 1994, federal officials stunned local officials by turning down the city of L.A.’s application for one of six original empowerment zones, which brought business tax credits, federal grants and other incentives to other cities even though it was L.A.’s 1992 riots that were the inspiration for empowerment zones.
As a consolation prize, the city in 1995 was given a $450 million federal grant to form the Los Angeles Community Development Bank, which offers loans to businesses in impoverished parts of L.A.
City officials expect confirmation within the next six months that Los Angeles will be home to one of 20 new empowerment zones as part of the recently approved federal budget.
“The presumption is that it will be in Los Angeles,” said Jim Seeley, the city’s federal legislative representative.
The proposed 19.3-square-mile empowerment zone, the same zone that was proposed in 1994, encompasses much of East L.A., Pacoima, South L.A. and Watts.
Seeley said the hardest and most important part of receiving the designation will be promoting the zone to L.A. businesses.
“We’re going to have some work cut out for us to tell them they’re in the empowerment zone,” Seeley said. “It’s a real challenge.”
But, he added, the designation will be good for such business promoters as L.A.’s Business Team.
“This just adds another arrow in their quiver,” Seeley said.
Jack Kyser, chief economist with the Economic Development Corp. of L.A. County, said that the region’s existing zones that give businesses breaks in their taxes the state revitalization and enterprise zones have been useful, but underutilized because of insufficient marketing.
“So a good question is how we are going to approach the empowerment zone and how we are going to staff it, because these things become much more labor-intensive,” Kyser said. “But this could be a good opportunity for us.”
Larry Kosmont, president of Kosmont & Associates Inc., which produces an annual report on the cost of doing business in cities throughout the state, agreed that the problem in promoting zones in the past has been “the lack of clear explanation.”
But he added that the Business Team and others have done a better job in recent years of promoting them, and that each new tax-break program is a plus for the city.
“As long as someone is around there on the private and public side to walk these people through the process, I think they accrue to everyone’s benefit,” he said.