Congress moves on bill creating enterprise zones in inner cities, rural areas Bush seeks more

compromise likely

July 31, 1992|By Knight-Ridder News Service

WASHINGTON -- In the aftermath of the Los Angeles riots, President Bush called for hundreds of enterprise zones offering tax breaks to lure employers to inner-city neighborhoods that government programs have been unable to save.

Now the Democratic-controlled Congress -- which has resisted enterprise zones since Ronald Reagan proposed them early in his first term -- is set to go along.

But Congress is opting for far fewer zones than Mr. Bush wants, in the belief that concentrating the benefits may be more effective.

"I've read everything I can get my hands on on enterprise zones, and the judgment is inconclusive," said Sen. Lloyd Bentsen, a Texas Democrat and chairman of the tax-writing Finance Committee. "Our best chance stands with funding fewer zones to better capitalize the hopes of each one."

The House has already passed a bill calling for 50 enterprise zones, while the Senate is proposing 25. Many of the zones won't be in cities. To secure votes, sponsors allotted 25 zones to rural areas in the House bill, and 10 in the Senate version.

For employers, low labor costs would be the big attraction of doing business in an enterprise zone. Companies would get a tax credit for part of the wages paid to workers who live in the zone.

There would be other goodies as well: The House bill would give enterprise zone companies a capital gains tax cut, and the Senate bill would help local governments make low-interest loans to businesses in poor areas. Both bills call for the zones to be chosen through competition, taking into account the area's economic condition and the strength of its proposal.

Although the Bush administration is at odds with Congress on many issues, it is eager for a compromise on this one.

Enterprise zones have a seductive appeal for policy makers. The concept sounds simple: Take an economically depressed area. Declare tax breaks for companies that operate in it. Pump in money for job training and public works. Watch the market system do the rest.

But Rodney Erickson, a Pennsylvania State University professor who has studied results from 357 state-sponsored enterprise zones, said he is concerned that the administration has oversold what the zones can accomplish. "State zones were no panacea," he said. "A few hundred jobs in a zone, in comparison to what the needs are, usually is not a lot."

His research showed that state zones -- which rely on weaker tax incentives than the federal government can provide -- created an average of 460 jobs per zone.

States that concentrated their resources on a small number of zones tended to get better results -- a finding that buttresses the approach Congress is taking. And areas that had some development potential to begin with fared much better.

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