Rules limit businesses' tax breaks Empowerment zone has residency requirements

'It's an impossible goal'

35 percent of workers must live in area

October 13, 1995|By ERIC SIEGEL | ERIC SIEGEL,SUN STAFF

Several businesses in Baltimore's empowerment zone are upset at being shut out of the biggest tax breaks offered under the revitalization effort because they do not meet a federal requirement that more than a third of their employees live in the zone.

And economic development officials working for the city and the empowerment zone say their efforts to recruit companies to relocate in the $100 million revitalization area are being hampered by the same federal regulation.

Under federal law, companies cannot qualify for accelerated depreciation of equipment of $37,500 and tax-exempt bond financing of up to $3 million unless 35 percent of their employees live within the boundaries of the empowerment zone -- even if the companies themselves are in the zone.

"That's ludicrous," said Donald "Duke" Zimmerman, president of Globe ScreenPrint, a fourth-generation family-owned Southwest Baltimore printing company where two of 40 employees live in the empowerment zone. "We'd have to turn over a third of our company to qualify. It's an impossible goal."

Globe ScreenPrint and other businesses still qualify for federal tax credits of up to $3,000 for each employee who lives in the city's empowerment zone in East, West and South Baltimore.

But companies with skilled, longtime workers say the restrictions on the larger breaks create a Catch-22: They cannot expand their business and increase the number of zone residents they employ without the tax initiatives, and they cannot qualify for the initiatives until they up their percentage of zone residents.

Federal officials have proposed relaxing one of the regulations. They have suggested that new businesses locating in empowerment zones be given a year to reach the 35 percent threshold and have asked for public comment on the proposal. Baltimore empowerment zone officials want to see the regulation broadened.

"We want to give a comment that we like the regulation and want to see it extended to all businesses," said William E. Carlson, counsel to the Empower Baltimore Management Corp., the quasi-public organization that administers the city's empowerment zone.

The U.S. Department of Housing and Urban Development, which is helping to oversee empowerment zones in Baltimore and five other cities, hasn't taken a formal position but recognizes the problem.

"HUD's aware that concern has been raised," said Alex Sachs, a HUD spokesman.

It also is an issue that has been raised by companies being recruited to locate in the empowerment zone.

"We've had the issue come up a couple of times," said Leslie Bender, a consultant working with Baltimore's empowerment zone in trying to lure new companies. "If you're coming from Baltimore County or Howard County, you might have people commuting."

Michele Whelley, executive vice president of the Baltimore Development Corp. (BDC), the city's economic development agency, agreed that the 35 percent requirement "does limit" the usefulness of the tax breaks.

"There's some opinion that that part of the law was enacted with less thought than there should have been on how it would impact on business attraction and development strategies," Ms. Whelley said.

In cases where businesses don't qualify for the large empowerment zone breaks, she said, "We're looking at other opportunities for financing."

Globe ScreenPrint in July received a $100,000 BDC loan in July.

Mr. Zimmerman said he is grateful for the assistance, but said he also could use the larger empowerment zone breaks to upgrade his building and equipment.

Describing the 35 percent requirement as "an absolute killer for any established business," he said: "It seems like the whole [empowerment zone] is skewed to bringing upstart companies to the zone."

Joseph Vrzalik, the chief executive officer of Depsco Services Inc., a machine shop and metal fabricator in Southwest Baltimore where three of 70 employees are zoned residents, agreed the requirement was "absolutely unreasonable unless I start a brand new company."

"An existing company would have to grow by that 35 percent or let go longtime employees," he said. In either case, he said, he would have trouble hiring the kind of skilled workers he needs from the neighborhood.

Maryland Chemical Co., a chemical distributor located since 1953 in what is now the empowerment zone, has 22 employees, none of whom lives in the zone, said Jeanette Partlow, the company's compliance manager.

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