NEWS ANALYSIS : Enterprise Zone in L.A. Fraught With Problems
One of the brighter hopes for depressed areas of Los Angeles had been a state-run enterprise zone near downtown in an area known as Central City.
Though no garden spot, the area had major strengths--a still-viable industrial base and a key location that made it an ideal distribution hub. Then came a city hiring freeze that left the Central City enterprise zone without a leader for more than a year, crippling its effectiveness.
“Everything just faded away, and now we are trying to regain our momentum again,” said economist Jack Kyser, a member of the zone’s business advisory board.
Central City’s shifting fortunes show how fragile efforts at inner city economic rebirth can be.
The enterprise zone’s problems take on a special significance in the wake of the riots that seared Los Angeles and led to a renewed focus on such zones as a key way to attack the ills of urban America. However, even the most promising enterprise zones are flawed and measure their progress modestly. None of the state-sponsored zones has proven anything close to a cure for urban ills, though some have been operating since the early 1980s.
If federal enterprise zones now become law, as seems likely, their impact may be decidedly limited as well. Those familiar with the gritty streets of southern Los Angeles say the federal plans--even with their beefed-up tax incentives--are too penurious and narrow to make a major difference.
“They want to do this program without spending any money on it,” complained Reynold M. Blight, who directs the state-run enterprise zones in Los Angeles.
Enterprise zones are public-private partnerships that provide incentives--from tax breaks to low-interest loans--to businesses within designated areas that need economic help. Such zones are now being operated by three dozen states nationwide.
The zones are highly controversial and have been since the idea was imported to the United States from Great Britain. While praised by leaders such as President Bush and Housing and Urban Development Secretary Jack Kemp, critics say they are marginally effective and do little for minority businesses.
Though details remain elusive, a federal enterprise zone program was included last week as part of a broad urban-aid program agreed to in principle by the President and Democratic congressional leaders.
The Bush Administration has said it wants to establish 50 federal zones nationwide at a cost of $1.5 billion. The riots should make southern Los Angeles a strong contender for a federal enterprise zone designation, according to Kyser, who is chief economist for the Economic Development Corp. of Los Angeles County.
Kemp has been touting federal enterprise zones since 1980, when he was congressman from Buffalo. In the wake of the Los Angeles rioting, he has emerged as the Bush Administration’s most visible spokesman on the needs of urban America.
Federally sponsored enterprise zones, using generous tax incentives, will be a primary vehicle for funneling venture capital into poor areas, Kemp believes.
The proposed enterprise zone package calls for various tax incentives for hiring low-income workers and investing as much as $250,000 in enterprise zone companies. It would also eliminate capital-gains taxes on zone investments held at least two years. (A capital gain is the profit from the sale of a asset, most commonly real estate or stocks.)
Critics say this is a superficial response to a problem that needs long-term answers. “Enterprise zones have been vastly oversold,” said George E. Peterson, a senior fellow at the Urban Institute in Washington.
In the past, the enterprise zone debate has bogged down on political differences over how to help the poor--and who will get credit for it. Kemp told reporters recently: “No one wants to see an Anglo-Saxon, center-right politician in the inner city cutting a ribbon.”
From his office perch near 6th and Spring streets, in a run-down section of downtown Los Angeles, Blight said federal enterprise zones have modest potential if they offer broader benefits to business and are properly focused.
“Federal enterprise zones need to be simple, direct and geared to the small and medium businesses,” he said. “Capital gains (tax relief) is not the answer. That sells well on Wall Street, but it has no great impact on the business people in South-Central.”
Blight called for broader business incentives--from accelerated write-offs on plants and equipment to preferences in bidding for federal government contracts. “The incentives have to be great enough to overcome the disincentives” of doing business in the inner city, he said.
Even the prospect of a federal enterprise zone in southern Los Angeles, though, holds out hope for those who work there. “It’s going to help bring jobs and investment to the community,” said Marcine Shaw, senior deputy to Los Angeles County Supervisor Kenneth Hahn.
The renewed emphasis on enterprise zones comes as many state-run programs are hurting. Many of Sacramento’s programs have faltered without federal backing, while the recession has hurt even successful zones.
A main complaint about state-run zones is they have been largely unable to document their progress or to help those who could use it the most.
An 1989 survey by Business Facilities magazine, a trade publication, estimated that state-run zones had seen $18.1 billion in new investment, but the states had no data on how much was due to zone efforts and how much might have occurred anyway.
A 1991 study by accountant Glenda Glover, founder of the Maryland-based National Center for Enterprise Zone Research, concluded that the zones do help distressed areas, but added that they have done little to help minority-owned firms.
There is another Los Angeles enterprise zone in Watts, where it has had little economic impact. Watts has a small manufacturing base and remains tarnished from the devastating riots of 1965.
The Central City zone has a full-time administrator again, but only after its business advisory council rebelled and threatened to resign, Kyser said.
Though generally a low-income area, Central City is home to many garment and furniture makers. Yet many area business people question City Hall’s commitment to the enterprise zone, Kyser said.
One longtime businessman, Lance Kluger, had to sue the city of Los Angeles to recover a $31,000 down payment that was part of an industrial-bond program to aid enterprise zone businesses.
The city was trying to help Kluger obtain low-cost financing for a showcase expansion of his clothing business, but the plan flopped after the bond financing fell through amid acrimony and finger-pointing. The city blames the foul-up on a European bank that failed to provide a letter of credit in support of the bond sale.
“Enterprise zones can help,” said Kluger, who recently sold his business. “But in the next breath I have to say: These programs must be accessible and easy.”
