In the Watts Enterprise Zone, It’s RISKY BUSINESS : Companies face staggering levels of poverty and crime. In the six years since the zone was formed, officials have spent about $1.3 million to create just 116 new jobs.
The economic healing powers of the state’s enterprise zone program have yet to cure the ills of John Boyd, who protects his South Los Angeles business with a shotgun and complains of repeated vandalism by thieves who have gone so far as to steal a big-rig trailer loaded with furniture.
Boyd, a furniture maker who employs 180 people in several old warehouses near Manchester Avenue, said he would leave the Watts enterprise zone if he had the $1 million it would take to move his materials and machines. “My life has been a nightmare here,” said Boyd, 47.
The state’s enterprise zones offer tax breaks to businesses to draw money and jobs to poor areas. Although Boyd is signed up for the program, he said the breaks are worthless to him. His company will not pay taxes because it is not making money.
Since the spring riots, enterprise zones have been touted as the economic elixir of the inner city. President Bush and President-elect Bill Clinton have called for new federal enterprise zones to augment the more than 1,300 state zones already in place across the country. And the concept was cited by several who participated in Clinton’s two-day economic conference last week.
However, if the Watts zone is any measure, enterprise zones may not be the answer for areas beset by staggering levels of poverty, unemployment and crime. In the six years since the Watts zone was formed, officials have spent about $1.3 million to create just 116 new jobs in an area roughly the size of San Francisco.
There are at least 5,000 businesses and about 1.1 million people in the zone, which stretches from South-Central into the neighboring cities of South Gate, Lynwood and Huntington Park. However, only 156 have filled out the paperwork required to reap the zone’s tax benefits, and officials who run the program could not name a single company lured to the zone by those incentives.
“I don’t think you can say it’s successful,” said Reynold Blight, who oversees enterprise zone programs for the city of Los Angeles.
Officials, experts and 40 business owners in the area said in interviews that the Watts enterprise zone is failing because:
* Rampant crime in some neighborhoods has chased businesses from the zone and forced some owners to carry weapons, limit work shifts to daytime hours, build fences as high as 40 feet and hire armed patrols. “We figured we couldn’t risk our workers’ lives anymore,” said Ray Cobb, owner of TM Cobb, a door-frame manufacturing company that operated in South-Central for 56 years. Weary of burglaries, car thefts and assaults against workers, Cobb abandoned a two-month-old, $750,000-building in August and moved his 200 employees to Riverside.
* Many businesses are not aware they are in an enterprise zone, much less realize what the benefits are. “An enterprise zone--what are you talking about?” said Lorenzo Flores, co-owner of La Tapatia Tortilleria in South Los Angeles.
* Weak tax breaks with restrictive requirements are of little help to the businesses that do qualify. “It hasn’t been the type of program that would offer incentives to deal effectively with the problems in the South-Central area,” said Corde Carrillo, director of economic development and redevelopment for Los Angeles County.
* Local workers are unprepared for jobs that increasingly rely on computers and automation. In the Watts zone, 1990 Census data shows 33% of residents lived in poverty and 55% of adults older than 25 had less than a ninth-grade education. “The real crux of it is: You can’t get adequate workers,” Cobb said.
“If you begin to look critically,” said James Johnson, head of the UCLA Center for the Study of Urban Poverty, “the Watts (zone) strikes out on all counts.”
No studies have been done on California enterprise zones. But Johnson and others said if the Watts zone were working, more businesses would come to the zone, more jobs would be created and the area would not be so impoverished.
First developed in Britain in the late 1970s, enterprise zones operate on the assumption that giving businesses tax breaks and other incentives will result in economic renewal. The concept gained popularity in the United States in 1980, when then-presidential candidate Ronald Reagan championed the merits of enterprise zones.
In California, the state decides the location of enterprise zones, offers tax breaks and sets guidelines for businesses to qualify for the breaks. Local governments are responsible for publicizing the enterprise zones and signing businesses up for the program.
There are two types of enterprise zones in the state. In 20 of the state’s 29 zones, firms are required only to be located in the zone to qualify for tax breaks.
But in the others, including the Watts zone, a business must employ 30% of its workers from the zone or have 30% of its owners reside in the zone. That requirement resulted from legislation authored in 1984 by then-Assemblywoman Maxine Waters, now a congresswoman. Waters said in an interview the requirement ensures that business activity benefits the surrounding community.
State and local officials said residency requirements exclude many businesses, and that the most successful enterprise zones do not have them. One zone without the 30% requirement is in downtown San Diego, where an aggressive marketing campaign conducted with the help of local businesses helped create more than 1,600 jobs for low-income people in the past five years, said John Hudson, the zone’s manager.
The San Diego zone is in an area known as Barrio Logan, where the unemployment rate is 6% and 13% of its 1.1 million residents live in poverty. Those poverty and unemployment figures are about one-third of the rates in the Watts zone.
The Watts zone is not without its success stories. S&R; Metals Inc., a metal-cutting company, last year earned about $20,000 in sales-tax credits for purchasing about $500,000 worth of machinery, said Vice President Steven Miller.
But most business owners interviewed, such as furniture maker Boyd, maintain that problems with crime and trash outweigh any benefits the Watts enterprise zone could offer. Boyd said he racked up a $35,000 bill in 12 months for an armed security patrol before he canceled the service in August and hired less expensive guards who do not carry weapons.
Crime is so bad near Book Covers Inc., a paper-making company near Avalon Boulevard, that the firm prohibits women from working after 5 p.m. “You can only put up with the fear for so long,” said General Manager Mark Klein. “When we ultimately expand, security is going to be a factor” in whether we stay in the zone.
Next door, at Cal Aerodynamic Corp., which makes airplane parts, the owners had to build a 40-foot-high wall of corrugated metal on the back of the property. Out front, the business is guarded by a 24-foot-high wrought-iron fence topped with spears and razor wire. “We had to go that high to stop them,” plant supervisor Ted Solwick said of the vandals.
Jose Rodriguez, vice president of Debonair furniture company, cannot afford private guards or elaborate security systems. So he protects himself with two semiautomatic handguns--one in his desk, the other in his car. Rodriguez said thugs have robbed his workers at gunpoint and stolen tools, telephones and copy machines from the business on East 59th Street.
Recently, Rodriguez said, someone dumped a pickup load of fish guts and meat parts on the street next to trash that had been there for a couple of weeks. “It’s unbelievable what we have to put up with,” he said.
Rodriguez said he doesn’t bother notifying the city because “nobody does anything.”
City officials in the budget-strapped Bureau of Street Maintenance said they do not have the resources to pick up the thousands of tons of trash that are dumped illegally in the area each year.
And a spokesman for the Los Angeles Police Department, which patrols some of the most crime-ridden areas of the zone, said officers provide as much protection as they can. Linda Griego, deputy mayor of Los Angeles, said the city’s 7,800-member police force is stretched thin and is unable to continuously patrol high-crime areas.
Even if business owners get the runaround from city agencies, Griego said, it is their responsibility to pursue action. In the Downtown garment district, part of the Central City enterprise zone, she said business owners fed up with crime and panhandlers pooled $7,000 to pay for new Police Department bicycle patrols.
In the most successful enterprise zones, making businesses aware of the program has been a key factor, said Samuel Paredes, director of the state’s enterprise zone program.
But in the Watts zone, marketing has been spotty at best. Of 40 businesses contacted throughout the zone, 34 owners and managers said they did not know what an enterprise zone was.
“Never heard of it,” said Michael Pham, owner of 2001 Interiors, an upholstery company near Century Boulevard.
“We don’t know about that,” said Saul Estrada, plant manager of Peterson metal-working company on East 108th Street, which has been in Watts since 1934.
Local officials said their efforts to publicize the zone have been hampered by budget cuts and hiring freezes.
“It’s obvious that there’s been insufficient marketing,” said Carrillo, the county official.
“Quite frankly, we haven’t done a whole lot of marketing,” said Faustin Gonzalez, interim city manager of Lynwood, which supervises its section of the zone. “When businesses come in and ask, we let them know.”
The county and the cities of Lynwood, Los Angeles, South Gate and Huntington Park run separate sections of the zone. Among Los Angeles, the county and the Southeast cities, there are only six full-time workers--all of whom have other duties--to run the enterprise zone program. Combined, the cities and the county have spent about $1.3 million in six years on the Watts zone, with the money going for such things as paying salaries and printing brochures.
Officials said they have done some mass mailings to businesses, but they are too short-staffed to make many follow-up visits. There are no Spanish-language applications or brochures, even though 1990 Census data show about 50% of the residents in the zone were Latino and half of them did not speak English well.
“When we first started the Watts zone, we didn’t understand the marketing that was needed,” Paredes said. The state next year intends to distribute Spanish-language materials and now requires cities to submit detailed marketing plans when they lobby for enterprise zones, he added.
Still, even for some businesses that know about the Watts enterprise zone, the tax breaks and other incentives have been useless.
Take the Delgado Brothers picture-frame company. In South-Central for 26 years, the family-owned business easily met the first requirement to qualify for tax benefits: that 30% of its workers live in the zone.
But now, three years after signing up for the zone, co-owner Francisco Delgado has concluded, “They put so many barriers in front of you. It’s impossible to take advantage.”
It turned out that the 30% requirement would only qualify the company to sign up. To gain tax benefits for employing local workers, Delgado would have to hire people who were unemployed for at least three consecutive months. Nearly all of his 85 people have been with the company for years.
Last year, Delgado applied for a low-interest loan that the city offers to enterprise zone businesses. He wanted to build a 24,000-square-foot warehouse. But the city required him to use a contractor that paid union-level wages, even though he had lined up his own workers. Paying the higher wages would have wiped out any savings from the low-interest loan. So Delgado and his two brothers paid for the warehouse with their own money.
“They haven’t done anything to help us,” a frustrated Delgado said. “All we have are regulations.”
Griego, the deputy mayor, said Delgado’s plight is not uncommon. “What they describe is typically what happens when money gets tied to government,” she said, adding that government would be “the last place I (would) go for help” if she were a business owner. Programs such as the enterprise zone will have to eliminate the red tape to be worthwhile, she said, but added there was no plan to do that.
Secretary of Housing and Urban Development Jack Kemp said the main problem with the Watts zone is its weak state tax breaks. Kemp is lobbying for a federal enterprise zone program, which he says would “flood the area with credit and capital” through incentives ranging from hiring credits to tax breaks for people who purchase stock in minority-owned companies.
Such a federal zone would be superimposed on the Watts zone, giving struggling businesses two ways to benefit from tax breaks. But federal enterprise zone legislation, first proposed 10 years ago, has died in Congress or been vetoed.
Even if federal enterprise zones are enacted when Congress reconvenes next year, some business owners and experts say not much will change until the labor skills of residents improve.
Cobb, who moved his operation to Riverside, Cobb said local workers were unable to operate high-tech lathes and other sophisticated equipment now used in manufacturing. In 56 years in South-Central, Cobb said, the best his company could do was hire about 20% of its 200 workers from the area.
Johnson of UCLA said it will take education reform and massive public works programs to get people back to work.
Others, such as Avis Vidal, an urban planner at the New School for Social Research in New York, said revitalizing the inner cities will have to involve grass-roots organizations. “Other people can’t go in and fix these neighborhoods alone,” she said. “There also has to be a community effort.”
The Watts Enterprise Zone
The Watts enterprise zone is one of 29 in California formed to draw money and jobs to poor areas through state tax breaks. However, business owners and local officials in the Watts zone say the tax breaks are not large enough to offset the areas staggering levels of poverty, unemployment and crime. Formed: 1986. Business registered: 156 of about 5,000. Jobs created: 116. Population: 1.1 million. Administrative cost: $1.3 million Requirements for businesses: 30% of workers or 30% of owners must reside in the zone. Tax breaks: - Credit for sales tax paid on manufacturing or pollution-control machinery. - Credit of up to 50% on wages of people hired who were unemployed for at least the last three months. - One-time business operating loss can be carried over if a profit is made the next year. Source: City and County of Los Angeles, State of California, 1990 U.S. Census.
