In the Zone at Last

It’s taken three long years and intensive lobbying of federal officials, but finally Los Angeles has gotten its federal empowerment zone. The designation is very good news because it means areas of the city will become part of a national program of federal tax credits and other incentives to businesses to provide employment in job-poor neighborhoods.

Remember the disappointment that resounded in City Hall in late 1994 when Los Angeles was rejected for the first six federal empowerment zones, which went to other cities? It was a stinging slap because Washington had promised and developed the empowerment zones in response to the 1992 riots in Los Angeles. The city didn’t make the cut then, according to federal officials, because of its vague and incomplete application.

The city has made good use of the time since to hone its proposal. It has fashioned a blueprint that would use the Los Angeles Community Development Bank and other state and local programs to maximize the lure of empowerment zone opportunities to business.

The L.A. empowerment zone--really a number of zones--encompasses 20 square miles in patches that include parts of East and South-Central Los Angeles as well as Pacoima in the San Fernando Valley. The gerrymandered boundaries reflect the political realities of the city as well as need. Businesses in the designated areas will receive $3,000 in federal tax credits for each employee who lives and works inside the zone. Los Angeles businesses could receive a total of up to $600 million annually for 10 years in federal tax credits.

Parts of the empowerment zone overlap with areas in Watts, East Los Angeles, Pacoima and the central city that are already state-designated enterprise zones. An employer in a location with both designations would get the federal tax credit and a separate state tax credit based on the sales tax paid on purchases of machinery and equipment.

Mayor Richard Riordan is now seeking one more tax incentive, a municipal “tax-free zone” policy. New businesses moving into an empowerment zone from outside Los Angeles would be exempt from city business taxes for five years. Business taxes would be frozen for employers already operating in the zone.

The proposal could be stymied by Councilwoman Jackie Goldberg’s call for allocating tax relief to businesses based on whether they pay above the minimum wage and provide child care, job training and other services. A tax bill is the wrong place for these proposals, which should be eliminated when the council takes up the matter soon. The success of these zones will depend on keeping politics to a minimum and establishing oversight.

Another element of the blueprint is the Community Economic Development Bank. A year after Los Angeles lost its first bid for an empowerment zone, the Clinton administration provided $450 million in grants and loan guarantees, with which the city created the nonprofit bank to make loans and stimulate investment in areas now incorporated in the empowerment zone. This gives Los Angeles an extra boost, as none of the six cities awarded empowerment zones in 1994 received community development bank funds. The bank has been criticized for a slow start in making loans, but it is a vital element in leveraging benefits to business in the zones.

An economic development plan is long overdue in languishing parts of the city. The mayor’s office has said Riordan is seeking “turbocharged” tax incentives to get jobs into these areas. The triple bonus of federal, state and local benefits would provide the horsepower to do it. All that’s needed now is council approval of the city tax-free zone policy.