Enterprise zones as an instrument of urban policy: a review of the zones in South Central Los Angeles.

• Author: Glover, Glenda

Are tax incentives offered by enterprise zones effective in encouraging participation of commercial establishments? Research on tax credits taken by firms in the five zones/incentive areas of South Central Los Angeles documents participation rates of firms there.

Enterprise zones are depressed areas, specifically designated as such by the state, and involve the application of tax incentives and regulatory relief to encourage private investment, redevelopment and economic well-being in these specific, geographic areas. The purpose of enterprise zones is to revitalize economically distressed areas and to increase employment opportunities, particularly for zone residents. The enterprise zone concept requires less government intervention by removing regulatory barriers which restrict market entry. Ideally, the private sector would be encouraged to locate in the zones, thereby generating income which would be used to revive the existing neighborhoods and create new jobs.

Currently, 35 states and the District of Columbia have enacted enterprise zone legislation and have established 3,172 enterprise zones. Within these zones, 11,658 firms are participating in the various state programs, have invested more than $40 billion and produced 663,885 new jobs.

The eligibility requirements for a geographic area to be selected as an enterprise zone vary from state to state, but an overwhelming number of states require high unemployment, low income levels, pervasive poverty and population decline as major eligibility criteria. Similarly, the states offer a variety of tax incentives to firms that are located in enterprise zones. The most frequently offered incentives include employer tax credit, sales or use tax credit, and property tax credit.

This research presents an analysis of the enterprise zone progam in South Central Los Angeles and a determination as to whether enterprise zones, when used as an instrument of urban policy, represent viable incentives to encourage participation from the firms in the South Central Los Angeles area.

California Enterprise Zones

The California enterprise zone program was established in 1984 and amended in 1989. It established two concurrent programs: the Enterprise Zone Act, which was introduced by Assemblyman Pat Nolan, and the Employment and Economic Incentive Act, which was introduced by Assemblywoman Maxine Waters. Of the 34 areas of the California enterprise zone program, 25 are enterprise zones (Nolan) and 9 are incentive areas (Waters). California...