In the Enterprise Zone

Nearly 40 states now have enterprise zone programs that give tax breaks to businesses in blighted inner-city areas. The aim is to stimulate economic development. In California, the results have been underwhelming, says Dowall, a professor of city and regional planning at the University of California, Berkeley.

He looked at 13 of his state’s 34 enterprise zones, ranging from the Barrio Logan area of San Diego in the south to Eureka in the north, and including the Watts, Central City, and Pacoima areas of Los Angeles. All were launched in 1986. Over the next four years, Dowall found, the number of firms operating in the zones increased by only 287 (to 8,018), or less than four percent. There was evidence of unusual job growth (relative to the particular county and industry) in only two zones (Pacoima and San Jose), and even in those, the programs may not have been responsible. Of 159 businesses that Dowall surveyed, only 36 said their decisions about location or expansion had been influenced by the incentives.

Tax records indicate that businesses in the 13 zones claimed some $10.6 million in state income tax credits between 1986 and 1990. Fewer than 1,000 jobs—only about six percent of the total net increase—were ostensibly "created" as a result. The credits, representing less than one-half of one percent of the total net taxable income ($2.7 billion) earned by zone businesses, were too small, Dowall notes, to have much impact. He favors throwing more money at the problem, including regulatory relief and financial and technical aid for zone businesses, investments in infrastructure, and job training.