The U.S. is peppered with more than 100 "Economic Development Zones," comprising various federal, state and local programs going by the names Renewal Communities (RCs), Empowerment Zones (EZs), and Enterprise Communities (ECs). Some states have given theirs snappy local names; New York State calls its program "Empire Zones." Although specifics differ, but they all have the same goal: To improve economic opportunity in "distressed" (poor) urban neighborhoods or rural regions by offering tax breaks, grants, loan guarantees and other incentives for doing business in the zone and hiring its residents. Such benefits are often lumped under the rubric "Location-Based Incentive Credits" (LBICs).
The programs are largely run by cities and states, but because Federal taxes are involved, they dovetail with certain federal programs: The U.S. Department of Housing and Urban Development (HUD) makes the rules for the cities, while rural programs are overseen by the U.S. Department of Agriculture. The breaks available aren't chicken feed -- there's an $11 billion incentive pool to be shared, adding up to thousands of dollars per employee for businesses that step up. Some of the incentives are:
1. Empowerment Zone Employment Credit (EZ Wage Credit), a credit against Federal taxes up to $3,000 for businesses for every existing employee and new hire who lives and works in the zone.
2. The Work Opportunity Tax Credit (WOTC), credit up to $2,400 against Federal taxes for businesses for each new hire from groups that have high unemployment rates or other special employment needs.
3. Increased Section 179 Deduction (up to $20,000 in additional expensing increasing to $35,000 for property acquired after December 31, 2001) if the businesses qualify as an Enterprise Zone Business or Renewal Community Business.
Here are the most effective solutions for making zones work for your business:
Action Steps
The best contacts and resources to help you get it done
Find the zones near you
There are incentives for those already doing business in a designated zone, and more for those willing to relocate to or expand in a zone. Is your business in a zone? Is there one in your market to which you would be willing to move?
I recommend: To learn whether you already are in a zone, enter your business address in HUD's
Address Locator; you'll see a report about incentives available where you are. If you're willing to move, visit the indispensable
Tour RC/EZ/ECs by State page from which you can click a state on the U.S. map and quickly navigate to information about local zones, including a table of benefits available in each and contact information for relevant state and local officials.
Review the rules
Qualifying for an incentive isn't as simple as setting up shop. You often need to bring your staff up to a certain proportion of local hires, or meet other conditions, in order to gain the benefit. And to do that, you have to know which incentives you want.
I recommend: Programs differ by state, but the basics are in
HUD's Q&A (PDF link). Cleveland State University's Center for Economic Development has developed an
Evaluation Matrix for learning more about how various incentives work, and Good Jobs First offers a useful tips on
Researching a Proposed or Existing Subsidy Deal.
Get help
As with any complicated government-legal issue where your success is on the line, get some help -- otherwise, you may fail to tailor your business to gain the most incentives available. Consultancies specializing in helping companies get in the zone claim their advice has helped clients greatly increase their incentive gains.
I recommend: Check out the listings in the
Global Direct Investment Solutions directory, or tap the Yellow Pages for
site location consultants.
Tips & Tactics
Helpful advice for making the most of this Guide
- Although zones have reaped rewards for businesses, they are generally considered to have failed, in most places, to bring about the renewal they were designed to deliver. To make good on your zone experience, do more than the rules require. Neighborhoods have flourished where local businesses reached out to the community.
- Watch program expirations carefully; many of the incentive programs now in play expire as early as 2009. Those may be renewed or replaced with other incentives… or not. Budget for not, just to be safe.
The official source of Economic Development Zones is
the Economic Development Agencies page at Business.com
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