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Michelle Layser: Enterprise Zones: Enterprise Zone Data

Introduction

Data is current through May 1, 2019

 

Defining the Targeted Zones

Most state enterprise zone statutes target poor areas, but the demographic criteria required for designation varies. To effectively combat poverty, laws would need to carefully target high poverty areas that may benefit from investment but are the least likely to gentrify. A difficult challenge when designing place-based investment tax incentives is how to balance the tension between neighborhood improvement and gentrification. However, gentrification risk may not be as high as it seems, particularly if the laws are used to target areas with a high concentration of poverty—over 40% poverty rate[1]—which may be less likely to gentrify, at least in the near term.

A1 – Zone Eligibility Criteria

Summarizes the types of demographic and physical neighborhood characteristics considered for zone designation.

A2  – Poverty Rate Threshhold, if specified by statute

To the extent that poverty rate is considered (whether or not high poverty is required for designation), this column identifies the percentage of residents who must have income levels below the poverty rate in order to satisfy the statutory definition of high poverty.

A3  – Poverty Rate Analysis

This section describes to what degree neighborhood poverty rate affects eligibility for zone designation.

  • High Poverty Required. An area may not be designated as an enterprise zone unless specific poverty rate criteria are met.
  • Poverty rate considered (high poverty rate not specifically required). Neighborhood poverty rate is among the factors considered for zone designation, but the statute makes it possible for zones to qualify without satisfying the poverty rate criteria. This category includes statutes that consider the rate of individuals dependent on public assistance.
  • Poverty rate not considered. Poverty rate is not among the factors that must be considered for zone designation. This category includes statutes that consider income level but not poverty rate; however, it does not include statutes that consider dependence on public assistance.

A4  – Unemployment Rate Analysis

This section describes to what degree neighborhood unemployment rate affects eligibility for zone designation.

  • High Unemployment Required. An area may not be designated as an enterprise zone unless specific unemployment rate criteria are met.
  • Unemployment rate considered (high unemployment rate not specifically required). Neighborhood unemployment rate is among the factors considered for zone designation, but the statute makes it possible for zones to qualify without satisfying the unemployment rate criteria.
  • Unemployment rate not considered. Unemployment rate is not among the factors that must be considered for zone designation.

 

Spatial vs. Community Orientation Analysis

Three factors that tend to suggest that an incentive is spatially oriented are: very broad or undefined categories of eligible investments; general incentives to invest in human capital through hiring or job training; and taxpayer eligibility requirements based solely on the location of the taxpayer. In contrast, three factors that tend to suggest that an incentive is community oriented are: relatively narrow or defined categories of eligible investments of a variety that is likely to benefit poor communities; incentives to invest in workforce development for the benefit of residents of targeted communities; and taxpayer eligibility requirements based on the extent to which the taxpayer engages with community residents.

B1 – Factor #1: Description of Eligible Investments (Types of Businesses; Property)

Summarizes the types of business activities or investments that are eligible for tax-based subsidies.

B2 – Analysis

Analyzes whether the statutory/regulatory description of eligible investments summarized in B1 reflects a “broad or undefined” scope permissible investment types, or “narrow or defined”

  • Broad or undefined categories of eligible investments suggest a spatial orientation because they allow market participants to determine the specific types of investments to be subsidized, and there is no assurance that profit-seeking investors will choose investments that benefit poor communities.

 

  • Narrow or defined categories of eligible investments may be used to limit the scope of eligible investments to those most likely to benefit poor communities. However, the impact of narrow or defined investments may vary depending on the type of investments permitted under the law.

 

B3 – Analysis – Preferred Investment Types

Analyzes whether, on balance, the statutory language seems to prefer certain types of investment over others.

  • General Capital (unspecified industry) investments are often associated with broad or undefined categories of eligible investments.
  • Specified industry not limited to manufacturing/production investments are associated with narrow or defined categories of eligible investments. The types of industries targeted may or may not be associated with community oriented incentives.
  • Human Capital is occasionally the only eligible type of investment. In these cases, general capital investment tax incentives are unavailable, and all subsidies must be earned through activities such as hiring workers, training workers, or providing services to the community. These types of incentives are more likely to be community oriented.
  • Manufacturing/Production is a common preferred investment type. Statutes that emphasize investment in manufacturing, production, machinery or equipment (or which specifically exclude retail businesses) are identified as preferring manufacturing/production investments. Some studies have indicated that manufacturing/production businesses are associated with fewer new jobs for low-income residents than retail businesses. For this reason, tax incentives that prefer manufacturing/production investment suggest a spatial orientation.
  • Residential Housing is occasionally a preferred investment type. Tax incentives for residential housing may be spatially oriented or community oriented, depending on the broader housing policies promoted by the subsidy.

 

C1 – Factor #2: Incentives to Invest in Human Capital (e.g., hiring, job training, affordable housing)

Summarizes the types of tax incentives available to subsidize human capital, such as hiring or wage subsidies, job training, or day care provision. This column also includes subsidies for affordable housing.

 

C2 – Analysis

Analyzes the extent to which these types of incentives are designed to target zone residents.

  • Does not Target Zones Residents. General incentives to invest in human capital tend to suggest a spatial orientation because they encourage businesses to develop their workforce in the way they deem most profitable, without regard to whether area residents benefit. In other words, general incentives to hire employees do not encourage businesses to hire residents, and businesses may well look to commuters to meet their hiring needs. When this happens, poor residents may be passed over for jobs.
  • Targets Zone Residents (non exclusive). Many tax incentives target zone residents but do not do so exclusively. If the tax incentive includes hiring (or otherwise providing benefits to) zone residents as one of several qualifying factors, then the law targets zone residents, but not exclusively. These tax incentives are more community oriented than those that do not target zone residents, but their impact may be diluted by other options for qualification.
  • Targets Zone Residents (exclusive). Tax incentives that are designed to exclusively target zone residents can be understood as the most community-oriented types of tax incentive for investment in human capital. These laws are specifically designed to benefit residents of the targeted community.

 

D1 – Factor #3: Taxpayer eligibility requirements.

Summarizes the requirements for taxpayer eligibility for enterprise zone tax benefits. taxpayer eligibility requirements based solely on the location of the taxpayer suggest a spatial orientation because they help ensure that the targeted area will become a profit center, but they do not require engagement with the community. Location requirements may help ensure that residents gain the benefit of a local business, or that investors improve the built environment in their community. As such, most place-based investment tax incentives should include location among the eligibility criteria. However, merely locating in an area is insufficient to ensure engagement with local residents. Without some requirement that the business engage with the local community in some way, eligibility based on location likely belies a spatially oriented tax incentive.

 

D2 – Geographic Analysis

  • Eligibility based on business location. The statute requires eligible taxpayers to conduct

business activities within the zone.

  • Eligibility based on property location. The statute requires eligible taxpayers to own property in the zone.
  • No geographic limitation on business or property location. The statute does not require eligible taxpayers to conduct business in the zone or own property in the zone. Instead, these statutes permit taxpayers to claim benefits for other types of enterprise zone engagement, such as by hiring zone residents.

D3 – Engagement Analysis

  • No engagement with poor community required. The statutes permit taxpayers to claim benefits without any specific requirements that they engage with poor communities. For example, eligibility may be based entirely on location of business or property in the zone.
  • Engagement with poor community required (does not target zone residents). To be eligible for tax benefits, these statutes require taxpayers to engage with poor communities in some way. For example, they may need to demonstrate that their workforce includes employees from certain categories of economically disadvantaged groups. The statue does not, however, include zone residents among the categories of qualifying employees or otherwise require engagement with zone residents.
  • Engagement with poor community required (targets zone residents). To be eligible for tax benefits, these statutes require taxpayers to engage with poor communities in some way. In addition, the statute specifically names zone residents as a category of individuals with whom the taxpayer must engage. For this column, exclusive targeting of zone residents is not required.

 

Other Columns

State – Lists the state corresponding to the analyzed statute

Code – Lists the relevant code section. If the code section spans a range of sections, only the first citation is provided.

Title – Lists the name of the statute analyzed.

Status – Lists whether the program is current, no longer accepting new applicants, expired, or repealed

Comments – Additional notes not otherwise included in the chart. If the program is expired, repealed, or scheduled to sunset, this is noted in the comments.

 

[1] Andrew Jordan Greenlee, A Relational Analysis of Mobility Within Illinois’ Housing Choice Voucher Program, at 27 (2012) (unpublished dissertation).