A congressman looks again at the 'enterprise zone'
Congressman Robert Garcia doesn't know yet whether to cry or to cheer. The Bronx district Democrat last June got conservative Republican Rep. Jack Kemp of Buffalo, N.Y., to join with him in sponsoring the "Urban Jobs and Enterprise Zone Act of 1980." That's the bill that would give various tax breaks to business locating in urban slums -- such as the South Bronx.Skip to next paragraph
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A "gracious gesture" to his Republican colleague, he thought. Mr. Garcia figured Jimmy Carter was a shoo-in for the presidency again. So possibly th e creatin of urban enterprise zones might bring more jobs to his district. Mr. Garcia's not fussy whether they are minimum wage jobs or high technology jobs, just as long as they provide paying work for the thousands of unemployed youths and othrs roaming the streets of the Bronx.
But now he's getting a bit nervous. President Reagan is enthusiastic abou the urban enterprise zone proposal. But he's less than that about other federal programs for helping the inner cities, such as the Economic Development Administration (EDA) and the Urban Development Action grant program. Indeed, a package of proposed budget cuts, leaked in Washington over the weekend, calls for the abolition of the EDA, including all its $425 million in loan guarantees, and an end to the $3.7 billion public service jobs (Comprehensive Education and Training Act) program.
The urban enterprise zone, Mr. Garcia told the press during a visit here, "is not a substitute for any of that. David Stockman [director of the Office of Management and Budget] may have other ideas, but they are solely his, and sure the heck not mine."
William Donald Schaefer, mayor of Baltimore, sounded similar concerns at a seminar here on the zones sponsored by the Boston Globe, the Boston Herald American, The Christian Science Monitor, and the First National Bank of Boston. The zones, he said, should not be allowed to be "a smokescreen for the dismantling" of the other urban programs."This is just not going to happen," he said with some firmness.
Apparently the administration strategy for budget cutting envisages a barrage of protests from all sorts of federal spending beneficiaries across the country. The protesters, the budget planners hope, will sort of cancel each other out and Congress will approve a major package of cuts, though perhaps not all of them.
Indeed, Washington sources indicate that some Democrats are saying, "Let the Republicans have their way. Then the public will be so angry that the Republicans will be wiped out at the next election, perhaps not getting back into power for another generation."
Of course, the Republican strategists are counting on monetary sringency, their budget cuts, reduced regulation, and other stimulants to private business to sharply reduce inflation and provide the jobs necessary to trim unemployment. Such economic progress, they figure, will assure continued success at the polls.
The urban enterprise zones are regarded as key to keeping the cities in reasonable shape. The Republican idealists have great faith in the power of unleashed capitalism.
Bud during the seminar and an earlier meeting, small businessmen from the New England area indicated that they are not so sure the present urban enterprise zone legislation will do much to rehabilitate the nation's slums.
The Garcia-Kemp bill -- shortly to be reintroduced into Congress -- provides these tax incentives:
1. A 20 percent reduction in local property taxes (5 percent per year for four years) for individuals or businesses who own real estate in the zone.
2. For employees working in the zone, a 90 percent reduction in both employer and employee social-security taxes if the employee is under 21 years old; a 50 percent reduction if he or she is 21 or older.
3. A 15 percent reduction in corporate income taxes for businesses which have 50 percent of their employees living and working in the zone; a three-year straightline depreciation for all property (except land) up to $500,000 in value; loss carryforward extended from seven to 10 years; capital gains reductions and so on.
The businessmen had two basic complaints. First, they said, the measures are not generous enough. One businessman had worked out the cost savings for his own firm and figured these were not enough of an incentive to face the hazards of inner-city business life. Second, small businessmen starting up a firm need capital -- not tax breaks for nonexistent profits. Thus, some observers concluded the urban enterprise zones may prove more popular for branches of existing companies than for new small businesses. IBM, Polaroid, Data General, or other such companies might figure it worthwhile to take advantage of the tax savings by putting new plants in the ghetto zones. This would have the further advantage of allowing minorities or others living in the zones to progress to higher paying jobs and, in some cases, move out of the slums to better areas.
Some businessmen think the urban enterprise zones are more likely to be "combat zones," said Oliver O. Ward, president of Germanium Power Devices Corporation, considering the problems of crime and corruption in inner cities. But if the corporate income tax was removed entirely, he'd move his firm into the slums "tomorrow," he said.
Representative Garcia kept emphasizing he is still learning about what is needed to attract business to the inner cities and that for this reason the legislation is still subjecct to revision.But he certainly is not prepared to give up the birds in his hand (present urban programs) for some bird in the bush (the zones) which could prove to be mostly skin and bones.