Michigan's Bold Gambit to Curb Poverty

Governor's 'renaissance zone' plan offers huge tax breaks to investors in 11 impoverished areas

In a pioneering and controversial move, Michigan is eliminating virtually all taxes in 11 "renaissance zones" across the state in an effort to eradicate urban and rural blight.

The experiment is the brainchild of John Engler, Michigan's get-government-off-your-back governor, who has already revamped the state's education and welfare systems to encourage more individual and business initiative.

His latest crusade seeks to draw businesses and residents to impoverished areas scattered from the rural reaches of the upper peninsula to the industrial wastelands of Detroit. If successful, it could become a national model of how to curb poverty with minimal government intervention and tax dollars.

But critics charge that redevelopment requires more than just tax breaks. They argue that the zones may simply shift jobs from one place to another.

Clearly, it's a daring plan. "Michigan's zones seem to be unique in the size of the tax break - it is extraordinarily aggressive and bold," says Timothy Bartik, senior economist at the W.E. Upjohn Institute for Employment Research in Kalamazoo, Mich.

Governor Engler, a Republican, would likely agree. "There is nothing else like this in the country," he said in an interview. Behind his latest venture is the free-market idea that getting government out of the way will allow individuals and businesses to bootstrap their way to prosperity.

The renaissance zone plan is a tight-budget alternative to the Clinton administration's $1.4-billion "empowerment zone" program. That two-year-old effort seeks to rekindle growth in six cities through a mix of tax breaks and social services like job training and housing reconstruction.

In an empowerment zone, officials dispense government largess for projects determined by grass-roots groups. Although officials coax private industry investment through partnerships and tax breaks, many say that government funds lie at the heart of the initiative.

But in a renaissance zone, state and local officials simply wipe out state property and income taxes on businesses and residents for up to 15 years and then step aside, allowing private capital to flow in. Thus renaissance zones will be comparatively free of the red tape and political infighting that can gum up traditional redevelopment projects, say its supporters. "You can move into a renaissance zone with real speed - there is no bureaucracy attached to it, it's just your decision to locate in this defined area," Mr. Engler says.

"The renaissance zones are much different than saying, 'Here is the sugar-daddy dollar from on high, do this and you will get this,'" says Donald Schurr, administrator of a zone encompassing Gratiot County. "Instead, people are given an opportunity and allowed to make it work themselves so they're limited only by their imagination."

But critics say impoverished areas need more than tax cuts. They say schools, roads, sewers, solid housing, viable families, and a skilled work force are essential for revitalizing an area in the long term.

Renaissance zones "rely on the theory that if you get the tax breaks, the jobs will come and things will work out for the best for everyone," says Mr. Bartik. "But there are a lot of problems in the neighborhoods that go beyond simply whether the jobs are there or not."

Moreover, both the Clinton and Engler plans might just sap investment from other areas rather than create new growth and jobs. "With tax cuts isolated to certain areas, you might just end up redistributing jobs from one place to another," says Richard Vedder, an economics professor at Ohio University in Athens, Ohio.

But such criticisms seem uncharitable when aimed at impoverished Michigan cities like Saginaw and Detroit. In Detroit, especially, the rubble-strewn land, yawning factories, and charred single-family houses seem to appeal for aid of any type.

Detroit so far has seized on the empowerment zone program with more success than any of its five counterpart cities have had. Businesses have invested more than $1.8 billion in the area, and 1,800 new jobs have been generated, according to city officials.

THE success stems to a large extent from an eagerness of businesses and banks to reward centrist Mayor Dennis Archer for a politics of reconciliation. Mayor Archer in 1993 replaced Coleman Young who, through a politics of entitlement and racial polarization, had alienated investors.

Supporters hope Detroit's renaissance zone will be as successful as its empowerment zone. Just two months in the making, the renaissance zone has yet to attract new investment. Most of the six areas that make up the zone were part of the city's old industrial proving grounds and have felt no fillip from investment for more than 50 years.

Compared with Detroit's suburbs, the blighted areas appear to offer potential investors little more than the $2 million in tax breaks the city is forgoing under the renaissance zone scheme. Indeed, Detroit seems to have primarily built its zones on faith.

"Designate, and they will come," says Tom Walters, a Detroit planning department official, comparing the designation of renaissance zones to the risky construction of the baseball field in the movie "Field of Dreams."

The renaissance zone concept seems to have taken root more quickly in Gratiot County, part of Engler's native Republican stronghold in the rural heart of Michigan.

Gratiot has staked out undeveloped land for its zones. Perhaps because the area lacks the high crime and decay besetting Detroit, investors in Gratiot have made a steady stream of inquiries. Most of the calls come from natives who might otherwise retain their capital or invest it elsewhere, says Schurr.

It's just such money that Michigan's cities yearn for. "The renaissance zones seek to encourage companies to take a second look at inner-city areas that they might otherwise have ignored," says Paul Johnson, deputy city manager in Saginaw.

"We see a lot of expansion in 'greenfields' around cities when we have perfectly good properties within cities," Mr. Johnson says: "Let's reuse that property rather than go out and pollute property in the suburbs and rural areas."

Peerless Environment Services Inc., a pollution clean up company, thinks that's a great idea. Peerless plans to build its headquarters in Saginaw's renaissance zone, in a block of ramshackle warehouses and weed-strewn lots. Brian Eggers, president of Peerless, says it's worth the risk. "We're betting these 'brown field' areas will turn around," he says.

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