Enterprise zones: will costs exceed benefits?
Denver — The ''enterprise zone'' is President Reagan's major attempt to prove that capitalism can have heart.
The idea is to replace past federal programs with a series of tax incentives to lure private enterprise into economically blighted areas in the nation's inner cities.
Administration officials say they hope that legislation to establish 75 such zones over three years clears Congress by this summer. The idea has caught the imagination of many, particularly in the business community, but remains highly controversial. This was reflected in comments at a session on the topic at a meeting of the Urban Land Institute (ULI) held here last week.
''It's an interesting concept with a number of factors against it,'' observes Albert A. Walsh of the New York firm Steward & Kissel.
''We may be naive, but we think this is an experiment worth trying,'' explains Dr. Richard Francis of the Department of Housing and Urban Development (HUD).
The administration-sponsored legislation would temporarily eliminate capital gains taxes for businesses locating in designated enterprise zones and also give a hefty yearly tax deferment for each underprivileged worker they hire.
Most of those attending the ULI meeting appeared to agree that the concept was worth trying as a small-scale experiment. But there was considerable concern that the administration will try to make this single concept its entire urban policy and that Congress will blow it up into a massive program before its merits and costs are clear.
''One problem with funding such a program by tax forgiveness is the difficulty in accurately predicting how much the program will cost in lost revenues,'' points out Regina B. Armstrong of the Economics Regional Plan Association. If all the 2,000 urban areas considered economically depressed were designated as enterprise zones the Treasury could loose as much as $35 billion per year, adds Gerald S. Leighton of George Washington University in Washington, D.C. He estimates that the cost per job created could be 10 times that of direct job training and subsidy programs.
The experts also wonder whether the zones will work as expected. Ms. Armstrong quotes estimates that the administration's tax package will reduce the cost of doing business by 2 to 5 percent. She asks whether this will be enough to overcome other problems associated with operating in a severely depressed area, such as crime, transportation problems, and the lack of a stable and skilled work force. Successful revitalization of an inner-city area requires a careful orchestration of a number of different factors, the experts agree.
Dr. Francis acknowledges these criticisms, but points to further incentives by state and local governments, and the local business communities as a vital aspect of the concept.