Members of Congress and an administration official said last week that the empowerment zone program, which offers tax incentives to attract private businesses to distressed communities, should be extended beyond its Dec. 31 deadline. But some business leaders said parts of the program are overly restrictive and could be improved.
House Ways and Means Committee chairman Charles Rangel, D-N.Y., said last week that the program should be extended, and during a hearing Wednesday looking at the program, Richard Neal, D-Mass., chairman of the select revenue measures subcommittee, also threw his support behind it.
Nelson Bregon, the deputy assistant secretary for community planning and development for the Department of Housing and Urban Development, told Neal during the hearing that the program is “an important tool for the revitalization of American’s urban and rural communities.”
Rep. Artur Davis, D-Ala., a member of the Ways and Means Committee, has introduced legislation that would extend the program through 2015. The program began in 1993.
Empowerment zones are specially designated, distressed communities where tax-exempt bonds and other tax incentives can be used to attract private businesses as well as economic development.
Tax-exempt enterprise zone facility bonds can be issued to provide low-cost financing to private businesses, provided that at least 35% of the business’ employees are residents of the empowerment zone for the life of the bonds. Bregon told the subcommittee that $643 million of these bonds have been issued, which amounts to just 16% of the total bond authority granted under the program.
Although business leaders were supportive of the program overall, they told the subcommittee that a number of requirements drastically reduce the efficacy of some of the incentives, including bond financing.
Jonathan Beard, the president and chief executive officer of the Columbus Compact Corp., a private nonprofit corporation charged with implementing the EZ and issuing any EZ facility bonds in Columbus, Ohio, told the subcommittee that many businesses shy away from tax-exempt financing opportunities due the number of restrictions that come with them.
Although strongly supportive of extending the EZ program, Beard said there are a number of issues that inhibit the number of projects that can be financed effectively with EZ facility bonds.
Specifically, the cost of issuance bars many smaller businesses that cannot afford them. Impediments to the program also include the 35% EZ resident employee requirement for the life of the bonds and a lack of clarity on a requirement that a “substantial portion” of the businesses’ work occur in that empowerment zone.
“Many businesses are simply unwilling to take the risk of having to remain in compliance over what could be a 30-40 year timeline,” Beard said.
No bond financing has occurred yet in the Columbus EZ, and the three businesses considering it backed away due to the EZ resident employee requirement, believing they could not adhere to that standard for the next three or four decades, he said.