Date: 1982-10-01
Speaker: WILLIAM J. COYNE (democrat)
Chamber: H

Mr. Speaker. the administration has- not beenreluctant to express itsview that Federal aid to urban areas is less than productive. In the recent Housing and Urban Development Policy- Report. Federal programs designed to rebuild our cities are depicted not as- part of the solution. to our urban ills. but as part.of the problem. The administration. is far less clear on how urban enterprise zonesthe keystone of its urban aid effortwould work. These zones. according to an administration factsheet. would "create a freemarket environment in depressed areas through relief from taxes. regulations and other Government burdens.. privatization of some city services and involvement of private. neighborhood organizations." Many cities. including my own city of Pittsburgh. are devising enterprise zone proposals in anticipation: that the zones may be the only game. in town. In view of the sharp reductions in urban aid the administration has brought about in a short 18. months. this is a wise calculation on the part. of the cities. But before we abolish existing urban aid programs such as the Economic Development Administration. before we start changing the ground rules for cities. we should take a much closer look at how these zones will work. There are at least 10 big questions that need to be answered before we make enterprise zones the flagship of urban policy. First. how much will the zone program cost? The answer appears to be: No one knows. While the administration estimates that 75 zones could cost nearly a billion in lost tax revenue by 1986roughly double the amount we now spend on the highly effective urban development action grant programa recent General Accounting Office report suggests this may be understating the actual cost. According to the appropriately titled GAO report. Revitalizing Distressed Areas Through Enterprise Zones: Many Uncertainties Exist. revenue losses in some zones could be many times higher than those anticipated in the Treasury estimates. The GAO report also warns that: The Congress may not. as with a program based on appropriated funds. be able to adjust the amount spent on enterprise zones in subsequent years. as the effectiveness of the program is assessed. or as the countrys fiscal climate changes. According to the CRS taxation report. tax expenditure programs may remain beyond their useful life because tax provisions are not periodically reviewed through the budget process as are direct expenditures. Second. who benefits from the zones? Many critics. not surprisingly those representing organized labor. argue that the zones will have the effect of lowering wages while subsidizing capital investment. Even those who generally support the zone concept are skeptical of some proposed benefits. Fort Wayne. Ind.. Mayor Winfield Moses told the Senate Finance Committee in April of this year that if the administration zone proposals are adopted: The. result may be investment in. laborsaving machinery. which translates into a net loss of jobs or the "sellingout" by firms which have beenin thearea a long timeand decide to avail themselves of the capital gains incentives. Third. will enterprise zones actually create jobs? A distinguished urban scholar. Roger Ahlbrandt. doubts that they will. His criticism. coming shortly after his service as HUD Deputy Assistant Secretary of Urban and Community- Studies in the Reagan administration. is worth considering: There is no reason to expect enterprise zones to create a significant number of new jobs. Many studies of business investment decisions show that. tax incentives are of only minor importance in the expansion or location decisions of private companies. Most mayors. city development directors and private developers are skeptical about the zone concept and would prefer grants to stimulate private investment. Fourth. do enterprise zones actually address the needs of small business? Most new jobs. come from small business. Tax problemq. however. are not the No. 1 headacheof most small businesses. A survey by the National Federation of Independent. Businessmen indicates that adequate financial support.. initial sales and managerial competence are much bigger priorities for entrepreneurs. than taxes. yet this bill addresses none of those needs. Herbert Liebenson. president of the National Small Business Association. aptly describes the situation in many urban areas: Most small firms are hanging on by their fingernails Just trying. to survive. Moneys whats needed. not tax deductions. Fifth. would enterprise zones favor one business at the expense of another? Zone proponents argue that the reduction in direct Federal aid and regulations in zone areas constitutes greenlining. Far too little thought has been given to what may develop into the brown edge around a zone. the area in which businesses faced with very similar economic conditions are unable to reap the benefits of competitors within the zone.. There is surprising agreement between business and labor as to the seriousness of this problem. According to the GAO report: A spokesperson for the American Federation of Labor and the Congress of Industrial Organizations said a firm outside the zone. employing many zone residents. would receive no benefit. This would lead to inequitable situations and powerful incentive for shutdowns. relocations and counterproductive competition. The Chamber of Commerce of the United States expressed the opinion that geographically bounded tax incentives are inherently inequitable and discriminatory and. therefore. inconsistent with sound federal tax policy. An official of the National Federation of Independent Business said his association is concerned that if service or retail businesses are successful in an enterprise zone. they will probably just be taking business away from firms outside a zone. Sixth. how will the Federal Government prevent a shell game. in which an existing business enters. or perhaps leaves. a zone solely to take advantage of tax benefitsnot to create new Jobs? The legislation authorizing the Economic Development Administration wisely prevents the Federal Government from subsidizing footloosebusinesses. which add little to the new net job figure. The. adminstrations enterprise zone legislation does not. Answering a query by the GAO on this subject. the administration adopts a less than concerned attitude to a potentially serious problem. The administration says: While relocation in thiz sense is not as purely beneficial as the stimulation of an entirely new activity. bringing such economIc development to the Nations distressed areas has important social benefits and would. therefore. still be an advantageous result of the program. Seventh. what guarantees against involuntary displacement of current zone residentsthe planned beneficiaries of the legislationare contained in the administration proposal? If the enterprise zones. work according to theory. land values can be expected to rise rapidly. with the possible result that low income residents could be forced out of their homes. The Uniform Relocation Act now offers some protection for citizens forced to move as a result of a federallyinitiated project. While enterprise zones. according to their sponsors. will be a key Federal program. no such protection is included in the administration proposal. Without strong antidisplacement guarantees.. enterprise zones could be a modern version of the people removal aspect of urban renewal which was so roundly criticized in the 1950s and 1960s. Eighth. will the enactment of enterprise zone legislation open a Pandoras box. with communities competing to eliminate local health and safety codes in the hope that an antiregulatory HUD will designate a zone in their city? William W. Goldsmith. a Cornell University professor of city and regional planning. describes that possibility in a recent New York Times article: The Administration proposes multiple zones across the country. and it encourages states to innovate with their own laws. The states. If left to their own devices. might declare wholesale war on labors 20th century gains. One bill authorizing zones passed both houses in Illinois before being vetoed by Governor James R. Thompson. under pressure from labor and civic groups. Early versions of the bill would have eliminated building codes. minimum wages. property taxes. and general state aid. would have weakened laws protecting health. safety and the environment. and would have enforced right to work laws in specified urban zones.. Ninth. how will the passage of the Reagan administration tax act of 1981 affect the enterprise zone tax incentives? The GAO report. while noting that the zone tax advantages may be attractive to some businesses. makes it clear that: By reducing business taxes nationwide. the Economic Recovery Tax Act may reduce the attractiveness of business tax incentives proposed for enterprise zones. The GAO investigators note that: A spokesperson for the National Association of Manufacturers told us that the proposed enterprise zone tax incentives may not be substantial enough to attract manufacturers becruse proposed enterprise zone incentives have been mitigated by the receptly passed Economic Recovery Act. The 10th. and perhaps most important question is: Are enterprise zones the direction Federal urban policy should be taking? Ed Humberger. of the Washington. D.C.-based Urban Development Collaborative. raises a serious question as to the direction Federal urban policy may be headed if enterprise zones are to be the key Federal program: If no startup capital is to be provided in this bill. what types of businesses would. in fact. be created? Are we talking about "mom and pop" stores. sweatshops. and delivery repair services that can be started with minimal capital from savings or family and friends? If the ultimate benefit of the enterprise zone proposal and. by extension. national urban policy. lies in exempting the corner candy story from taxes and the minimum wage. then we have come a long way from any vision of long term economic development in distressed areas. Congresswoman SHIRLEY CHISHOLM expressed what I believe is a most pragmatic criticism in her testimony before the House Economic Stabilization Subcommittee. She said: I must say of the Presidents enterprise zone proposal: its delayed unveiling. its unambitious scope. its minimal allocation of federal resources aiJ its simplistic faith in the private sector are all stark commentaries on the apparent disinterest of the White House in dramatic urban revitalization. However. to repeat an old saying. "What you see is what you get." Crafting an enterprise zone proposal makes good sense to a city in desperate need of some sort of economic revitalization assistance. What they see may well be all they get from this administration. Enterprise zones are not. however. the last word on urban development. There are other new and better ideas on rebuilding our. cities. ideas premised on economic need. not academic theory. Rebuilding our cities could be the growth industry of the 1980s and 1990s. But it will take a big capital investmentbigger than most of our urban areas can now afford. In the short term as well as the long term. I am convinced that an in:estment in the repair of our cities streets. roads. bridges. public lighting. and water systems will pay off in the creation of far more Jobs than will enterprise zones. The advocates of the administrations zones overlook one very important point about commerce: In order for a business to be successful. the surrounding environs must be conducive to trade. As long as our cities deteriorate. these conditions will not be met. A proposal advanced by the International Association of Machinists lays the groundwork for a rethinking of the way we use the Federal Financing Bank so that we can use it to make longterm loans to our citiesloans which are essential if we are to tackle our massive infrastructure repair problems. Since 1973. the Federal Financing Banks only customers have been Federal agencies which sell their obligations to it at a lower cost than they would be able to sell on the open market. in large part because the financing bank borrows its money from the U.S. Treasury. The bank is also autl rized to borrowup to $15 billion in the private capital market. Now may be the time to allow the Federal Financing Bank to make loans through an appropriate conduit to certain local governments which develop a comprehensive aid program aimed at distressed areas. Like the enterprise zones. the assistance would be relatively targeted. Unlike the enterprise zones. it would allow local governments the breathing space to make the long range planning decisions necessary for a healthy business and residential environment. Specifically. a city could arrange for a low interest. longterm loan through the finanicing bank. at rates similar to the Treasurys cost of funds. to make needed infrastructure repairs. The proponents of enterprise zones have rendered this Congress a service by focusing debate on the need for targeted urban development. In their concentration on capitalintensive approaches to revitalization. however. I believe that laborintensive and communityoriented alternatives have received too little attention. Our colleague. Representative PARREN MITCHELL of Maryland. has begun to craft an alternative measure which. recognizes the need for community planning and participation as well as the developinent of jobs in. for. and by the community which is designated as a distressed area. I commend the gentleman from Maryland for his leadership in this area. and I look forward to working with him on his proposal. Mr. Speaker. in the rebuilding of our distressed neighborhoods through large scale reinvestment in public facilities. the Federal Government has not been part of the problem as some would contend. but part of the solution. In program after programcommunity development block grants. urban development action grants. the Economic Development Administrationthe Federal Government has played a critical role as a partner in community efforts to reverse neighborhood decline. I am among those who favor increased targeting of Federal urban programs. To the extent that -enterprise zones accomplish this. I will sup. port the proposals. To the extent that they contribute tr a reduction of direct Federal aid to urban areas. I shall oppose them.e