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Thursday, March 3, 2011

Empowerment Zones, Enterprise Communities, and Renewal Communities: Comparative Overview and Analysis

Oscar R. Gonzales
Analyst in Economic Development Policy

Donald J. Marples
Section Research Manager

Empowerment Zones (EZs), Enterprise Communities (ECs), and Renewal Communities (RCs) are federally designated geographic areas characterized by high levels of poverty and economic distress, where businesses and local governments may be eligible to receive federal grants and tax incentives. Congress remains interested in these programs to revitalize selected areas affected by unemployment and a decline in economic activity, despite increased concern over the size and sustainability of the long-term budget outlook. 

The objective of this report is to provide a comparative overview of the similarities and differences between the EZ, EC, and RC programs, and a review of congressional policy choices to target and provide federal incentives to economically distressed zones. The report also examines studies that have evaluated the impact of EZs, ECs, and RCs, and provides information on their current status. Finally, the report discusses recent legislative activity and congressional issues and options.

Since 1993, Congress has authorized three rounds of EZs (1993, 1997, 1999), two rounds of ECs (1993, 1997), and one round of RCs (2000) with the objective of revitalizing selected economically distressed communities. The three programs have different benefits and eligibility criteria. For example, the nine initial EZs each received tax incentives and grants of $100 million (urban) and $40 million (rural), whereas the 95 initial ECs each received tax benefits and smaller grants of $2.95 million for smaller urban counties and rural communities. RCs did not receive grants, but benefitted from wage credits, and tax investment incentives. Eligibility varied depending on levels of population, unemployment, and poverty. In its FY2010 and FY2011 budgets, the Administration requested that Congress extend tax incentives for EZs and RCs until December 31, 2010 and 2011. EZ and RC tax incentives were extended in the Emergency Economic Stabilization Act of 2008 (P.L. 110-343), through December 31, 2009.

Currently, the estimated $1.8 billion in grant incentives provided to EZs and ECs since 1993 have mostly been expended. The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (P.L. 111-312) enacted on December 17, 2010, extended EZ tax benefits, but not RCs, until the end of 2011. In addition, legislation such as the American Recovery and Reinvestment Act of 2009 (P.L. 111-5) provided broadband education, training, and equipment for selected facilities located within EZs and ECs, and recovery zone bonds for EZs. In 2009, P.L. 111-8 and P.L. 111-80 provided $3 million in funding for EZs and ECs. While a short-term extension of EZ tax incentives was enacted in the 111
th Congress, a similar extension of the RC tax incentives might continue to be an issue in the 112th Congress.

A number of studies have evaluated the effectiveness of the EZ, EC, and RC programs. Several government-sponsored studies have failed to link EZ and EC designation with a general improvement in community outcomes. In addition, several academic researchers have evaluated the effectiveness of zone incentives. Overall, these studies have found modest, if any, effects, and call into question the cost-effectiveness of these programs.

There are several options that Congress can consider regarding the EZ, EC, and RC programs. These options may range from permanently extending the programs to allowing them to expire. Other options include a temporary extension, increased oversight, a redesignation of economic development zones, program consolidation, or a combination of these options.

Date of Report: February 14, 2011
Number of Pages: 32
Order Number: R41639
Price: $29.95

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