Empowerment zones plan raises L.A. inner-city hopes.

Congress tags $3.5 billion for national zones project

Key changes made to the federal deficit reduction bill by a joint congressional committee last week were good news to Southland business and political leaders, who view them as a major element in the effort to attract business to L.A.'s inner city.

The proposed changes included the deletion of a U.S. Senate-approved surtax on capital gains and addition of research and development tax incentives. Also included -- and of major interest for the inner city -- was $3.5 billion for economic empowerment zones and enterprise communities.

The changes were made to address concerns raised by Sen. Dianne Feinstein, D-Calif., and their inclusion was what persuaded her to voice her approval of the measure. "If these incentives are in, this goes a long way to satisfy my concerns," she said.

The empowerment zone provision was a welcome sign to Jack Kyser, chief economist of the Los Angeles County Economic Development Corp. and an economist on the Business Advisory Committee of the City of L.A.'s enterprise zone program.

"The L.A. city enterprise zone program really hasn't generated anything significant in the way of jobs or investment because the incentives offered aren't attractive enough," Kyser said. "Hopefully, the empowerment zone will offer more attractive incentives that will enhance what the state is already offering."

To Reynold Blight, a program operations official with the city's Community Development Department, the proposed incentives go far beyond existing programs.

"Right now the HUD (federal Housing and Urban Development Department) block grant set out for housing and economic development activity and human services is $3 billion for the entire country. More than half of that is taken up by housing," he noted. "Compared to that, the $3.5 billion for empowerment zones, even if it were spread out over five years, would be a very substantial increase in the federal commitment to economic development."

Under the compromise bill, nine empowerment zones would be designated in 1994 and 1995 in areas nominated by state or local governing bodies.

"I believe these programs can be critical in regions such as East Los Angeles and south Los Angeles to attract businesses to invest," Feinstein said.

HUD and the Agriculture Department would designate the zones, in conjunction with an Enterprise Board. The Enterprise Board, an entirely new entity created by this legislation, would be composed of representatives of various federal agencies.

To be eligible for consideration, an area would have to have a poverty rate of at least 20 percent. And community leaders would have to submit a strategic plan identifying efforts to improve the area that would involve local residents.

Employers in an empowerment zone would be eligible for a 20 percent credit on the first $15,000 of wages paid to area residents who work in the zone. They could also take up to a $37,500 tax deduction -- vs. the current $10,000 -- on equipment newly purchased for the zone business, and benefit from a new category of tax-exempt bonds used to finance local development.

Rep. Maxine Waters, D-Los Angeles, whose district includes South Central Los Angeles, told the Business Journal, "We have been able to form the best (plan) that we can get at this time."

She was active in writing legislation for empowerment zones on both the federal and state levels, and is confident L.A. County communities "have enough expertise to put together a good strategic plan."

Federal tax expert Steven Yentzer, a Seattle-based attorney with the law firm Perkins Coie, is convinced "this package came out of the L.A. riots as a way to revitalize these impoverished areas."

His colleague, Jay Wertheim, a partner at the Century City office of Perkins Coie, said a number of his clients who lost businesses during the riots "would certainly be more likely to re-establish their businesses with this added financial incentive."

The big question, assuming Congress approves the empowerment zones, said Wertheim, is which employers would qualify for incentives. He said he believes the program will be more successful if it is open to all businesses.

Another partner at Perkins Coie's Century City office, Tom McLain, agreed the zones "would induce people to take a serious look at the (South Central) area, especially when coupled with local efforts to get business to locate or expand in there."

McLain said, "South Central is a natural location to establish warehousing, distribution, assembly and manufacturing facilities. This is particularly true for Japanese firms, because it's half way between downtown, where their headquarters are, and the ports."