Zone Not a Guarantee of Pacoima’s Empowerment

Ever since Los Angeles was snubbed in the competition for federal empowerment zones three years ago, city officials have lobbied ferociously to win a second chance at the package of tax breaks and business incentives meant to improve business conditions in poor neighborhoods.

But if the U.S. Senate approves a measure to increase the number of such zones--a vote was expected late Thursday or early today --and Los Angeles gets one, that doesn’t automatically mean good jobs and booming economies in the Pacoima, East Side and South-Central neighborhoods that would be targeted.

“It won’t pave the streets with gold,� said Councilman Mark Ridley-Thomas, whose 8th District includes nominated areas of Watts and other neighborhoods.

“But to the extent that we can use this as part of a strategy to focus on underdeveloped parts of the city of Los Angeles, then it should be welcomed.�

The package, if approved, would be worth about $75 million per year in tax credits--gradually diminishing over 10 years--for companies that locate in the zones and hire workers who live there, said Rocky Delgadillo, Mayor Richard Riordan’s deputy mayor for economic development.

Delgadillo reasons that there are about 30,000 workers in the zones whose employers will qualify for the tax credits of up to $3,000 per year for each qualifying employee, but that not all businesses will take advantage of the program.

It was unclear Thursday whether about $100 million that had been made available to the first set of empowerment zones for child care, job training and other social services would also be included in any new package.

The federal tax incentives would provide a second wave of help for the targeted neighborhoods. After the city’s failure to win the grand prize last time around, the Clinton administration tried to mend fences by providing $450 million in funding for a Community Development Bank, and designating the area as a “supplemental� empowerment zone.

The bank, which now has assets and available capital of $740 million, has lent $41 million to 20 businesses in the same neighborhoods that would have benefited from the empowerment zone incentives.

If the new zones are approved and Los Angeles wins one--as sources say is likely--the benefits will be added to those provided by the bank. In addition, the targeted areas are for the most part already part of state-run enterprise zones, which offer breaks on sales taxes and state employment taxes to qualified companies operating in the zones.

The combination is a potent cocktail of incentives that will provide jobs and improve services in impoverished areas, said Wendy Greuel, Southern California representative for the U.S. Department of Housing and Urban Development, which oversees the empowerment zone program.

“This just adds to the entire package of offerings Los Angeles has,� said City Councilman Richard Alarcon, whose 7th District includes the Pacoima portion of the zone.

Bolstering the picture overall, Alarcon and others said, is the city’s economic recovery.

But developing businesses in economically depressed areas is very difficult, said Gilbert Ray, chairman of the board of the Community Development Bank.

“Expectations need to be managed,� Ray said. “That is the major caveat. The empowerment zones will be very helpful and valuable, particularly piggybacked with the bank. But [city officials] will have to recognize that these are hard, hard deals to do and they’ll have to be very creative.�

Urban planner Eugene Grigsby, director of the Advanced Policy Institute at UCLA, cautioned that the zones, while well-intentioned, may not meet expectations.

“The bottom line is that you won’t see any major new employers relocating there or any significant number of jobs being created there,� Grigsby said. “Because the zones are the antithesis of market forces. Most new growth is happening in other places.�

The faster-growing areas of the economy, Grigsby said, are in high-tech fields and entertainment companies, like Dreamworks SKG, which are not likely to set up shop in poor neighborhoods. Such companies require highly skilled workers, he said, and are therefore not likely to take advantage of tax breaks meant to encourage the hiring of local, mostly unskilled, labor.

Most likely, he said, businesses drawn to the zones will include clothing and furniture manufacturers and fast-food restaurants.

Alarcon said he expects mostly medium and large industrial businesses to respond to the incentives in the federal package. For the zones to be successful, he said, there must be administrative support for businesses that wish to take advantage of the incentives.

For example, Alarcon and others said, many business owners failed to take advantage of the state-run enterprise zones, because there was just too much red tape to make it worth their while.

One manufacturer, he said, refused to apply for the funds and was making plans to leave Los Angeles until city officials showed him that he could save $100,000 per year by participating in the state program.

Goetz Wolff, a UCLA urban planning professor who has studied the zones, said similar problems would be likely to confront business owners in the empowerment zone.

Offering incentives piecemeal on a case-by-case basis slows the process and creates excess bureaucracy, Wolff said.

It might be better, he suggested, to target incentives to whole industries, and concentrate on improved municipal services such as bus lines. That way, businesses could locate where they wished and employees could travel more easily to their jobs.

“It’s taken decades to create the poverty and infrastructure collapse and the general problems that surround those high poverty areas,� Wolff said. “It’s a charlatan who proposes that can be solved by the introduction of one program or just a few hundred million dollars.�