THE VIRGINIAN-PILOT
Copyright (c) 1995, Landmark Communications, Inc.
DATE: Wednesday, February 15, 1995 TAG: 9502150436
SECTION: BUSINESS PAGE: D1 EDITION: FINAL
SOURCE: BY DAVID M. POOLE, STAFF WRITER
DATELINE: RICHMOND LENGTH: Medium: 90 lines
The General Assembly is grappling with two competing visions for revamping urban enterprise zones, which are designed to encourage businesses to create jobs and invest in economically disadvantaged areas.
Both proposals are fashioned to make financial incentives available to a broader array of businesses, while at the same time curbing abuses by some companies that simply relocated across town to reap tax benefits.
The two plans differ in the types of financial incentives that would be available to qualifying companies. Gov. George F. Allen wants to expand the current system of tax credits. The Senate Finance Committee wants to switch to direct cash grants.
Commerce Secretary Robert Skunda said that the Allen administration would be willing to craft a hybrid plan that employs a mixture of tax credits and grants.
``It would appear that will be necessary if we are going to get any enterprise-zone legislation this year,'' Skunda said Monday at a House Finance Committee meeting.
Everyone agrees the state can do more to help urban localities such as Norfolk and Portsmouth attract new commercial and manufacturing businesses into marginal areas.
Enterprise zones have had a minor impact since the program was established in 1984. About 168 business that employ about 4,800 people have qualified for tax credits in 25 specified zones.
At times, enterprise zones generated more controversy than jobs.
Suburban counties complained that urban zones enticed companies to relocate a few miles away to core cities, with no net gain in jobsfor the region. Skunda calls it ``job piracy.''
Some building contractors complained when they lost bids to competitors that relocated to enterprise zones to reap a five-year sales-tax exemption. Critics say that contractors tend to be bad candidates for enterprise zones because the bulk of their work is done at far-flung construction sites. The result is that inner cities get few new jobs, while construction companies pocket lucrative tax breaks.
A Senate Finance Committee study shows that construction companies, which have been flocking into zones in recent years, account for about 70 percent of the tax breaks received by all businesses. Legislation before the General Assembly seeks to correct these problems, while beefing up incentives to qualified companies.
Here's what the two versions have in common:
Double the number of enterprise zones from 25 to 50.
Offer incentives to large companies and franchises by eliminating a requirement that the company has to generate at least half of its revenue within the zone.
Create new incentives for companies that make improvements to real estate within a zone.
Allow companies that now qualify in zones to continue receiving tax incentives under the existing plan.
The differences between plans offered by the Senate Finance Committee and the Allen administration were aired Monday before the House Finance Committee. Senate staffer Jim Regimbal said that the Senate plan would offer cash grants linked to the number of jobs that a company creates and the value of its real estate improvements. For instance, a company that increased employment more than 10 percent would get $1,000 for each employee who lives in the zone and $500 for others.
Regimbal said that a cash-grant approach would give companies an immediate reward and make it easier for policy makers to track the cost and effectiveness of the program. He conceded, however, that the only state - Connecticut - to take a grant approach to enterprise zones has discontinued the practice.
Skunda argued that the state's ability to offer incentives could be hamstrung if the demand for grants exceeded the Assembly's annual appropriation.
``You'd be putting a glass ceiling on the state's ability to attract business,'' he said.
Tax rebates would not require an annual appropriation, but would result in lower tax collections, Skunda said. Under either approach, the state's cost of luring business will rise dramatically.
The enterprise program cost $1.1 million in 1992. The Allen administration plan would increase the cost to $14.2 million by 1996-97. The Senate Finance Committee provided no cost estimate, beyond $3 million for 1995-96.
Sales-tax exemptions claimed by contractors account for the bulk of the cost of the program. A state income-tax break accounts for a small fraction of the cost because many small companies that move into enterprise zones do not show a profit. But that could change under the Allen administration plan if large, profitable companies like Walmart or McDonald's restaurant are allowed to qualify for state income-tax incentives.
KEYWORDS: GENERAL ASSEMBLY by CNB