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Researchers Question Value Of Enterprise Zones

There is no evidence that California's enterprise zone program the state's largest economic development effort has increased jobs in program areas, according to a Public Policy Institute of California study.

"Our main finding is that, on average, enterprise zones have no effect on business creation or job growth," PPIC researchers Jed Kolko and David Neumark wrote.

The two researchers constructed detailed maps of the 42 enterprise zones and surrounding areas, and matched their employment data with similar data for nearly every business in the state. They then compared employment and business growth within the zones to similar areas outside them. Researchers followed up with surveys of the zones' administrators.

Although the overall program appears to have no effect on economy activity, the PPIC study found that zones with fewer manufacturers of goods and those in which administrators made comparatively stronger marketing efforts did stimulate some job growth.

The state created the enterprise zone program in 1986. It offers a variety of tax benefits to businesses that move to and expand within zone boundaries incentives that cost the government about $500 million annually. Zones were scheduled to begin phasing out three years ago, but state lawmakers have extended zone lifespans.

The PPIC report is not the first to question the program's effectiveness. In 2006, a California Budget Project study which the PPIC researchers dismissed as flawed concluded no link existed between enterprise zone tax breaks and job growth. That same year, an Assembly committee called for greater enterprise zone accountability (see CP&DR In Brief, June 2006). Last year, the Legislative Analyst's Office recommended scaling back the program because of its uncertain benefits.

In response to the PPIC study, the California Association of Enterprise Zones releasing a working paper, by University of Southern California business professor Charles Swenson, that concludes enterprise zones reduce unemployment and raise wages.

The PPIC report is available on the think tank's website. Swenson's research is available on the USC website.

The PPIC's enterprise zone report followed a separate PPIC study of local economic development efforts. Undertaken just before the ongoing recession hit, the study contains these findings:

The number of local economic development activities is increasing.

The more redevelopment projects a city undertakes, the more likely it will be spearheading other economic development efforts.

Such local characteristics as jurisdiction size, employment base, resources and needs influence what local governments do for economic development.

The perception of competition among local communities drives economic development strategies, although the influence of competition may be exaggerated.

Local officials are influenced by the belief that state fiscal policies favor retail activity over manufacturing.

Although local government officials feel positively about their efforts, there is little formal evaluation of local program effectiveness.

The report by the PPIC's Max Neiman and Daniel Krimm recommends the state implement a more systematic economic development effort that includes consistent cooperation with local governments. The report, "Economic Development: The Local Perspective," is available on the PPIC website.

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