Summary

To assist Congress in its deliberations on enterprise zone proposals, GAO reviewed the concept, as well as previous GAO reports on economic development and job creation programs, to identify issues concerning business development, job creation, and the costs of such a program.

Enterprise zones have been proposed by the administration as an experimental program to attract businesses and jobs to distressed urban and rural areas through federal tax, regulatory, and other governmental incentives. GAO reviewed past urban development programs for insight into the many uncertainties that exist within the enterprise zone concept. Federal tax relief will not eliminate problems such as high crime rates and infrastructure decay in distressed areas. Tax relief, even if coupled with federal regulatory relief, involvement of other federal programs, and state and local commitments, may have a limited effect in attracting businesses to distressed areas because: (1) tax relief may not be sufficiently attractive to many businesses with limited or no tax liability; (2) state and local governments may not be able to make needed program commitments; (3) the extent to which other federal programs will support the enterprise is unclear; and (4) it is uncertain what federal regulatory relief would be offered in enterprise zones. Enterprise zone incentives could possibly lead to unfair competitive advantage to some businesses, encourage business relocations, and lead to residential displacement. A proposed tax credit to encourage the employment of workers of all types could be more attractive to new businesses than to old businesses. In addition, a proposed employee wage credit may not be sufficient to attract workers to seek jobs in a distressed area. Actual program costs will not be known until the zones become operational.