From the May 1998 issue of Entrepreneur

In 1994, the Clinton Administration rolled out the Federal Empowerment Zone and Enterprise Community (EZ/EC) Program with high expectations. So what has happened after three full years of empowerment zone operation? Have things improved, or is it just business as usual?

Those looking for quick fixes probably consider the empowerment zone initiative a failure. Even after receiving the official designation, zone administrators had to create governing bodies composed of government officials, business leaders and residents, as well as develop individual benchmark plans. In most communities, this process took at least one year to complete, according to the U.S. Department of Housing and Urban Development (HUD), which oversees the urban zones. (The U.S. Department of Agriculture oversees the rural zones.) In some cities, tension between the various factions made the process even more contentious.

According to HUD, there were no explicit goals in the EZ/EC initiative regarding small business. The philosophy of how to revitalize the community was left up to the communities. However, all zones included small businesses in the process because they are considered big job creators.

Defining a zone as successful is not a cut-and-dried issue, adds Noah Temaner Jenkins, project coordinator for the National Empowerment Zone Action Research project being conducted by the Egan Urban Center in Chicago. "The biggest problem is that we don't know what the empowerment zone does by itself because it doesn't act by itself," says Jenkins. "So many other things are going on--other government programs and economic factors, such as [having] one or two major corporations in the area."

Jenkins believes the restraints are built into the structure of empowerment zones. "The rhetoric says they will alleviate poverty, put residents back to work and facilitate opening new businesses," she says. "But the program doesn't provide all the resources needed to do that right away."

Another big problem Jenkins sees is that, except for the tax incentives, the program is geared toward preparing residents for jobs. "The program is not designed for much direct business assistance, though some zones are doing it," she says.

Still, small business does stand to benefit from the zones, at least in part. "One good thing the zones are doing is drawing [positive] attention to historically economically depressed areas that have problems partly because of negative images."

This, in turn, is changing the perceptions of investors and business owners who had written the areas off.

Just The Facts

  • The empowerment zone program is slated to operate for 10 years.
  • Eight urban areas have been designated as empowerment zones: Atlanta, Baltimore, Chicago, Cleveland, Detroit, Los Angeles (as of January), New York City and Philadelphia-Camden, New Jersey. These zones received wage tax credit, $100 million in Social Services Block Grant funds, increased Section 179 deductions and Tax-Exempt Bond Financing.
  • Three rural areas were designated: Mid Delta, Kentucky Highlands and Rio Grande Valley. They received wage tax credit, $40 million in Social Services Block Grant funds, and increased Section 179 deductions.
  • Services for zone businesses include $500 million in loan guarantees for such cities as Boston, Cleveland, Houston, Los Angeles and Oakland, as well as a variety of technical assistance programs.

Sign Of The Times

Fredric Carter had no problem deciding where to open his sign-making business. "Our Baltimore store is located in the middle of an empowerment zone, about four blocks from where I was raised," says Carter, who co-owns the Baltimore and Washington, DC, franchises of ASI Sign Systems with Charles K. Taylor.

What prompted the duo to set up shop in the zone was the 80/20 Loan Fund, a high-risk-loan guarantee program sponsored by the Empower Baltimore Management Corp. "We started talking to [Empower Baltimore] in April 1997, and the interest rates they offered were very favorable," remembers Carter, whose accountant pointed out the advantages of doing business in the empowerment zone. "Also, the amount of collateral required was not the same as a commercial bank required."

How does the 80/20 Loan Fund work? Empower Baltimore Management, which oversees zone activities, provides 20 percent of the total loan a company might need, up to $100,000. The balance is supplied by a conventional lender. ASI Sign Systems obtained two loans totaling $116,000 at 4 percent interest each, says Carter. In addition to helping facilitate financing, empowerment zone officials are working with Taylor to set up a formal computer-training program. They've also plugged the company into a vendor database and introduced the partners to potential clients.

The outcome of any company's dealings with these officials is influenced by many things: how organized the zone programs and personnel are, what stage the business is in, what resources an entrepreneur brings to the equation and, finally, how much patience a business owner has to negotiate with what is, after all, another government bureaucracy. Fortunately, as in Carter's case, the experience can be a very positive one.

Contact Source

ASI Sign Systems, asibalt@aol.com