Thursday, August 16, 2012

Oh dear, Ryan's an "enterprize zone" advocate?

The Washington Post says veep nominee Paul Ryan is big on enterprise zones, or anyhow he was in 2004. One more reason to think badly of the man. Those things don't work. It was abundantly clear in 2004 that those things did not work.

As the Post article reminds us, the "enterprise zone" idea is a product of the Maggie Thatcher years in the UK. Like many products of the Thatcher mood and era, enterprise zones are characterized by grandiose promotions, isolated success stories, and bigger-picture private grot.

There's a pattern to how enterprise zones don't work. They start with a happy flavor burst of supply-side theory and local main-chance optimism. Then there's a long muddle while interested parties figure out if there's money behind the rhetoric. Then most busy businesspeople who don't have grandiose ideas nor time on their hands decide the whole thing isn't worth the effort. Then something swells, but it isn't the mythical rising tide that lifts all boats. To stay with the aquatic metaphor, it's more of a narrowly rising waterspout: it floats somebody's boat, or a few selected somebodies' boats, leaving the rest of the ballyhooed safe-harbor district in stink and seaweed. Then there are the reports and sometimes the investigations. People wonder out loud, sometimes pretty loudly, whether the general public is helped.

Philadelphia's experience (see local news investigations here and here and the 1998 HUD OIG report here) was among the unhappier early stories but not really out of range of the rest.

Enterprise zones -- including major federal programs that called them "Empowerment Zones" and "Renewal Communities" -- were already conspicuously not working in 2002. That year I wrote them up maybe a little over-thoroughly for Affordable Housing Finance magazine. It was for the business press, and I was trying my darnedest to be perky about the effects of enterprise zones on affordable housing. But it does come through in the article that the response to those things was looking kind of limp. Except with respect to the isolated floating boats.

As my 2002 article explained (a little ploddingly, sorry), things of the "enterprise zone" type got closest to helping neighborhoods when they were handing out grant money, not just tax breaks. The first couple rounds of federal Empowerment Zones, when they were Al Gore's baby, came with big grant funds as well as the tax stuff. Some of those almost started to get somewhere. Then Congress stopped handing out the grant money and tried to get similar effects in the Round III Empowerment Zones by offering tax breaks, especially by offering big chunks of tax-exempt private activity bonds to ambitious private businesses. Private activity bonds reduce the public's tax revenue to finance private businesses on the theory that... rising tides... boats... yeah, that stuff again. Not actually great in practice.

The Tucson Round III Empowerment Zone, which as of my article seemed to be making the most of its tax-break-only opportunities, was starting to show familiar symptoms of generalized fizzle and isolated private advantage as of this local newspaper report in 2003. I don't know how it's doing now -- maybe fine. But part of the trouble is, this stuff is hard to measure. As the 2003 local article noted, the effects of tax incentives are hard to quantify publicly because the cui bono is reflected on private confidential tax returns, not so much on public documents.

For the past ten years I've kept an eye out for positive news about "enterprise zones." Haven't seen much.

The Post article has some good links to studies saying the things aren't great, including this good theory-and-practice literature review for the Minnesota legislature.

I would add, there's a numbingly, damningly detailed annotated bibliography on the subject at HUD. Also, HUD's Inspector General concluded in a 2003 systemwide report that HUD had failed to stop inapprpriate uses of funds and "lacked an adequate system of oversight and control" over the Empowerment Zones. Especially (pretty badly) in Cleveland. Similarly non-thrilled GAO reports are here and here and... actually, just take a look at that bibliography. Lots of citations there that are easy to follow up online though there aren't direct links.

The fundamental trouble is that most people don't check whether public policy promises are kept. If they did we would have another kind of political environment, wouldn't we?

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