WASHINGTON -- Pretty soon, HUD officials believe they will be awash in a sea of applications from areas that want to be enterprise zones.
Department of Housing and Urban Development officials describe trips they have taken around the country in which local officials everywhere are inquiring about the program, which was created by legislation Congress passed last year. Everybody's talking about it, they say.
The intensity of the enthusiasm has led some lawmakers and lobbyists to warn that an enormous number of jurisdictions are setting themselves up for a big disappointment.
After all, HUD and the Department of Agriculture will be choosing only 104 zones this fall: nine "empowerment zones," which are eligible for several tax breaks, and 95 "enterprise communities," which will get a more limited amount of federal aid.
Other Capitol Hill watchers say there's no evidence of zone-hysteria among the locals. They think HUD is vastly overestimating the amount of serious interest that will be shown in the enterprise zone program.
According to this theory, local officials may seem excited about the program now, but when they find out how much effort it takes to apply, how little chance they have of winning zone status, and how few tax incentives they will receive, many will probably not even try.
First, there's the issue of how many zones are available. When it comes to empowerment zones, cities are supposed to be competing for six, with three others to be in rural locations. But Capitol Hill watchers speculate that the cities are really competing for only one or two. For political reasons, several choices are probably preordained -- most likely New York City, Los Angeles, and Chicago -- according to the conventional wisdom.
Some who combed through the zone legislation discovered that two of the empowerment zones, though not named, are described in a way that strongly suggests the area comprising Philadelphia and nearby Camden, N.J., and somewhere in Texas.
Take the speculation a little further and you will find Miami and Detroit are considered front-runners in the empowerment zone sweepstakes. Does this mean that hundreds of other cities need not apply?
HUD officials would point out that besides the enterprise zones, 95 enterprise communities are still to be chosen. But the tax incentives for enterprise communities are minimal, as Washington lawyer Stuart Sloane pointed out recently at an American Bar Association conference on affordable housing and community development.
"What's left of those incentives is almost meaningless," Sloane said.
The only tax break the enterprise communities will get is the authority to issue a new category of tax-exempt bond to finance zone businesses. As originally proposed, the bonds would have been exempt from the private-activity volume cap and would have been bank-eligible. However, the two provisions were dropped at the last minute, rendering the bonds almost unmarketable, according to many bond proponents.
One final argument from HUD officials is the intangible benefits that jurisdictions will gain if they apply to be enterprise zones.
Applicants must submit a strategic plan for economic development in the proposed zone, which should show the involvement of residents, citizens groups, nonprofit organizations, and other sectors of the community. Merely by going through the application process, HUD officials argue, a jurisdiction will be planning for its future, identifying both its needs and various sources of financial aid.
But another lawyer at the bar association conference, Thomas Wechter, pointed out that a fully developed application requires such an enormous amount of effort that many localities will not consider an enhanced sense of well-being as any incentive at all.
"No one really has the resources or time to spend 3,000 to 4,000 hours planning" for a zone designation that may be not forthcoming, said Wechter, a lawyer with the firm of Holleb & Coff in Chicago.
In the end, the federal government "is giving out a lot less and asking a lot more, and I don't think they're going to get the applications," said Sloane.
Who's right? HUD or the naysayers? With applications due June 30, it will not be long now before the level of interest can be gauged. It will be much more difficult, and take much longer, to gauge whether the zones will live up to their promise of economic rejuvenation.
