WASHINGTON -- New York, Chicago, Detroit, and 101 other jurisdictions were named enterprise zones yesterday by the Clinton Administration, giving them the authority to issue a new type of tax-exempt private-activity bond to finance loans to businesses in their areas.
The three cities were among nine areas receiving special "empowerment zone" status, which entitles them to a wide array of tax incentives and federal grants, along with the authority to issue enterprise zone bonds. The other urban empowerment zones are Atlanta, Baltimore, and an area containing parts of Philadephia and Camden, N.J.
Three rural areas were designated as empowerment zones: the Kentucky Highlands, comprising Clinton, Jackson, and Wayne counties; the Mid-Delta Mississippi area, comprising Bolivar, Holmes, Humphreys, and Leflore counties; and Texas' Rio Grande Valley, comprising Cameron, Hidalgo, Starr, and Willacy counties.
For the urban areas selected, empowerment zone status does not apply to the entire city, but only to a small portion of it. For example, New York's empowerment zone area is Harlem and a portion of the South Bronx, assistant housing secretary Andrew Cuomo told reporters. Cuomo did not delineate the zone areas in the other cities that were selected and other HUD officials could not be reached to identify the specific areas.
Eric Tucker, director of Detroit's Finance Department, said the city "may very well" issue bonds for street improvements or other infrastructure to support empowerment zone projects.
"It depends on what comes on the table. If someone wants to build housing or an apartment building, and street upgrades are needed, we'd either issue bonds or we have proceeds available from previous issues that we'd transfer over," said Tucker.
Chicago officials said they had no immediate plans to issue bonds in conjunction with empowerment zone projects.
"Obviously, we're doing work in these areas, and some of that will dovetail, but it wasn't necessarily predicated on" being selected to receive an empowerment zone, said John Holden, a spokesman for the Chicago Department of Revenue.
The 104 enterprise zones also include 95 jurisdictions designated "enterprise communities," which will be eligible for smaller grants and receive few tax benefits aside from the authority to issue bonds. Prominent among the enterprise communities are such cities as Los Angeles, Denver, St. Louis, New Orleans, Minneapolis, Cleveland, Pittsburgh, Memphis, Dallas, and Milwaukee.
As with the urban empowerment zones, enterprise community status applies only to a small area within each city. The administration did not offer details on which specific areas won the designation.
Enterprise zone bonds are exempt-facility bonds subject to the private-activity bond volume cap. The amount that can be issued for a business in any one zone is capped at $3 million. The maximum that any one business can use is $20 million.
The zones were created as part of the tax package enacted in August 1993. In drafting the legislation, lawmakers had considered partially exempting the bonds from the volume cap and making them bank deductible, but those proposals were eliminated from the final version of the bill that became law.
Congress' failure to make the bonds bank deductible has led some analysts to warn that the bonds will be extremely difficult to market, and thus almost unusable for many of the small commercial businesses they are designed to help.
In addition, a group of American Bar Association lawyers warned in October that the enterprise zone law is so complicated that small businesses may shy away from participating in them unless the Treasury Department writes clear regulations for the statute.
The Treasury and the Internal Revenue Service have been developing regulations for the zone bonds, and are expected to release those rules as part of a larger set of private-activity bond regulations. The department has said it hopes to publish the private-activity regulations by the end of this year.
The bar association lawyers said in a letter to the Treasury that the $3 million and $20 million limits will make it difficult for enterprise zone businesses to gain access to the bond markets, because of the high transaction costs they will incur.
Another problem with the law is the definition of an enterprise zone business, which constitutes a highly technical set of rules that could discourage participation, the lawyers said.
And the Winners Are...
Following are the urban and rural areas designated by the Clinton Administration as one of two types of enterprise zones. The first type, empowerment zones, receives a large amount of federal grant money and a wide array of tax benefits. The second, enterprise communities, receives a smaller amount of grants and fewer tax benefits. Both types of zones are permitted to issue a new type of tax-exempt bond to finance loans to zone businesses
New York City
Area comprising Philadelphia, Pa., and Camden, N.J.
Area comprising two counties in Kentucky's highland area
Area comprising four counties in Mississippi's mid-delta
Area comprising four counties in Texas' Rio Grande Valley
Alabama: Chambers County and an area comprising Greene and Sumter counties
Arizona: Phoenix, Arizona Border Region
Arkansas: Pulaski County, Mississippi County, and a four-county area in the eastern part of the state
California: South-central Los Angeles, San Diego, Oakland, Hunts Point in San Francisco, Imperial County, Watsonville
Connecticut: Bridgeport, New Haven
Florida: Dade County-Miami, Jackson County
Georgia: Albany, an area comprising Crisp and Dooly Counties, and the Central Savannah River Area
Illinois: East St. Louis, Springfield
Iowa: Des Moines
Kentucky: Louisville, McCreary County
Louisiana: New Orleans, Quachita Parish, Northeast Louisiana Delta, and Macon Ridge area
Massachusetts: Boston, Lowell, Springfield
Michigan: Flint, Muskegon, Lake County
Minnesota: Minneapolis, St. Paul
Mississippi: Jackson, North Delta area
Missouri: St. Louis, Kansas City, East Prairie, Mississippi County
Nevada: Clark County-Las Vegas
New Hampshire: Manchester
New Jersey: Newark
New Mexico: Albuquerque; and an area comprising Mora, Taos, and Rio Ariba Counties
New York: Albany, Buffalo, Rochester, Newburgh-Kingston
North Carolina: Charlotte, Robeson County, and an area comprising Halifax, Edgecombe, and Wilson Counties
Ohio: Akron, Scioto County
Oklahoma: Oklahoma City, and an area comprising Choctaw and McCurtain Counties
Oregon: Portland, Josephine County
Pennsylvania: Harrisburg, Lock Haven, Clinton County
Rhode Island: Providence
South Carolina: Charleston, Florence County, and an area comprising Lake City and Williamsburg County
South Dakota: An area comprising Beadle and Spink Counties
Tennessee: Memphis and an area comprising Fayette and Haywood Counties
Texas: Dallas, El Paso, Houston, San Antonio, Waco
Virginia: Norfolk, and an area comprising Accomack and Northampton Counties
Washington State: Seattle, Tacoma, Lower Yakima County
West Virginia: Huntington, Central Appalachia
Sources: USDA and HUD