Community Toolbox

A Public/Private Partnership to Rebuild America:
Opportunities for Businesses in EZ/EC Urban Communities

A Resource Guide for Doing Business in Urban Empowerment Zones and Enterprise Communities
U.S. Department of Housing and Urban Development

Preface

The Clinton Administration's Empowerment Zones/Enterprise Communities (EZ/EC) Initiative represents a new way of doing business for the Federal government. This new approach recognizes that communities know best their own needs. It is based on a pact between the Federal government and each EZ/EC site. The pact is your assurance that the Federal government will work across agency lines, and in new partnerships with state and local governments and business, to make your successful entry into Empowerment Zones and Enterprise Communities as simple as possible.

The Empowerment Zones/Enterprise Communities Program was established by the Omnibus Budget Reconciliation Act of 1993. Between January and June 1994, 520 communities around the country worked to develop comprehensive strategic plans with input from all the shareholder groups in the community. On December 21, 1994, after a national competition to determine which communities would be designated for the program, President Clinton announced the results.

The 72 urban EZ/EC areas, which present unprecedented business opportunities in distressed cities, were selected based on their ability to satisfy four fundamental principles:

Economic Opportunity: Creating jobs, attracting private partnerships, and training residents for new job opportunities.

Sustainable Community Development: Promoting physical and human development -- such as safe streets, clean air and water, lifelong learning, and a commitment to personal, family and civic responsibility -- as part of a long-term strategy of economic development.

Community-Based Partnerships: Involving the entire community, including residents, community groups, private and non-private sectors, education and religious institutions, and local and state governments.

Strategic Vision for Change: Coordinating a response to the needs of a community by integrating economic, physical, human and other strategies.

The communities identified through the competition exhibited a clear commitment to a coordinated community development effort, offering business an enhanced community environment in which to operate.

This Guide explains the four classes of Empowerment Zones and Enterprise Communities and the special incentives being made available to you, but only when you join the public/private partnership to empower people and communities to rebuild America's poverty-stricken inner cities. Specific information on tax benefits, technical assistance, and loan opportunities are just several of the areas in which Federal, state, and local governments can help.

This publication summarizes key elements of the programs and incentives available to EZ/EC

designated businesses. For more details, be sure to read the regulations and notices promulgated by the Secretary of Housing and Urban Development as well as relevant Internal Revenue Code provisions and IRS publications and forms.


The Community Empowerment Board

The Community Empowerment Board is chaired by the Vice President with Cabinet members and other senior government officials. Each Community Empowerment Board member is committed to cutting through bureaucratic red-tape and providing coordinated, simplified access to Federal resources for the four classes of urban designations participating in the Initiative.

The Community Empowerment Board works with major foundations, pension funds, utilities, and insurance companies to develop collaborative technical assistance.

The members of the Community Empowerment Board are:

Chair, Vice President Al Gore
Vice Chair Carol Rasco, Assistant to the President for Domestic Policy; Chair, Domestic Policy Council
Vice Chair Laura D'Andrea Tyson, Assistant to the President for Economic Policy; Chair, National Economic Council
Secretary Henry Cisneros, Housing and Urban Development; Designating Secretary for Urban Areas
Secretary Dan Glickman, Agriculture; Designating Secretary for Rural Areas
Secretary Donna Shalala, Health and Human Services
Secretary Ronald Brown, Commerce
Secretary Richard Riley, Education
Administrator Carol Browner, Environmental Protection Agency
Secretary Bruce Babbitt, Interior
Attorney General Janet Reno, Justice
Secretary Robert Reich, Labor
Administrator Phil Lader, Small Business Administration
Secretary Federico Peņa, Transportation
Secretary Robert Rubin, Treasury
Secretary Hazel O'Leary, Energy
Dr. Lee Brown, Director, Office of National Drug Control Policy
Administrator Roger Johnson, General Services Administration
CEO Eli Segal, Corporation for National and Community Service
Director James Lee Witt, Federal Emergency Management Agency
Director Alice Rivlin, Office of Management and Budget
Chair Joseph Stiglitz, Council of Economic Advisors


An Invitation to Business: Help Rebuild America

Community-Based Development Makes Good Business Sense
Learn What Public/Private Partnerships Can Mean for You

The relationships government is forging with business are changing. With the decade of the nineties has come an Administration that believes we will only get out of our communities what we take the time to invest in them. President Clinton saw the importance of providing incentives for business investment in inner-city communities as the first step toward revitalizing the American city -- the result is the Administration's Empowerment Zones/Enterprise Communities Initiative. The EZ/EC Initiative is based upon a new covenant between the Federal government and each EZ/EC community: Rather than fighting bureaucratic red- tape, you will find a refreshing new way of doing business with a clear assist from the government.

The various incentives that are the cornerstones of the EZ/EC revitalization strategy offer valuable opportunities that can change how you do business. As inner-city communities evolve into neighborhoods of choice, there will be enormous opportunities for your business to grow in conjunction with the enhanced operating environment -- a trained work force, safe neighborhoods, and an involved community -- not only to sustain your business, but to help it to expand and become an integral part of the community.

As you use this GUIDE to establish appropriate courses of action, you will easily be able to identify the potential for measurable benefits to your bottom line. Resources are already being made available to EZ/EC cities. The next step should position you to explore business opportunities within the specific Empowerment Zones and Enterprise Communities.

The invitation is simple: Help us rebuild America and you will soon be convinced that an investment of your time and resources is a wise investment. Join us as we invent a new, improved way for you to do business.



Identify the Designated Cities that Offer Opportunities

The four classes of urban designations and their accompanying incentives are outlined below. Refer to the individual listings within each category, alphabetized by city, to identify locations that might be most suitable to your business.


FOUR CLASSES OF URBAN DESIGNATIONS

Empowerment Zones (EZ) -- 6 Awards

Atlanta, GA;
Baltimore, MD:
Chicago, IL;
Detroit, MI;
New York, NY;
Philadelphia, PA;
Camden, NJ


Funding: $100 million
Tax incentives
Tax-exempt bond financing


Enterprise Communities (EC) -- 65 Awards

City listings* below
Funding: $3 million
Tax-exempt bond financing


URBAN COMMUNITIES AWARDED ENTERPRISE COMMUNITIES (EC) STATUS

Akron, OH
Albany, GA
Albany, NY
Albuquerque, NM
Birmingham, AL
Bridgeport, CT
Buffalo, NY
Burlington, VT
Charleston, SC
Charlotte, NC
Columbus, OH
Dallas, TX
Denver, CO
Des Moines, IA
East St. Louis, IL
El Paso, TX
Flint, MI
Harrisburg, PA
Huntington, WV
Huntington Park, CA
Indianapolis, IN
Jackson, MS
Las Vegas, NV
Louisville, KY
Lowell, MA
Manchester, NH
Memphis, TN
Miami, FL
Milwaukee, WI
Minneapolis, MN
Muskegon, MI
Nashville, TN
New Haven, CT
Newark, NJ
Newburgh-Kingston, NY
New Orleans, LA
Norfolk, VA
Ogden, UT
Oklahoma City, OK
Omaha, NE
Ouachita Parish, LA
Phoenix, AZ
Pittsburgh, PA
Portland, OR
Providence, RI
Pulaski Co, AR
Rochester, NY
San Diego, CA
St. Louis, MO
St. Paul, MN
San Francisco, CA
San Antonio, TX
Seattle, WA
Springfield, IL
Springfield, MA
Tacoma, WA
Tampa, FL
Waco,TX
Washington, DC
Wilmington, DE


Supplemental Empowerment Zones (SEZ) -- 2 Awards

Los Angeles, CA; Cleveland, OH
Funding: $125 million (Los Angeles)
$ 90 million (Cleveland)
Tax-exempt bond financing (Cleveland)


Enhanced Enterprise Communities (EEC) -- 4 Awards

Boston, MA; Houston, TX; Kansas City, MO/KS; Oakland, CA
Funding: $25 million
Tax-exempt bond financing

*Note: Cleveland, Boston, Houston, Kansas City, and Oakland received Enterprise Community funding in addition to supplemental funds. They are included in total of 65 EC awards but do not appear on the list of 60 ECs on the previous page.

Learn the Benefits of Empowerment
Zone Tax Incentives

The EZ/EC program provides new tax incentives over the next ten years to induce commercial investment in distressed communities. For the first five years, these incentives are estimated to amount to $2.5 billion. The incentives include Wage Tax Credits, Accelerated Depreciation, and Tax-Exempt Facility Bonds. These incentives ease the tax burden for businesses that either locate or expand within these designated areas and Employment Zone residents.


WAGE TAX CREDITS [Known as Empowerment Zone Employment Credits ]

In general, wage tax credits are available to any employer engaged in trade or business in the Empowerment Zone. For each resident employee or new hire, the business is eligible for up to $3,000 each year in tax credits. The amount of these credits is determined by multiplying the percentages of credit according to year by up to $15,000 in qualified wages.

Which Employees Are Eligible?

The credit is available for Empowerment Zone residents employed full- or part-time for at least 90 days who perform substantially all their services within the Zone. However, the credit is also applicable if an employee becomes disabled after working for less than 90 days or if the Zone Business changes its form of business, so long as the employee continues working for the business.

Are There Any Exclusions?

Yes. Exclusions that apply to a variety of businesses include: Wages paid to employees on the job less than 90 days; business owner families and any other business owner with more than five (5) percent business interest; employees at private or commercial golf courses, country clubs, massage parlors, hot tub or suntan facilities; racetracks or other gambling facilities; stores where the principal business is the sale of alcoholic beverages for off-premise consumption; or employees in a farming business that has more than $500,000 in assets at the close of the year.

Is the $15,000 Threshold Determined by Wages Only?

No. The threshold permits additional categories. For example, you may include certain training and educational expenses you pay on behalf of your employees in your per-employee calculation of $15,000 of qualified wages.


INCREASED SECTION 179 EXPENSING

Section 179 is available only to qualified EZ Business taxpayers. If you qualify as an Empowerment Zone Business taxpayer, you may write off as an expense the cost of the depreciable, tangible personal property you purchase up to $37,500. (It is generally limited to equipment purchases.) This provides you with a deduction that is $20,000 more than the normal $17,500 first-year write-off Section 179 permits to other business not within designated Zones.

Are There Special Requirements?

Yes. The deduction only applies to tangible personal property (usually limited to equipment) purchased after December 21, 1994 by a qualified Zone Business. The original use of the property must be in the Zone beginning with the person claiming the write-off, and substantially all of the use of the property must be in the Zone, and used in a Zone Business.

Are There Any Exceptions?

Yes. If you acquired the property prior to December 21, 1994, it may still be considered qualified Zone Property if substantial renovations are made during the two years immediately succeeding the date of designation. Used tangible property may be qualified Zone Property if it has not previously been used within an Empowerment Zone.

The special first-year allowance may be reduced for taxpayers that purchase, during the tax year, more than $200,000 in qualified Section 179 Property. Additional IRS limitations may apply in certain situations.*

*Note: All tax incentives you consider should be reviewed to assure that they adhere to applicable requirements and limitations.


TAX-EXEMPT BOND FINANCING Available to all Zones and Communities (except Los Angeles)

As a qualified EZ/EC Business, you may qualify for a new category of private activity bonds that offers lower rates than conventional financing and permits you to finance business property and land. It permits you to finance new facilities or renovate or expand existing facilities in EZ/ECs through tax-exempt bonds. In addition to offering you lower interest rates than conventional financing, tax-exempt bond status provides access to non-traditional lenders, such as insurance companies, various funds, and individual investors.

Generally, the bonds may be used in a wide range of commercial settings. Commercial rental real estate is a permissible use of financing as long as 50% of the gross rental income from the property is from EZ/EC Businesses. The bonds may also be used to finance rental of personal property so long as substantially all of the rental income is generated from EZ/EC Businesses or EZ/EC Residents.

Unlike Section 179 expensing, businesses with only satellite offices or a portion of the business within the EZ/EC may qualify, regardless of whether the business qualifies as a whole. For example, a business in a Zone that is part of a national chain could qualify provided that it meets the definition of an EZ/EC Business if it were incorporated separately.


Are There Special Considerations?

Yes. At least 95% or more of the net proceeds of the bond issue must be used to finance qualified Zone property whose principal user is a qualified EZ/EC Business. It is generally required that individuals using the bonds for renovation spend as much on fixing up a property as they did on acquiring it. The definition of business may include all principal users of the facility including major tenants.

Qualified EZ/EC facility bonds are exempt from the general tax-exempt bond restrictions on financing the acquisition of land and existing property. Generally, all other rules related to tax-exempt private activity bonds for exempt facilities do apply.


Are There Any Limitations?

Yes. A business may be the principal user of no more than $3 million of Zone bonds per EZ/EC and $20 million for all designated areas. The total volume of EZ/EC bonds per state will be limited by the amount that can be accommodated under the state's volume cap for tax-exempt bonds.

Although bonds may be used to finance various types of property (buildings, equipment, machinery and other depreciable property), the bonds may not be used to finance working capital, inventory, and other non-capital items. EZ/EC Bonds may not be used to finance residential rental real estate, nor may they be used by a current owner of an asset to refinance that asset.

Explore Access to Loans and Capital

Our goal is to provide you with a financial delivery system that is community-based and coordinated. Your goal should be to leverage limited Federal, local government and non-profit resources to attract substantial private sector resources, where the bulk of available capital resides.


SECTION 108 LOAN GUARANTEE

Under this program, the Department of Housing and Urban Development (HUD) provides loan guarantees and economic revitalization grants. Using the authority of the Housing and Community Development Act of 1974, the Administration created the Economic Development Initiative (EDI) two years ago to provide an additional level of security by allowing Section 108 monies to be used to finance various community development activities.

These monies, used in tandem with Section 108 loan guarantees, further promote economic revitalization. They offer EZ/EC Businesses various interest rate subsidies, debt service/operating reserves, etc. The Economic Revitalization Grants provide additional assurance that the Section 108 loans can be repaid from project revenue.

Several of the EZ/EC have remaining EDI funds that are available to provide financial assistance in conjunction with Section 108.


Does Section 108 Provide Any Direct Benefits to EZ/EC-Designated Businesses?

Yes. Section 108 monies can be used to finance activities that directly benefit EZ/EC businesses. They include:

For-profit business expansion including equipment and physical plant;
Acquisition, construction, or rehabilitation of neighborhood and community facilities;
Site improvement on community-owned land used for commercial or industrial development projects;
Structural removal, land clearing, and infrastructure development.

These activities are supported with Section 108 monies in the following ways:


LOAN GUARANTEES

HUD guarantees notes issued by units of general local government. These funds are used to stimulate or retain businesses or jobs, or that otherwise lead to economic revitalization. There is a set-aside of $500 million in loan guarantees for Empowerment Zones and Enterprise Communities.


COMMUNITY DEVELOPMENT BLOCK GRANTS (CDBG)

Available at the local level, CDBG funds can provide special benefits to businesses that are located in census tracts that meet the Federal Empowerment Zones/Enterprise Communities criteria. In general, Community Development Block Grant funds may be used to provide direct assistance and technical assistance to for-profit businesses, including SBA-designated micro-enterprises (see definition, next section) and to public and private organizations to facilitate economic development by owners of micro-enterprises. Assistance is available in the form of credit, peer support programs, and counseling. In addition, CDBG funds may also be used for business incubators and public infrastructures serving business.


ONE-STOP CAPITAL SHOPS [sponsored by the Small Business Administration]

If you qualify as a small business, the One-Stop Capital Shops (OSCSs) will assist you by providing private loans and equity investments. This initiative permits leverage of approximately $3.2 billion in capital and technical assistance over five years.


Will There Be a Range of Financial and Technical Services Provided by the OSCSs?

Yes. One-Stop Capital Shops provide comprehensive financial assistance to you when you operate in economically distressed areas. Most Zones will have OSCSs with the capacity to provide $300-400 million in private loans and equity investments. In addition, significant technical assistance is available to you whether you are an established business within the community or a start-up business.


Are Other Institutions Working in Collaboration with the OSCSs?

Yes. Each One-Stop Shop will contain or have a relationship with the following resources:

Subject to licensing requirements being met, SBA has committed to license two Regular SBICS and two Specialized SBICs to serve Empowerment Zones and Enterprise Communities:

*Note: SBA is providing $20 million in financial assistance to each Regular and Specialized SBIC over five years.


Identify Available Technical Assistance to Supplement Your Financial Resources

Are There Any Additional Non-Monetary Resources Available to Business?

Absolutely. Numerous technical assistance and counseling services can assist you. Technical assistance resources to consider, in addition to those offered jointly in the preceding section focusing on financial assistance opportunities, include:

The Consolidated Plan: Empowerment Zones communications and mapping system offers business the opportunity to access information about EZs and ECs. The Plan incorporates into a single document information that existed formerly as 12 separate planning, application and reporting documents. As offered to you on Internet, saves you valuable time by providing the following information electronically [Internet address: http://www.ezec.gov]:
A click and view U.S. map providing information on the amount and type of funding in any empowerment zone neighborhood.
Information about specific conditions and characteristics of the community at the neighborhood level, including Census data, housing costs, poverty rates, unemployment, and the concentration of population groups.
Names and telephone numbers of key Federal, state, and local EZ/EC human resources.
An on-line dialogue capability -- EZ/EC On-Line --which contains a chat line to permit discussion of urban issues relevant to business, as well as Citynet mail connections and lists.

SBA Small Business Development Centers (SBDCs) provide management assistance to present and prospective small business owners. They provide one-stop, individual counseling, training, and market research support at a central location. SBDCs located throughout the United States are housed at designated educational institutions and state agencies.

SBA Business Information Centers (BICs) provide the latest information in high-technology, hardware, software, and telecommunications to assist small business. BICs use state-of-the-art personal computers, graphics workstations, CD-ROM technology, and interactive videos that allow the small business owner or manager access to market research databases, planning and spreadsheet software, and vast libraries of information on starting or building a business.

SBA's Service Corps of Retired Executives (SCORE) is a volunteer organization of retired (and some active) business executives who assist in developing personalized business plans as well as sharing significant expertise in facets of small business operations. SCORE volunteers are often housed at SBA Business Information Centers as well as at Small Business Development Centers.

Be Aware of Social Service Block Grants to Develop Community Services, Support Business Development, and Create an Empowerment Continuum.

Inner-city programs are underway to improve security, job training, physical environment, and overall quality of life in the EZ/ECs. We want to do everything possible to assure that business investment in EZ/ECs is a sound venture. Therefore, the various Federal, local, and state agencies are providing funding for the community as a whole that goes beyond financial and technical assistance to a business owner.

To this end, one billion dollars in flexible Social Service Block Grant (SSBG) funds are being used to promote economic self-sufficiency and reduce government dependency for EZ/EC residents. Each urban EZ will receive $100 million in SSBG funds for approved activities. Each EC will receive approximately $3 million in SSBG funds.


What Can This Mean to You?

A lot. The social service package that is included in the EZ/EC strategy means you are opening a business in an area with unlimited potential. It means that the Empowerment Zones and Enterprise Communities have available to them both financial and technical assistance programs to provide for its residents:

Business and Job Training Skills;
Job Readiness Training;
Transportation Services;
Child Care Services;
Financial Management Counseling; and
Educational and School-Based Programs.

Programs within these categories provide a continuum of similar funding vehicles as those available to business, and are offered through various Federal agency programs at the Departments of Commerce, Education, Health and Human Services, Housing and Urban Development, Justice, Labor, and Transportation; the General Services Administration; and Office of National Drug Control Policy.


A Who's Who of Resources Available to Business

SELECTED FEDERAL PROGRAM RESOURCE CONTACTS
DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

Community Development
Block Grants
Contact: Deirdre Maguire-Zinni
Telephone: 202/708-1577

Section 108: Loan Guarantees and Economic Revitalization Grants
Contact: Paul Webster
Telephone: 202/708-1871

SMALL BUSINESS ADMINISTRATION

7(a) Guaranteed Loans
Contact: John Cox
Telephone: 202/205-6490

Section 504 Loans
Contact: LeAnn Oliver
Telephone: 202/205-6485

Micro-Loan Demonstration Program
Contact: Jody Raskind
Telephone: 202/205-6570

Small Business Investment Companies (SBICs)
Contact: Robert Stillman
Telephone: 202/205-6513

Small Business Development Centers (SBDCs)
Contact: Johnnie Albertson
Telephone: 202/205-6766

Women's Business Ownership
Contact: Elizabeth Myers
Telephone: 202/205-6673

Minority Enterprise
Development (MED)
-- Section 8(a) Program
Contact: Herbert Mitchell
Telephone: 202/205-6412

Minority Enterprise
Development (MED)
-- Section 7(j) Program
Contact: Martin Gold
Telephone: 202/205-6420

You may call American Communities at 1-800-998-9999 to be placed on HUD's mailing list to receive Community Connections, a monthly publication from the Office of Planning and Development. Other resources available from American Communities include:

EZ/EC Guidebook: Federal Programs
State Enterprise Zone Update
Guidebook: Strategic Planning
EZ/EC Implementation Guide

To receive additional information on Federal programs or to identify specific State and local business assistance contacts, call the Urban EZ/EC Task Force at 202.619.1314.


A WHO'S WHO OF LOCAL RESOURCES

A list of local resources specific to your community has been inserted in the back page of this publication. For more information consult local directories to identify resources at the community level. Additional information on local opportunities may be obtained by calling your area economic development authority, as well as your regional SBA and HUD offices. State agencies that receive Federal assistance to administer business development incentive programs are also good sources of information.


Afterword

The Clinton Administration has developed and supported initiatives that are resulting in a variety of programs designed to stimulate business development in cities that are targeted to provide the business opportunities of the next decades.

Although the thrust of the programs is based on the realization that, as a nation, we cannot be strong if our inner cities are in decay, there is a bonus for businesses with vision. President Clinton believes that: We cannot . . . repair the American family community and restore the American family until we provide the structure, the value, the discipline and the reward that work gives. Because nothing worthwhile is without some effort, we urge you to share with local EZ/EC authorities the barriers or concerns that you may have identified as hindrances to doing business. They stand ready and able to assist you.

You are poised on the threshold of an opportunity that, beyond its social good, makes good business sense. Become a partner as we implement this vision of America and you can take advantage of the incentives to grow bigger and better. Best of all, you will have the added benefit of knowing that you had been part of an unprecedented effort to meet the greatest challenge to our economic strength. Join us as we rebuild America.

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