A Better Idea on Enterprise Zones


Washington. -- Prospects are murky for the Clinton administration's enterprise-zone plan, approved by the House but zeroed out -- at least for now -- in the Senate version of the budget-reduction plan.

The Clinton camp has given this evergreen proposal a new spin by suggesting a two-tier approach. There'd be 10 "empowerment zones" in which firms could get up to $5,000 yearly tax credits for each poor-zone resident they employ. Also, 100 designated "enterprise communities" wouldn't get to share in the tax breaks, but would share preferential status for such federal initiatives as "micro-enterprise" loan funds and community-policing subsidies.

But is the administration's formula the right way to go, even if it gets by the congressional Scylla and Charybdis? The Clintonites are saying yes, the right wing is saying no, and both may be missing the point.

By setting up a "challenge grant" process, the Clinton formula would likely spur local governments, businesses and non-profits to take a step too few do -- form creative local partnerships to draw up comprehensive plans to instill economic strength into their poorest neighborhoods.

But to run a competition, you need national standards and a judging board. And that, according to Stuart Butler of the Heritage Foundation, the British-born scholar who originally "imported" the enterprise-zone idea into the U.S., "stands the whole enterprise zone idea on its head."

Mr. Butler believes zones should first relieve inner cities "of suffocating bureaucracy and central planning." Tax breaks would be a sweetener to draw businesses into enterprise zones. But the Clinton approach, Mr. Butler alleges, would "force pioneering businessmen and local officials to adopt whatever neighborhood-development strategies currently are in vogue in the White House."

The Clintonites insist their goal is to encourage local innovation. But the argument misses a deeper dilemma: Enterprise zones simply can't add up to a legitimate urban policy. Only six of President Clinton's empowerment zones would be in cities (three are reserved for rural areas, one for an Indian reservation). In real-life politics, several would be wired for the likes of Chicago, Los Angeles and New York. And of the 100 enterprise communities, only 65 would be urban.

The result could be some great (and overdue) demonstrations of how enterprise zones can work. But the program could look more like a sweepstakes than a coherent policy to save our bleeding cities.

An alternative approach could help communities -- especially those heavily dependent on federal aid -- without increasing appropriations. The idea, quite simply, is to invite grass-roots officials to take a hand at redesigning the use of the billions of federal moneys that already flow into their communities.

Federal assistance is divided into hundreds of disparate funding streams, each program with its own set of rules, regulations, restrictions and mandates. Even within his own Department of Housing and Urban Development, Secretary Henry Cisneros acknowledges, "a crazy quilt of programs has emerged, each supported by separate constituencies with little relation or connectedness." The interdepartmental picture is even gloomier.

The U.S. Conference of Mayors, usually single-mindedly focused asking more of Washington, has just started demanding radically simplified federal rules and regulations.

Obviously, the whole system cries out for "reinvention." The National Civic League is suggesting that local communities be allowed to discover, or invent for themselves, fresh ways to redirect and combine various federal funding flows, oftentimes commingling Washington's money with state, local or even private funds.

A community organization, for example, could set up a cooperative family support and health center to serve several thousand people in a troubled inner-city neighborhood. Current federal payments flowing into the neighborhood for Medicaid, food stamps, surplus commodities, infant nutrition and welfare might be combined or reallocated to address family needs more effectively.

Various state and local government coalitions could also be invited to come up with parallel formulas to rechannel flows of government money. The goal: to achieve de-bureaucratized results in every area from infrastructure to environmental services, worker training to community policing. The soundest ideas would be approved by a Federal Innovation Council, which would fund the experiments with a congressionally approved set-aside of funds.

Experimentation along these lines could uncork some of the immense creativity pent up in our communities. But it would involve trial and perhaps a few serious errors -- the unavoidable price of improving an intergovernmental system we know isn't working. In the long run, the greatest payoff for troubled American cities and neighborhoods could be the freedom to start reinventing their own future.

Neal R. Peirce writes a column on state and urban affairs.

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