Research, economics, and politics suggest Enterprise Zones don't work, MU experts say

COLUMBIA, 8/29/12 (Beat Byte) -- Two University of Missouri economics professors have sharply criticized Enhanced Enterprise Zones (EEZ), the blight-based tax incentive program Columbia City Hall and business lobby REDI have embraced as yet another "tool in the toolkit" to lure out-of-area businesses to the community.

Joseph Haslag, who directs the Mizzou Economic and Policy Analysis Research Center; and Judith Stallmann, a professor of applied economics at the Truman School of Public Affairs, panned the Blight/EEZ program in separate forums this month.
"The Enhanced Enterprise Zone (EEZ) in Columbia is a bad idea," Haslag wrote in an August 2012 Columbia Business Times editorial that also appeared in abridged format in the Columbia Daily Tribune. "The necessary conditions for EEZ to help the city's economic development do not exist, leaving Columbians with higher taxes, fewer services -- or both -- and an economy that is no stronger than it would have been without an EEZ."

"What does research tell us about their effectiveness?" Stallmann asked -- and answered -- during a CAT TV program, EEZ: What are the costs and benefits for Columbia. "Early research was positive, but later research, when methods and data have been improved, generally show very few discernible impacts."

No Free Lunch
"Job-creation rhetoric aside," the EEZ "is not a kind of free lunch for city economic development," Haslag explains.
It redirects investment and taxpayer resources away from certain groups and businesses -- like schools and homegrown startups -- and toward businesses receiving the incentives, putting its overseers -- the Blight Boards that select which businesses qualify -- in the role of mini-Warren Buffets, trying to pick winners and losers.
"The likelihood that an EEZ Board could outperform the marketplace in redirecting taxpayer money to selected enterprises is about as high as the chance that I could pick the jack of diamonds from a pack of playing cards on my first try," Haslag writes. "The deck is stacked against the EEZ Board."
For investors in any enterprise to be successful, they need two critical ingredients: lots of investment options, like the hundreds of stocks in a mutual fund or the dozens of startups in a venture capital portfolio; and skin in the game -- their own money at risk, for instance.
But those ingredients are missing from the EEZ program. The incentive program exists because so few companies want to relocate or expand, not because so many companies are clamoring for CoMo.
Therefore, "the set of projects the EEZ Board will be asked to consider will be too small," Haslag says. "And the EEZ board does not have any skin in the game," Haslag writes. "The careful vetting that occurs when people are spending their own money will be missing."
Finally, Haslag addresses fears of eminent domain abuse that come with blight decrees. The Enterprise Zone must be blighted to qualify for the tax breaks.
"Columbia officials are being truthful when they say eminent domain abuses are the farthest thing from their minds," Haslag writes. But once on the books, "there are no restrictions on future city governments that see opportunities."
Research refutes EEZ
Stallmann answered a question from CAT TV host Jim Robertson that went to the core of the EEZ program: Will companies relocate to an area with an EEZ? Does the incentive really and truly bring home the bacon?
"The research tends to show that it doesn't work out that way," explained Stallmann, an expert in public finance and community economic development. She cited studies of enterprise zones in 13 different states, including five zones in Missouri.
Firms that relocate to the community for the incentive might well have relocated without it, she said. "Some high percentage of firms probably would have located there anyway, so you're paying them to do something they would have done anyway," she explained.
Or, the EEZ-subsidized firm "may locate in the zone when they would have located somewhere else in the same city or somewhere else quite nearby, so that once again, there's very little net gain," she said.
Stallmann also pointed to conditions that don't exist in Columbia to the same extent they do in other EEZs. High poverty, high unemployment, deteriorating infrastructure, and lack of transportation to jobs outside big cities originally motivated the enterprise zone movement, she told Robertson and two other panelists, CiViC member Dan Cullimore and REDI director Mike Brooks (top picture).
Of the few EEZ successes, most are in "states that have limited their zones, making the zones more unique," she added.
Missouri, in contrast, has 119 EEZs, Brooks explained.