‘Enterprise Zones’ Expand, Draw Scrutiny

When state lawmakers in Colorado first created “enterprise zones” in 1986, they did so to encourage businesses to invest in struggling parts of the state. Under the program, companies that brought capital or jobs to ” economically distressed areas ” would be rewarded with state tax credits.

Over nearly two decades, however, Colorado’s enterprise zone program has expanded far beyond its original scope — with questionable results, according to a three-part series this month by The Denver Post .

More than 70 percent of Colorado’s land area now lies within an enterprise zone, up from about 30 percent when the program began, according to the series. Taxpayers have been subsidizing not only companies that create jobs, but those that are laying off workers, too. In 2010, businesses applied for $75 million in state tax credits while creating 564 jobs — a cost to taxpayers of about $133,000 a job.

The findings have drawn attention at highest level of state government, with Governor John Hickenlooper and some lawmakers questioning the sense of a tax credit program that was once narrowly targeted but now covers nearly three-quarters of the state.

“Obviously there are so few tools in our tool box regarding economic development that you hate to lose one,” Hickenlooper told the Post . “But 70 percent of the state is in an enterprise zone, and at a certain point it begins to look like an overall tax break to so many people that you should just offer it to everybody.”

Hickenlooper is not the first governor to question the growth of state enterprise zones this year. California Governor Jerry Brown sought to eliminate his state’s enterprise zones when he introduced his budget plan in January. Brown’s experience, however, shows how difficult it can be to change tax credit programs that have a devoted constituency.

Lawmakers in California rejected Brown’s proposal even though the state faces deep fiscal challenges and the nonpartisan Legislative Analyst’s Office has found that enterprise zones are ineffective and should be eliminated. Getting rid of the zones would save taxpayers more than $900 million over two years, the LAO said in February . A separate report by the California Budget Project found that enterprise zones in California have grown from an initial cost of $675,000 in 1986 to $466 million in 2008.

Legislators, however, decided to stick with the zones. Republicans viewed the elimination of a tax credit program as a tax increase , while many Democratic lawmakers — whose districts included enterprise zones — saw benefits in their own back yards, according to Sara Flocks, policy coordinator at the California Labor Federation, which opposes the zones. Flocks says Brown is now attempting to limit the scope of the enterprise zone program through regulatory rather than legislative means.