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Problems cited in Bush plan for Gulf Coast
San Francisco Chronicle


November 10, 2005

After Hurricane Katrina battered the Gulf Coast, President Bush promised a major federal effort to rebuild the devastated local economies and reduce poverty, largely through a package of incentives called the Gulf Opportunity Zone.

The idea was to let businesses, rather than government, drive the recovery by using tax breaks, job training and cheap loans to help companies get back on their feet and start hiring workers.

"It is entrepreneurship that creates jobs and opportunity," Bush said in a speech in New Orleans last month.





But many experts say the proposed GO Zone, as it is known, is strikingly similar to an earlier program - known as "empowerment zones" - that produced decidedly mixed results and, in some instances, wasted millions of dollars.

"I don't think the empowerment-zone idea, whatever it is called, speaks to the needs of the New Orleans area. It assumes that taxes are the main reason companies make their decisions on where to locate or who they hire, and it's just not true, especially now," said Bruce Katz, who helped carry out the original idea as a senior official at the Department of Housing and Urban Development in the Clinton administration.

"If anything, the zones work on the fringes of the economy, they aren't central to it," said Katz, who is now director of the Metropolitan Policy Program at the Brookings Institution think tank in Washington. "What they need now is to do things that get right to the heart of recovery."

According to Ken Lisaius, a White House spokesman, the GO Zone remains central to the president's reconstruction planning. It would last just through 2007.

The federal government would provide some seed money and the blueprint, but local governments would take the lead in implementation. The zone would include Louisiana, Mississippi and Alabama.

The government would offer tax breaks on things like depreciation of the value of equipment and construction of new facilities. There would be cheap loans for some businesses and credits to allow workers to get job training.

In unveiling the program, Bush made it clear that he did not just want to revive businesses in the New Orleans area, he wanted to use the zone concept and other programs to break up the large pockets of poverty in the region.

"As all of us saw on television, there's ... some deep, persistent poverty in this region," Bush said. "That poverty has roots in a history of racial discrimination, which cut off generations from the opportunity of America. We have a duty to confront this poverty with bold action."

That was precisely the idea behind empowerment zones, which were initially championed by a conservative Republican, Jack Kemp, secretary of housing in the first Bush administration.

The Clinton Cabinet adopted the idea and expanded it into partnerships between local communities and the federal government to create jobs in poverty-stricken neighborhoods. Six areas received funding of $100 million each in 1994 - more cities were added later - and were given flexibility to offer a wide variety of subsidized loans, job training and tax credits to spur business expansion.

The Bush administration, however, had shown no interest and had let funding lapse in 2004, said Michael Rich, a political-science professor at Emory University. Rich has co-authored a study and a coming book comparing one of the empowerment-zone disasters, in Atlanta, and one of its successes, in Baltimore, which was able to bring some jobs and business growth to blighted inner-city neighborhoods.

The renewed interest, he said, is an opportunity to look at what worked in the empowerment zones - and what didn't.

One key problem, Rich said, is that a great deal of organization and oversight are necessary, and bodies have to be created and trained to actively market the benefits.

"Market incentives alone are not enough to make this happen," said Rich. "You need a lot of government coordination and collaboration. These programs are not self-executable."

But organization is one element largely missing in the gulf region right now.

Because of overwhelming financial problems, local government is disintegrating in areas battered by the hurricane. The New Orleans city government has laid off 3,000 employees, and its school district has let 7,000 go. Neighboring St. Bernard Parish has laid off more than half its work force, with further cuts expected.

Diane Bell-McKoy, who ran the successful zone in Baltimore, said Bush's streamlined version of the concept does not appear to include a mechanism to find needy businesses, prepare them and channel appropriate benefits to them through well organized community bodies.

"It's not everything the hype made it out to be," said Bell-McKoy of the empowerment-zone idea. "Tax credits alone won't do the job. Employment incentives alone don't get people jobs if they don't have the skills. You need a whole structure, a whole organization, coordination. People in some of those poorer areas may not be ready for the opportunities."

Another concern is the program's limited time frame. Job training, regarded by experts as a critical element in helping people climb out of poverty, can take years to produce results. A zone set up in Los Angeles after the riots in 1992, for instance, was a disappointment in part because progress on employment was so slow.

"Year three is when things are just getting started," said Linda Griego, former president of Rebuild LA, which was set up to lead the recovery from the riots.

Several studies of the empowerment zones carried out by the Government Accountability Office in 1999 found that awareness of the programs was not high and most of the benefits flowed to large corporations, not the small businesses that account for most employment gains.

If this pattern is repeated, Katz said, it could mean the largest businesses in New Orleans and the surrounding areas - gambling casinos - could be among the biggest recipients of the government largesse.

"The big risk is you throw out benefits to people who don't need them," said Ronald Utt, a senior research fellow at the conservative Heritage Foundation think tank in Washington. "Are we just going to end up using federal subsidies to encourage gambling and casinos?"

Yet another potential problem is that loans and other benefits often go to companies that are politically connected rather than financially sound. That was a problem in several of the empowerment zones, especially one near New Orleans, said John Greer Jr., chief executive of the Mid-Delta Empowerment Zone Alliance.

When he took over three years ago, Greer said, he immediately found $8 million in bad loans that had gone to cronies of the organization's board members.

"It just went up in smoke," Greer said. "It was all political favors."


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