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The Benefits of Empowerment Zones

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Bordering the Future

The federal government has acknowledged the economic distress of at least one part of the Texas Border region. In 1993, Congress authorized creation of "empowerment zones" and "enterprise communities" across the nation as tools to reduce red tape and provide coordinated, simplified access to federal resources. Empowerment zones are meant to encourage self-sustaining, long-term economic development in areas of pervasive poverty, unemployment, and general distress, and to help struggling communities achieve self-sufficiency through innovative and comprehensive strategic plans developed and implemented by private, public, and nonprofit groups working as teams.1

Part of the Border region seized the opportunity. On December 21, 1994, the Rio Grande Valley became one of three rural empowerment zones in the nation. Its zone, broken into four subzones, included portions of Cameron, Hidalgo, Willacy, and Starr counties as well as the communities of Port Isabel, Laguna Heights, Santa Monica, Sebastian, Edcouch, La Villa, Monte Alto, and parts of Mercedes and Rio Grande City. By early 1998, the Rio Grande Valley Empowerment Zone (RGVEZ) was widely hailed as an economic powerhouse. All told, the zone had received or leveraged $95.3 million for infrastructure projects, jobs and job training, educational services, and the development of health services and facilities.

Eligible businesses with employees working and living within the zone and employed by the business for at least 90 days receive a direct federal tax credit of 20 percent of the first $15,000 of qualified wages. In addition, the businesses are allowed certain training costs as an employer wage credit, up to a maximum $3,000 per employee. Businesses within the zones are also eligible for $20,000 in deductions--more than the normal limit on depreciable tangible property. New tax-exempt bond financing further affords businesses in the zone lower interest rates than conventional financing.

By 1998, the RGVEZ reported having added 85 new companies and 1,258 jobs to the local economy.2

But the empowerment zone wraps around only 229 of the Border region's 79,400 square miles, or 0.3 percent of an area with vast needs. A federal extension of the empowerment zone to cover the entire Border region, or at least a much greater portion, would undoubtedly bring unprecedented economic benefits to the impoverished area.

In Texas, the Strategic Economic Planning Commission is slated to develop a strategic economic development plan for the entire state by November 1, 1998.3 Given the Border region's persistent poverty, the plan will prove short-sighted unless it aims to address the urgent need to raise incomes throughout the Border region. Such a goal not only serves the residents themselves but the economic prosperity of all Texans.

ENDNOTES

1 Empowerment Zones and Enterprise Communities were established under the Omnibus Budget Reconciliation Act of 1993.

2 Telephone interview with Yvonne "Bonnie" Gonzalez, chief executive officer, Rio Grande Valley Empowerment Zone Corporation, Mercedes, Texas, February 20, 1998.

3 Texas S.B. 932, 75th Leg. Reg. Sess. (1997).

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Bordering the Future