Texas Enterprise Zone Program

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1 Texas Enterprise Zone Program Introduction Businesses are saving money and jobs are being created in Texas with the help of enterprise zones. A recent example is showcased in a bizjournal.com article, which states that a leading manufacturer of work uniforms is moving its distribution operations from Los Angeles to Dallas and bringing with it some 200 jobs. Why are the operations moving to Texas? One reason is the enterprise zone program. The article quotes Bob Pierpoint, chief financial officer for Strategic Partners Inc. "We didn't want to be one of five businesses in a building. We liked the Mountain Creek area and the access to Interstate 20 and the labor pool there. We're also taking advantage of the triple Freeport tax exemption and the fact that we'll be in an Enterprise Zone " (Perez 2003). An enterprise zone is an area that has been designated by the State which is eligible to receive state and local benefits. The benefits vary but include items such as refunds of state sales and use taxes, certain franchise tax economic development credits, job creation credits, one-time incentives and other local incentives. The process for participating in the enterprise zone program has recently changed to become easier and faster. This article describes the history of enterprise zones, discusses recent changes to the Texas Enterprise Zone Program, provides a brief summary of the benefits offered, and general instructions on how to participate. History The term enterprise zone first appeared in a speech on June 20 th, 1978 by Sir Geoffrey Howe, then a leading opposition politician in the British House of Commons. Howe s speech was concerned with urban blight. His policy was to remove as much government as possible from a number of small areas in the most derelict and depressed sections of Britain s cities. Within these enterprise zones, occupying perhaps a square mile or so, taxes and government regulation would be virtually eliminated to create the most attractive possible environment for free enterprise to flourish. Private enterprise would thereby be encouraged to revive areas in which government development programs had so dismally failed. (Green 1991, 27) Howe s free-market approach to urban development soon caught the attention of scholars and politicians. The idea caught on in the United States. Although it started as a federal level initiative, state legislation proved essential in bringing about the reductions in tax and regulatory barriers envisioned by the program. 1

2 The enterprise zone concept was first unveiled in the United States in 1979 when President Ronald Reagan adopted enterprise zones as the centerpiece of his urban proposals during the 1980 election. The concept promoted the idea that less governmental action would allow private enterprise to solve the problems of distressed areas. Increasingly, states adopted the idea as a tool for development. Florida was the first state to adopt the idea in 1980 and Texas followed shortly thereafter in The Texas Enterprise Zone Program was initiated by the regular session of the sixty-eighth legislature in 1983 with the adoption of the Texas Enterprise Zone Act per House Bill 1125 (HB1125). The purpose of the act, as stated in HB1125, is to stimulate and encourage business and industrial growth and to stimulate neighborhood revitalization of residential units and public services in these depressed areas of the state by means of the removal of unnecessary governmental regulatory barriers to economic growth and the provision of tax incentives (H.B. 1125, Ch. 841, p. 4772). The Texas Enterprise Zone program has evolved over the past 20 years with numerous adjustments and changes occurring. The most significant change was just this year in September 2003 as a result of Senate Bill 275 (SB275). Among other things, SB275 authorized the creation of new zones throughout Texas, changed the designation criteria, and streamlined the application process. Although the criterion for designation as an enterprise zone has changed since its original inception in 1983, the concept remains the same: to encourage business and industrial growth. The changes will be discussed in more detail in the following paragraphs. Changes Since 1983 In order to better understand the recent program changes that occurred and how they will benefit individual businesses, it is important to distinguish between the two terms, enterprise zone and enterprise project. An enterprise zone is a specific geographic area, a census block group that has a poverty level of 20 percent or greater. An enterprise project is a specific business, usually located within an enterprise zone, that has been nominated to participate in the program and is therefore eligible to receive state and/or local benefits. When the Texas Enterprise Zone Program first began in 1983, a zone was required to have at least one square mile but not more than 10 square miles in area. The zone had to meet two or more demographic criteria from a list provided by the state. These demographic criteria helped to identify areas that had pervasive poverty, unemployment, and economic distress. Initially, the total number of local enterprise zones in existence at any one time was not allowed to exceed 20; however, the program has been ramped up each year so that more and more zones were allowed. The latest adjustment, effective September 1, 2003, supercedes all others by creating 4,543 zones, which cover nearly 30 percent of the state. As of May 2003, there are183 active zones covering a total of approximately 2,160 square miles. The revamped program uses Census 2000 data to designate 4,543 zones or block groups which cover approximately 76,066 square miles. The following brief description of block groups provides more detail and explains how enterprise zones are designated. Block Groups The U.S. Census Bureau divides all states into counties, census tracts, block groups, blocks, and various other census designations. The Texas Enterprise Zone Program relies on census block groups as the basis for zone designation. A block group (BG) is a geographic area that can vary in size from a few square city blocks in dense urbanized areas to a few square miles in rural areas. BGs generally contain between 600 and 3,000 people, with an optimum size of 1,500 people. See for more information on block groups. The 2000 U.S. Census divides the state of Texas into 14,462 block groups. If any one of these block groups has a poverty rate of 20 percent or greater, it is designated as an enterprise zone. Based on the 20 percent poverty rate criteria, Texas currently has 4,543 enterprise zones. 2

3 Since Texas has 261,797 square miles of land and the enterprise zone program covers 76,066 square miles, nearly 30 percent of the entire state is covered by an enterprise zone (see Map 1). The Texas Enterprise Zone Map is available on our website at under Reference Maps, Texas Enterprise Zones. State and Local Benefits Offered in Enterprise Zones The state benefits offered in enterprise zones come primarily in the form of tax refunds. Each enterprise project is eligible for a refund of state sales and use taxes paid on machinery and equipment, building materials, labor for the construction of new or the rehabilitation of existing buildings, and electricity and natural gas purchased for use in the enterprise zone. The refund is $2,500 for each permanent job created or retained during the five-year designation period. Each enterprise project is limited to a maximum refund of $1.25 million. In addition to state benefits, local communities may also offer business incentives in an enterprise zone. Table 1 lists a few examples of the kinds of local incentives that communities offer. Table 1 Examples of Types of Incentives Offered in Enterprise Zones Industrial Parks Flexible Zoning Industrial Buildings Streamlined Permitting Tax Abatements Infrastructure Improvement Tax Increment Financing Increased Fire/Police Freeport Exemptions Transit Provisions Local Sales Tax Refund Job Training Economic Development Sales Tax Incubators Bonds Foreign Trade Zone Low-interest Loans Area-specific Incentives Development Fee Exceptions Source: Office of the Governor, Economic Development & Tourism Businesses should contact their local enterprise zone liaison to find out which state and/or local benefits are offered in their communities. Application Improvements in 2003 The September 2003 updates to the Texas Enterprise Zone Program have not only increased the number of allowable zones, but have streamlined the application process. The Texas Enterprise Zone Program application has changed significantly. Parts of the application were completely eliminated, others shortened, and other steps merged into one. These changes are outlined in the following paragraphs which compare the old enterprise zone application process to the current process. Old Application Process Prior to September 1, 2003, the application process required the following four steps: 1. Zone Designation 2. Project Nomination 3. Job Certification 4. Sales Tax Certification Step 1. The first step was that the community designated a zone. This required geographic analysis, drafting and voting on an ordinance to approve the zone, and approval of the zone by the state. 3

4 Step 2. The second step was project nomination. Project nomination required that once the enterprise zone was created, the community must nominate a specific business for status as an enterprise project. Step 3. Thirdly, the process included job certification. The job certification process identified the number of jobs created or retained by a project and identified the percent of employees who are zone residents and/or economically disadvantaged individuals. Step 4. The last step in the four step approval process was sales tax certification by the Comptroller of Public Accounts. Sales tax certification required that the business apply directly to the Comptroller s Office to certify the sales tax previously paid in order to get a refund. Current Application Process The four steps in the enterprise zone certification process described above could take from six to nine months to complete. Now, however, the process has been streamlined. The processing time is cut in half, taking about only three to six months. Basically, now there are only two steps in the application process: The major changes are as follows: 1. Project Nomination and Approval 2. Sales Tax and Job Certification Step 1, zone designation, has been eliminated. Communities are no longer required to identify areas for inclusion in a zone, pass an ordinance to create the zone, or have the zone approved by the state. Communities are required, however, to identify the local incentives that will be offered in the enterprise zones. The community is also responsible for designating a liaison to oversee their enterprise projects. The nominating body must hold a public hearing and subsequently pass an ordinance or order, as appropriate, identifying each incentive that may be offered to a project in a qualified enterprise zone that is located in the jurisdiction. Step 2, project nomination, is still required. Communities still nominate a business as an enterprise project, but the Texas Enterprise Project application was shortened from 24 to 17 pages. To download a copy of the 17 page application go to and click on Project Application. Steps 3 and 4, jobs and sales tax certification, have been merged into a single step and are now completed with a single application and performed by one agency, the Comptroller s Office, instead of going through two agencies, which took more time and required additional paperwork. Areas Covered As of May 9, 2003, Texas has 183 enterprise zones with a total acreage of 2,159 acres and an average zone size of 12 acres. With the passage of SB275, the criteria that defines an enterprise zone changed, thus adding new zones throughout Texas. Also included in the enterprise zone designation are areas designated by the federal government as a Renewal Communities (RC), an Empowerment Zones (EZ), or an Enterprise Communities (EC). To learn more about these federally designated areas and to find out if a RC/EZ/EC zone is located in your community go to the following link and click on MAPS: 4

5 How the Process Works When a business is interested in participating in the Texas Enterprise Zone Program, the first step is for the business to contact their local enterprise zone liaison. The liaison is responsible for interacting with the community and representing the business on behalf of the community. Not all communities will have a designated liaison. The list below provides examples of the type of persons usually designated as the enterprise zone liaison: County Judge Mayor City Manager Economic Development Director COG Representative Chamber of Commerce Official If a community has never previously participated in the program, the city official or liaison can contact the Office of the Governor, Economic Development & Tourism, to find out more about the program. Once a business has contacted their local liaison, the business requests to be nominated as an enterprise project. The liaison then contacts the state on behalf of the business to request the application packet and follow through with the nomination. The business does not actually have to be located in an enterprise zone to qualify. Next, the community fills out a state enterprise project application and submits this application to the Office of the Governor Economic Development & Tourism in Austin, Texas. The business must meet certain requirements to be eligible as an enterprise project. If the business is not located in an enterprise zone, then 35 percent of the company s new employees must be economically disadvantaged persons or enterprise zone residents (ED/EZR). Businesses located in an enterprise zone will still be required to meet the existing 25 percent ED/EZR threshold. The application packet provides more detail on the requirements of the program. Other State Programs The Texas Enterprise Zone Program is just one of many programs the state offers to encourage job creation and business investment. The Texas Comptroller Special Report on economic development incentives provides a brief overview of incentives offered by the state. For general summaries of some of these state incentives go to: Texas is looking forward to your business and the use of the revamped enterprise zone program. If you would like more information, please go to our website at Written by: Heidi Dues, Mapping Coordinator and GIS Analyst, Office of the Governor, Economic Development & Tourism. Completed October 14,

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7 Bibliography Census 2000 Summary File 3 - Texas prepared by the U.S. Census Bureau, Files downloaded at the Texas State Data Center webpage. Last accessed October 13, 2003, < Green, Roy E. Enterprise Zones: New Directions in Economic Development. Newbury Park, CA: Sage Publications, Inc House Bill 1125, 68th Legislature, Regular Session (Chapter 841), Bill files, Texas Legislature. Archives and Information Services Division, Texas State Library and Archives Commission. Photocopied. Perez, Christine. L.A. company to relocate distribution hub to Dallas. Dallas Business Journal, Manufacturing. October 3, Last accessed October 14, 2003, < dallas_story2.html?page=1> Texas Enterprise Zones, 2003 Map. BIDC Maproom. Office of the Governor, Economic Development & Tourism. Last accessed October 14, 2003, < Texas Enterprise Zone Program. Office of the Governor, Economic Development & Tourism. Last accessed October 14, 2003, < Senate Bill 275, 78th Legislature, Regular Session, Bill files, Texas Legislature. Archives and Information Services Division, Texas State Library and Archives Commission. Last accessed October 14, 2003, < The author would like to thank Ms. Brenda Clear, Program Specialist, Office of the Governor, Economic Development & Tourism, for her expertise and input regarding the Texas Enterprise Zone Program. Ms. Clear has been involved with the Texas Enterprise Zone Program for seventeen years. Thanks also to Ms. Ann Griffith, Research Specialist, Office of the Governor, Economic Development & Tourism, for editing assistance. 7