Enterprise Zone growing slowly in tough economy
Business owners look for ways to cut costs, hire employees, increase production
Evan Jensen / Estacada News
Tai Shibahara looks at a toy while shopping with his mom Rochelle Shibahara at the retail discount store Eagle Bargain Outlet located in the Estacada Bargain Outlet located in the Estacada Industrial Park at 970 N.W. Park Ave. Eagle Bargain Outlet opened earlier this month.
Metallion Industries and Northwest Technologies have spent a total of $1.6 million in capital improvements during 2008. In consideration of their investments, Clackamas County’s Housing and Urban Development office pre-approved the companies for tax abatements through the city’s enterprise zone (EZ) program that began in April 2008.
“Both companies have just gone through the preauthorization process,” Clackamas County program coordinator Renate Mengelberg said. “Now, they are in the process of investing and hiring. And because those companies have invested in equipment and committed to increasing employment, the program is a true success story.”
Under the EZ program, capital improvements are not enough to qualify for local tax breaks. The two industrial park companies must also increase their existing workforce 10 percent by April 1. However, the companies’ owners say hiring isn’t likely – at least not this year – because of the economic downturn.
An enterprise zone is a county-administered economic development program used by local governments to encourage new and existing manufacturing and industrial businesses to invest in rural or distressed communities and create new jobs.
In return for their capital investments, the businesses may receive tax abatements for a period of three to five years if they increase their total staff levels by at least 10 percent.
“We have a cadre of tools: the urban renewal district, which sparks redevelopment in downtown core, and for the industrial park, we’re using the enterprise zone,” Estacada City Manager Randy Ealy said. “From what I’ve seen in the last six or eight months, it is spurring development.”
After Estacada established its 130-acre enterprise zone along the east and west sides of Highway 224 last spring, Mengelberg and Ealy pitched the program to industrial park business owners. Metallion Industries and Northwest Technologies were the first companies to begin the complicated qualification process.
“At this point it’s debatable whether we’ll qualify for it or whether it’ll do any good,” said Nolan Becktel, owner of Metallion Industries. Between 2007 and 2008, he invested $500,000 toward the construction of an industrial park building and $450,000 in new equipment.
Becktel had already embarked on his development plans when city and county officials “came around with their offers,” he said. Although the EZ program wasn’t part of his original plan, “it became part of the picture,” and he agreed to create one new position within his company.
“I was told initially that if it doesn’t work to hire this year, that’s fine. We can postpone our tax abatement. She [Mengelberg] thought it worked that way until she went to those higher up on the totem pole,” Becktel said.
“We’re not finding any accommodations to give grace for addition time,” he said. “There ought to be some kind of accommodation. How are we to predict the economic downturn? How are we to muster growth in the face of it?”
For Eric Sale, owner of Northwest Technologies, EZ program tax abatements were instrumental in the decision to invest $350,000 in new machinery, for which he agreed to hire at least five new employees.
“One of the benefits that we have out here is Randy Ealy has partnered with the county to help us, so the city has been real proactive,” Sale said. “Initially, we agreed to increase 10 percent of the total staff maybe in a year. That was the intent when we started.” As the year progressed and the economy worsened, he realized hiring plans would have wait.
Both Becktel and Sale say Mengelberg told them the county would be flexible with the hiring requirement and would take the economy into consideration. After applying for the program, the company owners say they learned they were misinformed.
“We were told there was a hiring requirement, and we were told if we couldn’t meet that requirement right now, that would be taken into consideration,” Sale said. “The way it was originally pitched to us is the county would take into account things like the economy in order to delay the hiring requirement. They reneged on that.”
Mengelberg said she was “hoping there might be some flexibility and there wasn’t, because there is a state statute of law” that regulates the program’s hiring requirements. She added that the misunderstanding was due in part to the ever-increasing complexity of the program’s rules.
A recent study published by the National Bureau of Economic Research states, “Small businesses find it less worthwhile than larger businesses to claim enterprise zone benefits because of the administrative burden.”
The study examined 33 California enterprise zones dating back to 1984 and found that the program didn’t create new jobs and may have even reduced the number of businesses within the EZ boundary.
Ealy said he “respectfully disagrees” with the studies findings. “We already have two businesses taking advantage of the enterprise zone program, so it’s working quite well in Estacada…We’re becoming quite attractive for great quality of life and well paying jobs.”
Mengelberg agrees with Ealy. “In Estacada, there has been growth in the industrial park. Two businesses in the same year is pretty amazing. It’s been very successful,” she said.
The NBER recommends that the program’s continuation be reevaluated because it’s fairly expensive, and it’s failing to meet its key objective of creating new jobs.
Oregon State Legislature ordered a report evaluating the EZ program by February 1, 2009. Art Fish, business incentive coordinator for the Oregon Economic and Community Development Department, said the Legislative Review Office didn’t provide any funding for it.
He expressed some concern that the state’s current economic situation will create “noise” in the data. Sale said the problem with program is that the “enterprise zone assumes the market will always improve.
“We’re really focused on trying to get things to work,” Sale said. “The city was very helpful and tried to make things easy for us. We’re trying to get involved in the community. We’re not just here to take things; we want to provide things, too, like jobs... We have big hopes for 2010.”