Bureaucratic Enrichment Zone

A radical proposal wasted

Cincinnati's "empowerment zone" program, a federally funded effort to jump-start development in several low-income neighborhoods, has just been audited by the Department of Housing and Urban Development (HUD). According to the report, administrators at the Cincinnati Empowerment Corporation have misspent thousands of dollars and failed to account for hundreds of thousands more. Meanwhile, much of the money that was spent "properly" nonetheless failed to achieve the program's goals.

HUD found that one zone-funded company, Nu-Blend Paints Inc., "failed to complete job training or employ a single zone resident -- despite spending $239,489," The Cincinnati Enquirer reports. "The Empowerment Corp. disagrees, saying it provided check stubs and documents to show one employee completed job training."

Cincinnati's empowerment zone is one of seven around the country that have been audited, and it is hardly the only one to have spawned such waste. When Chicago's program was surveyed in 1998, $1.6 million in inappropriate spending was uncovered.

When the British planner Peter Hall first imagined "enterprise zones" (as they were originally called) in 1977, they were a deregulatory proposal: Part of the inner city would be freed of taxes and regulations, encouraging outside businesses to invest there and local entrepreneurs to launch companies of their own.

During the '80s, the more radical versions of the proposal were dropped: There was no more talk of eliminating licensing requirements, for example. The idea began to seem less like a way to gestate new enterprises and more like an incentive for businesses just outside the zone to avoid some taxes by moving a few blocks down the street.

By the time zone enthusiast Jack Kemp became HUD secretary in 1989, the idea had changed to the point where new federal subsidies were part of the mix. The revised plan attracted bipartisan support, and the Clinton administration passed its Empowerment Zone/Enterprise Community Initiative in 1993. The measure's deregulatory origins forgotten, it became a program of "targeted investment."

Now we're learning where those "investments" went, and it's not pretty. Fortunately, Washington actually appears to be learning from failure: The Bush administration has cut funding for the program.