Think carefully about enterprise zones

The City of Sisters is considering an "enterprise zone" to attract mainly light manufacturing businesses. The "attraction" includes property tax waivers (including for schools and every other tax district) and reduced city fees and sewer/water rates for 3-5 years.  

Efforts to jump-start investment in this tough economy deserve our support, but this raises questions of effectiveness and equity.

Is such relief needed to attract businesses?  If the answer is unquestionably yes, one could argue it does so at no cost to the city - without the new investment, there wouldn't be taxes to collect anyway.  This conclusion is misleading. Investors will nonetheless use public services (city administrators, water and sewer utilities, public works, public safety, schools) - a free ride paid by the rest of us. 

If the answer is no - that is, investors would come to Sisters anyway, the tax relief is just a gift. 

There is almost no objective evidence demonstrating that tax relief works. That companies received tax breaks does not mean they were necessary.  

Unsurprisingly, businessmen claim that tax relief was pivotal.  It may help attract footloose investments by big companies with no stake in any given community (and who may not stay once relief ends).  But for most small entrepreneurs, one can genuinely posit that they are probably attracted most to places where they want their families to live and work, sometimes in spite of unfavorable market fundamentals.  None would refuse tax breaks, but that doesn't mean they wouldn't come if offered none.

If businesses locate here because Sisters is a great community - where public services work, schools are good, and citizens work hard to enrich and protect our unique assets, there is a tangible "opportunity cost" in sacrificing scarce public resources to tax relief of untested effectiveness. It might even be counterproductive if public services suffer.

While an enterprise zone can show the city is "business friendly," other "signaling" methods may well cost less and achieve more. EDCO believes, for example, that continuous, recurrent, incessant, one-on-one contacts with prospective investors is what really works, a premise consistent with the proposition that small business owners locate where they want to live, not where they get tax relief.

If the city still establishes a zone, what should we ask of it? 

First, full public debate and justification.  What hard evidence proves that new investment in Sisters requires tax relief, rather than more effective "outreach"?  Who really benefits - new investors, or local property owners?  Will the city compensate other agencies (schools, fire, safety, library) for waiving their taxes?

Would investments already approved, like the New Sisters Village Hotel, get relief designed for new investors? Why include Forest Service land, on which no zoning decision has been made? 

Second, full and regular public disclosure. Who receives the tax breaks?  Are new investors really contributing living-wage jobs?  What is it costing the city and other agencies?

Third, transparency and accountability.   By contributing to investors' bottom line, don't we deserve a public examination of their accounts, including ownership, operating costs, and profits - especially given recent abuse of Federal bailout aid?  

Fourth, more equity and burden sharing. Is lavishing tax relief on new investors, but not those already committed to our community, equitable or business-friendly? Why is tax relief better for businesses than for affordable work-force housing? Why should taxpayers provide all the relief - why not, for example, require landlords to match Redmond rents?

We need to take the time to ask these and other questions, and we hope the city provides ample opportunity.

Chuck Humphreys has a Ph.D. in economics and worked on economic development issues for 25 years at the World Bank in Washington, D.C. His family moved to Sisters in 2003, where he currently serves on the city's planning commission.