Amadi Anene: 'Enterprise zones' help investors, not the poor

Via OtherWords.org

Where some of us see distressed neighborhoods — where families endure poverty and homes fall into disrepair — others see dollar signs. In fact, the Trump administration now brands them “opportunity zones,” offering tax breaks to investors who invest capital there.

What remains unclear is this: Opportunity for whom? Big investors may stand to cash in, but many communities are saying they’re not getting the benefits they were promised.

This story goes back to the 1980s, when British Prime Minister Margaret Thatcher’s conservative government introduced 11 “enterprise zones” throughout the United Kingdom. Inspired, conservatives in the U.S. under President Ronald Reagan promoted the creation of these zones in 40 states.

Even many Democrats warmed to these zones as a viable pro-market approach to urban renewal. The idea resurfaced as “empowerment zones” under the Clinton administration in 1994.

Whatever you call them, they’re spaces where businesses can delay, reduce, or even eliminate taxes altogether on the money they invest.

The Trump administration has certified an estimated 8,700 census tracts as opportunity zones; the official list is 186 pages long. There are nearly 900 such zones in California, more than 600 in Texas, 500 in New York, and 300 in Ohio. The designated tracts in Puerto Rico account for nearly the entire island.

Advocates argue that these incentives encourage investors to direct money into distressed communities in ways that will lead to new jobs, better housing, and other businesses being willing to open up shop in the revitalized community.

There are at least two problems with that argument.

First, many distressed communities suffer from economic challenges that investment alone cannot address, including redlining and housing discrimination. These communities need systemic policy changes that get at the root of discrimination to set the stage for lasting economic change.

Second, studies across the country (as well as in the U.K.) offer little evidence that such incentives actually benefit neighborhoods in the long run.

An expansive study of 75 enterprise zones in 13 U.S. states concluded that tax incentives had “little to no impact on economic growth.” One study of a zone in New Jersey even concluded that increased economic activity within its zone came at the expense of non-zones in the nearby area — the kind of zero-sum economics that would discourage investments in the long run.

Amid all of this is the concern that opportunity zones will mean escalating housing costs, accelerating the process by which residents are displaced because they can no longer afford to live there.

There are ways opportunity zones can be made to work so that the people living in the zones benefit as well as investors.

One strategy is for investors to partner with anchor institutions — enterprises such as hospitals and universities that are anchored to the community by both location and mission. These institutions can play special roles in employing people in opportunity zones and supporting local small businesses through purchasing and contracting.

Even better, they should invest in employee-owned businesses.

A prime example for both strategies is the Evergreen Cooperatives in Cleveland, whose Cuyahoga County is home to 64 low-income “opportunity zones.”

Evergreen’s enterprises show the power of employee ownership to turn communities around and create economic opportunity. Employees who own parts of their place-based business have a long-term source of wealth and an incentive to stay and improve their neighborhoods, because doing so improves their businesses.

We also need to make more affordable housing available, especially through community land trusts, limited equity housing cooperatives, and other strategies that offer opportunities for resident equity building.

Under the Trump administration, opportunity zones — the rebranded “enterprise” and “empowerment” zones of the past — will have some new features but the same bottom line: investors stand to win, while residents lose.

Amadi Anene is a fellow at The Democracy Collaborative. He served as a senior adviser in the Small Business Administration during the Obama administration.

Katie Parker: Amazon shuts out local businesses

Via OtherWords.org

The billions in tax breaks cities, including Boston, are offering Amazon to host its “HQ2,” Amazon’s bare-knuckled push to squash a business tax in Seattle, and recent strikes for better working conditions in Amazon facilities have all fueled a growing conversation about the retail behemoth’s toll on communities.

But one element of Amazon’s business strategy has fallen under the radar, and this one could really bite where you live: its bid to dominate local government purchasing.

In January 2017, Amazon won a contract with U.S. Communities, a purchasing cooperative made up of government agencies, school districts and other public or nonprofit agencies. The cooperative wields the heft of its more than 55,000 members to negotiate better prices. With this contract, they can now opt to buy their goods through Amazon Business, which advertises greater product selection, free shipping, and pricing discounts.

While the contract is a big boon for Amazon — a potential for $5.5 billion in sales over 11 years — recent analysis from the Institute for Local Self Reliance (ILSR) seriously questions how good a deal the public is getting out of this.

For one thing, the Amazon contract lacks the pricing protections that are usually standard in public procurement. Rather than relying on a catalog of fixed prices, governments are at the whim of Amazon’s dynamic pricing model, much like the “surge pricing” of ride-sharing services.

The Amazon contract also makes it harder for agencies to buy from local vendors. ILSR notes that while local businesses can join Amazon’s Marketplace to compete for U.S. Communities contracting opportunities, Amazon takes a 15 percent cut. That’s enough, given the already thin margins of public procurement, to push many local businesses out of the running.

For the 1,500 members that have signed onto this contract so far, that means a significant missed opportunity to help their local economies thrive. The good news is that a growing number of governments and nonprofits are realizing that getting the lowest bid isn’t the same as getting the best deal.

Local governments spend money every day. They can use that spending to build up local businesses, create jobs for residents, and grow their tax base, something impossible to do with Amazon’s virtual footprint. This purchasing strategy is more efficient, too: Dollars spent at independent local businesses recirculate at a greater rate than money spent at national chains, creating a multiplier effect.

By shifting their everyday spending, city governments from Phoenix to New Orleans are joining hospitals, universities, and other anchor institutions to spark inclusive economic growth.

Cleveland is a great example. There, local anchor institutions like the Cleveland Clinic and University Hospitals helped launch Evergreen Cooperatives, a network of worker-owned businesses established to provide some of the goods and services these institutions routinely need, such as laundry services and food.

The businesses have an explicit goal of hiring local residents facing barriers to employment, and the cooperative structure gives these workers opportunities to participate in decision-making and build wealth through profit-sharing. Evergreen Cooperatives employs more 220 residents and is growing.

Local governments weighing whether to sign on to Amazon’s marketplace should consider this growing movement around inclusive, local procurement. Instead of being lured by Amazon’s come-on of lowest-price promises, stewards of local tax dollars should ask what would bring the best value for their communities.

Instead of going into Amazon CEO Jeff Bezos’s deepening pockets, the money they spend on goods and services should help everyday residents build wealth.

Katie Parker is a research associate at the Democracy Collaborative with a specialty in how health care institutions can support inclusive economic development.