The Illinois Enterprise Zone Program By JAY HEDGES, Director, DCCA

The Department of Commerce and Community Affairs uses a variety of tools to encourage economic development throughout the State of Illinois. The Enterprise Zone Program has been one of the most successful of these tools. Signed into law on December 7, 1982, the purpose of this program is to stimulate economic growth and neighborhood revitalization at the local level. This is accomplished through state and local tax incentives, regulatory relief and improved government services. More recently, the Enterprise Zone Program has become a highly successful general economic development tool that the state uses to encourage firms to locate or expand in Illinois. The designation of an enterprise zone in Effingham/Effingham County, for example, was an important aspect of the state's successful effort to keep Fedders Air Conditioning, U.S.A. Inc. and its 1,080 jobs in Effingham.

In accordance with the Enterprise Zone Act, the department was authorized to certify sixty-seven enterprise zones statewide from 1983 to 1988. These zones were certified on an annual basis based primarily upon a competitive application process between communities in Illinois. The designation of six additional enterprise zones on July 1, 1988 has now increased the number of certified zones to the statutory limitation of sixty-seven that was authorized by the General Assembly.

The Enterprise Zone Program is a state and local partnership. It emphasizes a creative coalition of state and local government, business, labor and community groups to encourage economic growth and neighborhood revitalization in distressed geographical areas of Illinois. The success of an enterprise zone depends, in large part, on local commitment. Although supervisory responsibility for administration of the program rests with the department, the determination of specific economic development objectives, selection of incentives, and day-to-day administration of the enterprise zone is the ultimate responsibility of the participating community.

The certification of an enterprise zone begins with the adoption of an ordinance by the applicant municipality or county. This ordinance designates the geographical area which encompasses the zone; specifies the local incentives to be offered to businesses locating within the enterprise zone; and indicates what local official will be responsible for the administration of the zone.

The certification of an enterprise zone is also dependent upon the submission of an application to the department according to time frames set forth in the statute. In addition to the adoption of a local ordinance, the community must document that its proposed enterprise zone is an economically distressed area, describe its economic goals and objectives, and substantiate community support for the enterprise zone program.

It is the department's statutory responsibility to review and approve these enterprise zone applications pursuant to the following criteria: compliance with applicable statutory and regulatory requirements; level of economic distress (e.g., unemployment) in the proposed enterprise zone; soundness of the zone's economic goals and objectives; extent of the local incentive package; level of community support; and the capability of local officials to administer and manage the enterprise zone.

August 1988 / Illinois Municipal Review / Page 5

The department also had the statutory authority to designate a number of enterprise zones outside the competitive application cycle if warranted by extreme economic circumstances. This authority has been used to accommodate major job creation or job retention efforts in Illinois; for example, Fedders Air Conditioning, U.S.A., Inc. in Effingham, Magna Corporation in Nashville, and Keystone Steel and Wire Company in Bartonville. In this respect, the Enterprise Zone Program has been successful in terms of encouraging firms to locate or expand in Illinois.

A business located in a designated enterprise zone can receive a number of state and local tax incentives. These state incentives include a state sales tax exemption on all building materials permanently affixed to real property located within an enterprise zone; a tax credit for investments in qualified property placed in service in an enterprise zone; jobs tax credits for the employment of dislocated workers or economically disadvantaged individuals; dividend and interest deductions for eligible taxpayers; and utility tax exemptions as well as sales tax exemptions on all consumables used in the manufacturing process for larger businesses located within enterprise zones. The primary local tax incentive offered to businesses located within designated enterprise zones is property tax abatement. At their local discretion, taxing bodies are authorized to abate taxes on improvements to real property within a designated zone. It is up to the local taxing bodies to determine the percentage and term of this abatement. Local communities also typically offer sales tax exemptions on building materials and a waiver of permit fees for projects located in designated enterprise zones.

The department believes that the tax incentives offered under the Enterprise Zone Program have had a significant impact on economic development in distressed areas of the state. For example, the latest data shows that $1.2 billion has been invested in enterprise zones which resulted in the creation of 31,000 jobs and the retention of 73,000 jobs since the inception of the program. Although the department does not claim that there is a direct correlation between this economic activity and enterprise zone designation, the program can be an important determinant of a firm's decision to locate or expand in Illinois. Furthermore, the success of the program is the result of the commitment and dedication of the participating local communities.

For further information on the Enterprise Zone Program, contact Jeffrey Johnson, Department of Commerce and Community Affairs at (217) 785-6145. •

Page 6 / Illinois Municipal Review / August 1988