Report 93109 Summary - November 1995
Trade and Commerce Agency:
The Effectiveness of the Employment and Economic Incentive and Enterprise Zone Programs Cannot Be Determined
We could not determine the effectiveness of enterprise zones and program areas because:
However, some statistics indicate that business and job growth within zones and areas was generally faster than their respective counties.
Results in Brief
The enterprise zone and employment and economic incentive programs were established to stimulate business and industrial growth and to encourage and facilitate job maintenance and business and job development in depressed areas of the State. To achieve these objectives, the State offers several tax incentives to businesses and employees in enterprise zones and program areas. Enterprise zone and program area businesses and employees claimed more than $53 million between 1988 and 1992 in state tax incentives designed to encourage participation in the programs. To carry out the program's goals, the Trade and Commerce Agency (agency) administers the programs at the state level and is required to review and monitor the zones and areas, evaluate them, and report on the effectiveness of the programs every five years. At the local level, enterprise zone and program area administrators coordinate activities with numerous local organizations and entities.
We were unable to determine the effectiveness of the zones and program areas for several reasons. We found that the agency has neither developed an adequate framework to review and evaluate the progress of the programs nor measured their effectiveness. Specifically, the agency has assigned insufficient staff to administer the programs to meet all of the monitoring and reporting requirements and has not performed required audits of certified businesses in program areas. Furthermore, enterprise zones and program areas are not state funded and most could not provide sufficient data to measure the effectiveness of the programs. Numerous other factors, such as changes in the general economy and similar programs operating in the surrounding areas, affect economic activity in the enterprise zones and program areas. Thus, isolating the effect the enterprise zone and employment and economic incentive programs have on economic activity may not be possible. Finally, the agency has not adequately responded to the recommendations included in the Office of the Auditor General's reports of May 1987 and June 1988, which addressed many of these same issues.
Because the agency and local administrators could not provide sufficient data, we contracted with the Stephen P. Teale Data Center to generate information on changes in businesses, jobs, and total wages within enterprise zones, program areas, and the counties in which they are located using data from the Employment Development Department. The statistics indicate that business and job growth in enterprise zones and program areas was generally faster than such growth in the counties in which they are located. However, we were unable to gather enough data to determine whether this growth in economic activity was due to the effects of the programs or other factors.
The agency needs to reassess its priorities to fulfill its statutory responsibilities for monitoring and measuring the effectiveness of the enterprise zone and the employment and economic incentive programs.
To determine the impact of the programs on the State, the agency should, in accordance with the law, take the following actions:
- Establish and implement a plan to monitor, evaluate, and report on the effectiveness of the programs, which includes identification and establishment of the performance measures, a system to obtain complete and reliable data about program achievements, and a determination of how it will evaluate reported achievements against those performance measures. The plan should also include procedures to determine the resources the agency needs to implement this plan and a schedule by which the agency will accomplish each of the steps; and
- Determine whether the Stephen P. Teale Geographic Information Systems can be used with other State or local databases to gather and evaluate selected statistical data relevant to the programs.
However, the agency may be unable to collect all the necessary information without obtaining it from either the businesses or the local administrators. Therefore, to enable the agency to collect the necessary data and make its evaluation, the Legislature needs to consider implementing the following:
- Imposing reporting requirements on businesses in the enterprise zones and program areas and requiring that local administrators of the programs establish performance measures, collect data to measure performance, and report their results. Currently, the zones and program areas receive no State funds for administering the programs.
To ensure that certified businesses in program areas remain eligible to receive state tax benefits, the agency should, in accordance with the law, periodically audit these businesses.
The agency generally concurs with our findings and conclusion that the effectiveness of the enterprise zone and employment and economic incentive programs cannot be determined. However, the agency believes that the positive findings we identified should be highlighted. Further, the agency asserts that its recertification process fulfills its statutory audit responsibilities and, thus, does not agree with our recommendation that it conduct periodic audits of certified businesses.