Early reaction to 'urban enterprise zone' bill: it has practical problems

When President Reagan pages through his Feb. 18 speech on the economy, will it contain a leaf borrowed from British Prime Minister Margaret Thatcher? And, if so, will it lose or gain in translation from English to American?

Observers are beginning to worry that one of the apparently simple elements of the Reagan economic package -- the plan for "urban enterprise zones," popularized by Mrs. Thatcher's Conservative Party in Britain -- may be increasingly clouded by practical complexities.

The zones, recently established in Belfast, Glasgow, Liverpool, and six other impoverished inner-city areas in Britain, are designed as havens of entrepreneurial freedom. Businesses in them have something of a honeymoon from taxes and governmental regulation.

But the problems surrounding the concept neatly illustrate the distinctions between economic theory and political reality.

The theory, as articulated by US Rep. Robert Garcia (D) of New York at a seminar here Feb. 9, is elegant in its simplicity.

"Improved business conditions will aid the unemployed and the minority populations," he said.

The goal, as dear to the hearts of Reaganites as to Thatcherites, is to move from government grants to private-sector job creation. And the way to create jobs, say supporters, is to set business free.

The enterprise zones, as outlined in legislation introduced in Congress last summer by Mr. Garcia and fellow New York Rep. Jack Kemp (R), attempt to "Hong-Kongize" small sectors of the nation's urban wastelands: i.e., to deregulate business activity and woo firms into hardship areas where costs (for fire insurance, security, transportation, and other essentials) may be as much as 40 percent above the suburban norm.

In America's increasingly conservative mood, that goal meets broad assent. A recent poll sponsored by the Heritage Foundation, a conservative research organization, found that 73 percent of the individuals and 84 percent of the businessmen questioned agreed that the government should stimulate business activity by reducing regulations and taxes.

The Kemp-Garcia bill would cut property, social security, corporate, and capital gains taxes.

The effect, said James Howell, chief economist of the First National Bank of Boston, would be to "unleash the animal in American business" and prove that less government is good government.

But the practical and political obstacles to the bill may be formidable.

Baltimore Mayor William D. Schaefer (D) is concerned that what the government gives with one hand it may take away with the other. Like other mayors, he worries that President Reagan's speech, while figuratively smiling on the zones, may frown on such key urban programs as urban development action grants and CETA (Comprehensive Employment and Training Act) -- whose dollars have helped refresh older cities.

"The enterprise zones concept should not be allowed to become a smoke screen for the dismantling of federal programs," Mayor Schaefer warned.

Oliver Ward, a director and former president of the Small business Association for New England, noted that the bill would not prompt him to start a firm in the blighted Roxbury neighborhood of Boston. He also argued that income tax reductions do not generally affect new businesses for the first several loss-making years.

And he noted that 15 percent capital gains reduction and the social security savings were relatively insignificant for small businesses. The major problem, he said, was "the incredible need for capital," rather than the mild tax breaks offered by the Kemp- Garcia bill.

Sen. John H. Chafee (R) of Rhode Island, a co-sponsor of the bill in the Senate, predicted that the attempt to relax social security contributions would fail. And he noted the bill would have to define such things as residency requirements, statistical methods for measuring poverty, and the means for determining the borders of enterprise zones.

Some observers, urging greater relaxations of safety, environmental, and minimum-wage rules, see little hope for a more comprehensive measure. They simply hope this one does not become even more diluted. The British concept, in their view, endured such compromise that it became less a provision for laissez-faire enterprise than a means for government to direct investment -- becoming, they contend, just another planning tool for the state.

Senator Chafee insisted, however, that the Kemp-Garcia bill is more than a "smoke screen." But Mayor Schaefer (whose city, like Boston, is ready to offer several areas as "demonstration" zones) warned against creating further layers of bureaucracy to administer the zones.

"The byword," he asserted, "is, 'keep it simple.'" And he warned against trying to satisfy everybody with one bill. "This is a great opportunity for cities," he added. "Let's not mess it up by making it solve everything."

Garcia called the conference the first public exposure his bill has had and said the measure also would be subjected to a lengthy hearing process in the neighborhoods for which it is intended. He admitted he had not yet mastered all the technical aspects of the proposal and that he does not consider it "locked in g ranite."