August 7, 2012

Enterprise Zone Extension and Reforms Signed into Law

On August 7, 2012, the Governor amended the Illinois Enterprise Zone Act by signing Senate Bill 3616 into law (Public Act 97-0905). Many of the oldest enterprise zones will expire in 2014 at the end of their 30-year life cycle. Since 1984, the Illinois Department of Commerce and Economic Opportunity (DCEO) has created a total of 97 enterprise zones.

This post serves as a follow up to an April Policy Update on Enterprise Zones bills under consideration by the General Assembly. SB3616 was just one of several proposed bills this session that sought to reform, extend, and expand the economic development incentive. The bills that did not move forward proposed a variety of changes to the Enterprise Zone Act, including extending the lifespan for a zone from 30 to 55 years and restricting the number of new zones that could be created. Language proposed in one failed bill requiring additional reporting on demographic or socio-economic evaluation criteria was incorporated in the approved bill.

SB3616 passed the General Assembly unanimously and includes provisions to extend the enterprise zone program. Those provisions, which have now been adopted as law, include:

  • Revised renewal guidelines. Public Act 97-0905 enables DCEO to grant Enterprise Zone extensions until 2016. Beginning with zones expiring in 2016, zones would need to reapply for Enterprise Zone designation under the bill's provisions.
  • Consolidation with other incentives. The act eliminates River Edge Redevelopment Zones (RERZ) upon their expiration, but allows them to apply to become Enterprise Zones. The RERZ program provided tax incentives to help redevelop environmentally-challenged properties next to rivers in four zones. In addition, under the new law, other areas will have the opportunity to apply for Enterprise Zone designation, and existing Enterprise Zones and RERZs would not receive preference when reapplying for status after their life cycle expires.
  • Opportunities for extensions. Zones designated under the enrolled bill would have a 15-year term, with a review by the new Enterprise Zone Board at 13 years to determine whether the zone designation should be extended for an additional 10 years.
  • Eligibility and rules on extensions. Areas applying for designation would have to meet more specific criteria regarding the socio-economic condition of the area. The law provides a point system that DCEO and a new Enterprise Zone Board would utilize to assist in making designations.
  • Administrative changes. Public Act 97-0905 includes several changes to the approval process and administration of Enterprise Zones. DCEO will utilize the new criteria provided to assign a score to Enterprise Zones applications. DCEO will submit applications and scores to the new five-member Enterprise Zone Board that is charged with approving or rejecting Enterprise Zone applications by majority vote.
  • Reporting requirements. The law also requires additional reporting requirements. Businesses in Enterprise Zones, as well as those designated as High-Impact Businesses (not located in Enterprise Zones but eligible to receive similar tax benefits), must report annually on the total tax benefits received by incentive category, job creation, job retention, and capital investment. DCEO would make this information available in the aggregate as part of their annual reports on the Enterprise Zone program, which already includes job and capital investment information.
  • Elimination of select tax incentives. The law also eliminates three of the tax incentives provided to businesses in Enterprise Zones: the income tax credit of $500 for each hire that is economically disadvantaged or a dislocated worker; the income tax exemption for dividends paid by corporations; and the deduction for interest income from loans secured by eligible investment credit property. Businesses in Enterprise Zones can still take advantage of the remaining five state tax incentives, as well as any local tax incentives offered. The fiscal implications of these changes are unclear because the legislation did not include a fiscal note to estimate the impact.

For more information on enterprise zones a forthcoming report by the Civic Federation will provide in-depth analysis on Illinois Enterprise Zones and how the program compares to similar initiatives in other select states.

Public Act 97-0905 will provide additional data for policymakers to evaluate economic development incentives like those provided to businesses through Enterprise Zones and RERZs. While there are provisions requiring that Enterprise Zones meet specific socioeconomic criteria and submit data on the value of tax incentives provided to businesses, these measures are just the first step toward making informed policy decisions on the effectiveness of current or proposed incentives. GO TO 2040 advocates for increased transparency around use of public funds and data-driven decision making for public policy. CMAP continues to urge the State and local governments to increase access to all available information on how taxpayer dollars are being spent in these efforts to spur local economic development.