Topic:
ENTERPRISE ZONES;
Location:
ENTERPRISE ZONES;
Scope:
Connecticut laws/regulations;

OLR Research Report


August 24, 1998 98-R-1052

FROM: Saul Spigel, Chief Analyst

RE: Entertainment Districts and Enterprise Zones

You asked (1) for a comparison of enterprise zone and entertainment district designation requirements and benefits, (2) where within a town an entertainment district can be located, and (3) the kinds of businesses that are and are not eligible for entertainment district benefits.

SUMMARY

Enterprise zones are limited to one or two census tracts in a town while entertainment districts can, in theory, cover an entire town. The tracts a town designates for an enterprise zone

must meet statutory poverty, welfare, or unemployment criteria. For the first 10 zones the legislature created, any town with one or more census tracts meeting these characteristics could apply for Department of Economic Development (now Economic and Community Development (DECD)) approval. Later, the application process was opened to (1) three towns that showed the greatest increase over time in other poverty and unemployment measures and (2) two towns where military bases or large factories had closed. Census tracts designated as enterprise zones in these five towns had to meet the statutory characteristics unless towns applying under the base closing category designated the zone in the area around the closed base or plant.

Any town with an enterprise zone can designate any area in the town as an entertainment district. The district can be anywhere; it can wholly or partly overlay the zone or can be in an entirely different location.

Manufacturers and certain business and financial services firms can obtain property and corporation tax breaks and direct grants if they locate or expand in an enterprise zone and create jobs. Residential and commercial property owners in zones can receive lesser tax breaks for improving their properties. And small zone businesses are eligible for low-interest loans. Entertainment-related businesses locating or expanding anywhere in a town with an entertainment district are eligible for the same benefits under the same conditions.

Facilities used in producing entertainment products or in the airing, display, or provision of live entertainment for stage or broadcast are eligible for entertainment district benefits. Also eligible are facilities used by entertainment support services such as set manufacturers, scenery makers, sound and video equipment suppliers and manufacturers, stage and screen writers, agents, producers, and investors. Proposed DECD regulations specify types of businesses that are automatically eligible for benefits if they meet facility and job creation criteria.

The entertainment district law specifically prohibits benefits for entertainment provided by or shown at a gambling or gaming facility or a facility whose primary business is the sale or serving of alcoholic beverages. In addition, DECD's proposed regulations specifically exclude retail establishments serving the public and businesses operating in a residential zone.

DESIGNATION REQUIREMENTS

Enterprise Zones

The legislature has authorized 17 enterprise zones and set the requirements for their designation in statute. It has established two different sets of designation criteria. Most zones (14) were designated based on poverty or unemployment data; three were designated based on major military base or plant closings.

Designation Based Solely on Census Tract Characteristics

The 10 zones established between 1981 and 1992 contain one or two contiguous census tracts in federally designated distressed municipalities. Six zones had to be in towns with fewer than 80,000 people. One of the tracts had to meet one or more of the following “primary” criteria:

1. at least 25% of its residents had to have incomes under the federal poverty level,

2. at least 25% of its families had to be receiving welfare, or

3. its unemployment rate had to be at least double the state average.

Another tract could be included in the zone if it met the following “reduced” criteria: (1) at least 15% of its residents were below poverty or receiving welfare or (2) it unemployment rate was 1.5 times the state average.

Any town with a census tract meeting these criteria could apply for Department of Economic Development approval. Zones in Hartford, Bridgeport, New Haven, New Britain, Norwalk, New London, Waterbury, Meriden, Middletown, and Norwich were designated under these criteria (CGS 32-70(a)). (Towns that are contiguous to a zone in another town and that contain at least one census tract that meets the reduced criteria can also establish a zone. Hamden's zone was designated under this provision (CGS 32-70(b)(2))).

Designation Based on Town and Census Tract Characteristics

Base and Plant Closings. In 1993 the legislature authorized five more zones. Two had to be in towns with fewer than 80,000 people that had lost or expected to lose more than 2,000 jobs from military base or plant closures between 1989 and 1996. (A requirement that the job losses constitute at least 50% of a plant's workforce was eliminated in 1994.) The towns had two options for designating the zone. They could include the census tract in which the affected base or plant was located, in which case the designated tracts did not have to meet either primary or reduced zone-designation criteria. Or they could designate one or two other tracts, in which case at least one tract had to meet the primary designation criteria and any additional tract had to meet those or the reduced criteria (CGS 32-70(c)(2)(A)). East Hartford and Groton were approved as “base closing zones.”

Increases in Town Poverty. The other three zones authorized in 1993 were based on new “distress” criteria targeting towns that had experienced the greatest increase in poverty between 1989 and 1993. Increased poverty was measured in terms of unemployment rate, Aid to Families with Dependent Children caseloads, and the ratio of a town's per capita income to the state's per capita income. (Use of General Assistance and Women, Infants, and Children food program caseloads and subsidized school lunch recipients were eliminated in 1994). The DECD commissioner could also consider a town's percentage of unused, available commercial and industrial space and its plan to implement an effective program as designation criteria. The census tracts an eligible town designated as its zone also had to meet the primary or reduced criteria (CGS 32-70(c)(2)(B)). Stamford, Bristol, and Middletown were approved under these criteria.

The last zone was authorized in 1995 when the legislature required the commissioner to designate a zone in a town that contained a plant closed by a company that also closed a plant in a town that had an enterprise zone approved under the base or plant closing criteria. Southington was approved under this criterion.

Entertainment District Designation

Any town with an enterprise zone can designate an entertainment district anywhere in the town. It can be wholly or partly within the zone, or it can be in an entirely different part of town. The DECD commissioner must approve the district and in doing so must consider market potential, specific development plans, and private commitments in the area as criteria in evaluating the proposal's effect on economic development in the town, the region, and the state (CGS 32-76(a), (c)). The law allows DECD to adopt regulations setting additional criteria for approving districts, including limits on their size. DECD's proposed regulations (currently awaiting Regulation Review Committee action) contain no additional criteria.

BENEFITS

Benefits for Locating in an Enterprise Zone

Enterprise zone benefits are targeted mainly toward manufacturers and those business and financial services companies that do most of their business outside the zone (“qualified service firms”). Benefits take the form of property, corporate, and sales tax breaks; grants for creating jobs; and eligibility for low-interest loans. A complete list of the benefits follows.

1. Business Property Tax Abatement—80% abatement for five years on real property used by manufacturers and qualified service firms that is acquired, constructed, or rehabilitated and on the machinery and equipment used in that property. The state reimburses towns for 50% of the taxes they abate.

2. Corporation Business Tax Credits—

(a) a 50% credit for 10 years for a company that creates 150 new jobs or fills 30% of its new jobs (regardless of the total) with zone residents or town residents who qualify for federal job training assistance.

(b) a 100% credit for three years followed by a 50% credit for seven years for a newly created business that locates in a zone and hires zone residents or town residents who qualify for federal job training assistance (40% if the business has 375 or more employees or 150 if it has fewer).

3. Job Incentive Grants—$2,250 for manufacturers and $750 for qualified service firms for each new job they create as a result of business expansion. They must create at least 150 new jobs or fill 50% of the new jobs (regardless of the total) with zone residents or town residents who qualify for federal job training assistance.

4. Loans—Zone businesses with annual revenues under $3 million can borrow up to $300,000 from the Connecticut Development Authority to invest in real property or machinery or for working capital. Interest is 1% above the rate on the state's latest general obligation bond issue. Loans for real property may be for up to 20 years, 10 years for machinery, and seven years for working capital.

5. Property Tax Phase-in for Property Improvements—Residential and commercial property owners receive a seven-year phase-in of tax assessments due to improvements on their property. In the first two years, 100% of the increased assessment is deferred and in the third year, 50% is deferred. The percentage deferred then drops by 10% a year until the entire assessment becomes effective in year eight. Towns may grant additional assessment deferrals or abate taxes on any property located in a zone.

6. Sales Tax—100% exemption on replacement parts for machinery used by any business.

7. Real Estate Conveyance Tax—100% exemption on sales of any property in a zone.

Benefits for Location in a Town with an Enterprise Zone

Towns that contain an enterprise zone are called targeted investment communities. Such towns, or businesses in them, undertaking development projects under the Manufacturing Assistance Act receive state assistance for 90% of the project's cost. Businesses located in such towns, although outside the zone, are eligible for the following benefits, with the economic and community development commissioner's approval.

1. A town with a zone can extend zone benefits to an idle manufacturing plant with at least 500,000 square feet and to abandoned or under used railroad depots outside the zone.

2. Biotechnology, pharmaceutical, and photonic companies located in a town with both an enterprise zone and a major research university are eligible for zone benefits.

3. Qualified service firms in a town with an enterprise zone can receive benefits similar to zone benefits if they acquire, construct, or substantially renovate property outside the zone. The level of benefits depends on the scale of their investment and the number of new jobs they create.

Entertainment District Benefits

Entertainment-related businesses located anywhere in a town that has designated an entertainment distinct can receive the same property tax and corporation tax benefits as eligible businesses in an enterprise zone (see above). They must meet the same facility acquisition, construction, or rehabilitation criteria and the same job creation criteria as enterprise zone businesses (CGS 32-76(e)).

ENTERTAINMENT-RELATED BUSINESSES

Eligible Businesses

The law makes facilities used in the production of entertainment products, including multimedia products, or that are used in the airing, display, or provision of live entertainment for stage or broadcast eligible for entertainment district benefits. Also eligible are facilities used by entertainment support services such as set manufacturers, scenery makers, sound and video equipment suppliers and manufacturers, stage and screen writers, agents, producers, and investors (CGS 32-76(e)).

DECD's proposed regulations appear to make businesses in the following standard industrial classifications automatically eligible for benefits (assuming their facility meets the acquisition, construction, or job creation standards). Businesses not listed must submit a letter to the commissioner indicating how they are entertainment-related.

● 3609—stage lighting equipment manufacturing

● 3620—radio and TV communications equipment manufacturing

● 3908—stage hardware and equipment manufacturing

● 4802—radio and TV broadcasting stations, cable and pay TV services

● 5403—photographic equipment and supplies used solely in the entertainment industry

● 5699—stores dealing in dancewear and theatrical costumes for commercial use

● 6512—operators of nonresidential buildings primarily engaged in owning and operating (leasing) theater buildings to promoters and producers

● 6700—holding and other investment offices used solely by investors in the entertainment industry

● 7313—radio and TV advertising representatives

● 7334—photographic studios specializing in the entertainment industry

● 7336—studios and offices of graphic arts and related design establishments primarily engaged in film strips and slides

● 7812—motion picture and videotape production (including allied services)

● 7822—motion picture and videotape distribution

● 7911—studios and offices of professional dance schools, theatrical (not motion picture), and miscellaneous theatrical services

● 7929—rehearsal and performance spaces, studios, theaters, and offices for bands, orchestras, actors, entertainers, and entertainment groups

Ineligible Businesses

The entertainment district statute specifically prohibits benefits for entertainment provided by or shown at a gambling or gaming facility or a facility whose primary business is the sale or serving of alcoholic beverages. DECD's proposed regulations also specifically exclude retail establishments serving the public and businesses operating in a residential zone.

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