RD207 - Annual Report for the Virginia Enterprise Zone Program


Executive Summary:
In July 2005, the new Enterprise Zone Grant Act went into effect. The Act had several important policy intents that are reflected in changes to the incentive package, the zone designation process, and program implementation.

The overall policy intent of the new program is:

• To be a tool to help distressed localities versus a general economic development incentive.

• To increase fiscal accountability associated with state incentives reflected in new grant monitoring and attestation components.

• To home in on economic situations that can maximize the use of financial incentives and target businesses that create "better jobs."

Most notable under the new statute, and the focus of this report, is that the statute replaced the tax credit and job grant incentive package, created in 1995, with two grant incentives. In addition to supporting the overall policy shift for the program, the new incentives also reflect changes in business practices and development trends that have occurred over the past decade.

In addition to the new grants, the statute also has transition provisions that allow qualifying businesses to continue to receive the incentives available under the previous program. Businesses that began qualification periods for the "Pre-2005" incentive program prior to July 1, 2005 can complete them provided they continue to meet the qualification requirements. Business firms with signed agreements with DHCD in place by July 2005 may also initiate use of the tax credits but must do so before the expiration of their zone or 2019. By statute, the tax credits are only available through fiscal year 2019.

This report focuses on the use of the Pre-2005 and new incentives; however, it is important to note that in January 2005, Bedford, Hampton, Hopewell, Lee County, Petersburg, and Wythe County received the first zone designations under the new statute. Zones are designated under the new statute for a 10 year period with two possible five-year renewal periods. Zones in Galax, Waynesboro, and South Boston/Halifax County are slated to expire on December 31, 2007. Under the new statute, enterprise zones designated prior to 2005 will continue for their full twenty-year term.

The Virginia Department of Housing and Community Development administers the Enterprise Zone Program guided by the Virginia Enterprise Zone Program Regulations. These regulations establish the criteria and procedures for the designation, amendment, and administration of enterprise zones along with qualification criteria for participating businesses and zone investors. Although the Department of Housing and Community Development (DHCD) administers the program, the determination of local economic development objectives, selection of local incentives, and management and marketing of the zone are the responsibilities of local government. Each zone locality must also submit an annual report of zone activity and investment to DHCD.

As part of the administration of the state's component of enterprise zone incentives, DHCD qualifies businesses and zone investors for state incentives. DHCD qualified the first businesses for the program in 1984, and approximately 1,800 businesses and zone investors have received incentives since then.