Enterprise zones serve as investment bait for communities left behind
Since the early 1980s, Chicago has relied on enterprise zones as a tool to drive economic development in neighborhoods facing industrial decline and disinvestment. Created under the Illinois Enterprise Zone Act of 1982, these zones are designed to stimulate private investment through a package of tax incentives and regulatory relief. High taxes and burdensome regulations are the bane of every business in Chicago.
Any type of tax and regulatory help can help to make a fledgling business in a challenging environment competitive. Today, Chicago has six enterprise zones, designated as Chicago I through VI, which covers almost 30 percent of the Chicago’s land area. As the current designations move toward expiration in 2030, it’s worth asking how these zones evolved, what are the incentives offered, and how effective have they been in shaping Chicago’s economic geography. In 1982, Illinois passed the Enterprise Zone Act. Chicago then established its first zones.
Throughout the 1980s, zones were expanded and renewed, supporting both industrial corridors and struggling commercial districts. In 2014 the City Council authorized reapplication for six redesigned zones. In 2016 Chicago’s the six zones (I–VI) were officially re-designated for a 15-year terms, set to expire in 2030.
The six enterprise zones are spread across different parts of the city, each targeting distinct economic needs. Chicago I is the area on the West Side, including portions of East Garfield Park and North Lawndale. Chicago II anchors parts of the South Side, particularly neighborhoods facing industrial decline. Chicago III stretches into the far Southeast Side, including corridors around Calumet industrial areas. Chicago IV includes parts of the Southwest Side, often overlapping with older manufacturing districts. Chicago V encompasses areas on the Near West Side and parts of the West Side, spanning predominantly urban neighborhoods undergoing both light industrial and commercial revitalization. Chicago VI covers parts of the South Side, including critical industrial and transportation corridors, likely near railway and infrastructure hubs.
Together, these zones are meant to balance industrial preservation with commercial growth, spanning disinvested corridors and job centers. The core incentives are uniform across all Chicago enterprise zones because they are mandated by the Illinois Enterprise Zone Act. The following state level incentives apply to all zones.
- Sales Tax Exemption on Building Materials – 6.25 percent state sales tax, plus city and county exemptions, totaling up to 9.25 percent.
- Machinery & Equipment Sales Tax Exemption – For manufacturing and pollution control equipment.
- Utility Tax Exemption – On electricity, natural gas, and telecom services tied to qualifying investments.
- Investment Tax Credit – 0.5 percent credit against Illinois income tax for investments in qualified property.
- Jobs Tax Credit – $500 credit per eligible job created, often tied to hiring residents of the zone.
- Dividend & Interest Deductions – Tax relief for income tied to zone activity.
- Contribution Deduction – Businesses can deduct double the value of contributions to approved zone projects.
While the state incentives are uniform, the city-level add-ons differ by zone, depending on community needs and aldermanic priorities. These are the main add-ons that Chicago offers:
- Waivers of Business Permit and Licensing Fees.
- Zoning & Permitting Streamlining to reduce bureaucratic hurdles.
- Real Estate Transfer Tax Exemptions for qualifying properties.
- Property Tax Abatements on improvements
Enterprise zones have been credited with the redevelopment of vacant industrial corridors, by helping manufacturing firms to lower costs of equipment and utilities, supporting commercial rehabs in struggling retail corridors and leveraging private investment by reducing upfront construction expenses. Supporting commercial rehabs in struggling retail corridors seems to be putting the cart before the horse. Retail usually vanishes due to being in a high crime area. Until that problem is at least partially solved it would be a waste of time and money. According to state reporting, businesses inside Chicago enterprise zones have invested in improvements since 1982. The building material sales tax exemption alone has been one of the most used incentives, saving developers millions annually. Enterprise zone #3 has probably been the biggest recent success story regarding enterprise zones in Chicago. The Method Soap Manufacturing facility, the Whole Foods Distribution Center and Gotham Greens, a former industrial brownfield site, is now an indoor farming facility. All of them are in Pullman Park.
Despite their longevity, enterprise zones face significant criticism. One criticism is that incentives often benefit developers who would have built anyway. The six zones are in areas that are in dire need of development. That is a criticism that is more in line with TIFs. Another criticism is that employment gains are smaller than projected. We don’t believe that selling jobs is the right approach. You don’t want jobs where you dig a hole and then fill it back up. If jobs are a side effect of the development, then that’s great. Yet another criticism is that while zones can encourage investment, they rarely transform struggling neighborhoods on their own. There is no magic wand in the real world. The best that can be hoped for is reduction in blight. Once that happens there is the possibility neighborhoods can improve incrementally. Finally, some critics fear a neighborhood will become gentrified. What a tragedy that would be, a wasteland turning into a productive tax paying neighborhood.
The current six Chicago enterprise zones are set to expire in 2030, unless the city reapplies for renewal. That raises big questions. While enterprise zones are not exactly something that Milton Friedman or Thomas Sowell ever would have dreamt up, you need to remember that Chicago isn’t exactly Singapore or Hong Kong. It is a city with a culture where the public sector drives the bus. Enterprise zones are giving breaks to the private sector. By making their lives a little less onerous hopefully a private sector chain reaction can take place. As policymakers weigh these options, neighborhoods remain an important, if imperfect, piece of Chicago’s economic development toolkit.
The alternative to improving the lot of impoverished neighborhoods is turning to the public sector for action. Look at the job they have done with housing and education. Enterprise zones are a small step that at least will not be harmful, unlike the public sector’s war on poverty, which resulted in a war on the poor. Chicago first needs to clean up its crime problem. Next, the best idea would be to make the entire city an enterprise zone. As it is, we’ll have to settle on Chicago Zones I-VI.
