District Mayor Marion Barry yesterday proposed creating incentive zones to provide tax breaks and other benefits to businesses locating in the District and hiring city residents.

Under the proposal, tax credits would be available for businesses already located in designated zones and those that move there, according to the mayor's office. The zones would be selected by a seven-member Zone Authority appointed by the mayor. The measure was proposed to the city council a day before the body was scheduled to begin its month-long vacation.

The program is supposed to coincide with the federal enterprise zone program intended to lure businesses to disadvantaged areas with tax breaks. However, a spokeswoman for the city's Office of Business and Economic Development said the city wants to go ahead with its own program regardless of what the federal government enacts.

Businesses would be available for a tax credit of:

* Ten percent of wages paid to any District resident.

* Fifty percent of contributions to nonprofit groups with development projects for the zone.

* Fifty percent of wages paid to any disadvantaged District resident employe.

* Fifty percent of capital contributions made to a business development corporation formed to lend money to or make investments in businesses within the zone.

* Twenty-five percent of the amount a business in the zone contributes toward worker's compensation for any District resident working within the zone.

In addition, the Zone Authority would make grants provided by city and federal funds to improve landscaping, lighting, roadways and public utilities around the businesses in the zone, the mayor's office said.

One city employe would assist zone businesses with licenses and permits and an employe would help with other zone business such as technical assistance and employment services.

The zone would be selected based on whether the land was vacant; the community supported the project; commitments were received from business, private industry and labor about locating within the zone; and whether the area could be eligible for federal benefits under the federal enterprise zone program.

The city is planning to have a cost-benefit analysis done to determine the effect of the tax credits on the city's precarious finances. Tax credits are traditionally avoided by many governments because they are revenue losers.

However, the spokeswoman said, in the long run the city should benefit financially from additional tax revenues from businesses locating in the zone and employing city residents.

"Our own studies have shown that businesses would respond positively to the kinds of incentives which would be provided under the zone system," Barry said. "We would be encouraging employers, through tax incentives, to provide a significant number of new jobs for District residents; an expanded job base, which would broaden opportunities for our residents, especially young people; increased services to the community and increased revenues."

The city council is not expected to take any action on the legislation until it returns after Labor Day, according to a spokeswoman for the city business development office.