Reporting

June 25, 2013 by John Guenther

Business groups react to Enterprise Zone reform bill


Gov. Jerry Brown's proposal to remake the Enterprise Zone program moved ahead as AB93 (Photo Credit: Charlie Kaijo/Flickr)

Business groups have been busy reacting to a deal to move ahead Governor Jerry Brown's reform of California's $700-million enterprise zone program, set for a vote today.

Contained in bill AB93, the deal would adopt Brown's main reform ideas and retain the same 40 zones from the current Enterprise Zone (EZ) business incentive program but with a reduced hiring tax credit.

The bill passed out of the Senate budget committee Monday and will hit the state Senate floor for a vote today at 4:00 p.m.

But supporters of the current EZ program voiced their concerns over the big changes to the 27-year old program, calling it an elimination of a valuable program and decrying what they see as a lack of local involvment or debate on the issue.

"This bill artificially creates winners and losers," said Craig Johnson, president of the California Association of Enterprise Zones, a nonprofit that promotes job creation in the zones. "And the fact that there is absolutely no local involvement in the decision-making process, I think that's a real problem."

Earlier this month, the Los Angeles Economic Development Corporation and other organizations crafted a letter to oppose eliminating the EZ program as it stands today. David Flaks, chief operating officer at the LAEDC added today "it is critically important that the Legislature and Governor engage in a more open and deliberative dialogue with the business and economic development communities—scores of whom signed onto a June 20th letter urging the Governor to engage in a more public and transparent process regarding his three replacement proposals—before eliminating enterprise zones, which remain the last authentic and tested business incentive we have to offer in the State of California."

The new-look EZ program contains Brown's three main reform proposals, including a sales tax exemption on equipment for manufacturing and biotech, the ability for the Governor's Office of Business and Economic Development, or GO-Biz, to award a limited amount of tax credits on a case-by-case basis, and thirdly, a hiring tax credit for economically distressed census tracts.

"California's thirty-year-old Enterprise Zone program is not enterprising, it's wasteful. It's inefficient and not giving taxpayers the biggest bang for their buck," said Brown in a statement on the proposal. "There's a better way and it will help encourage manufacturing in California."

The deal announced on Monday would also include the 40 current zones in the calculations but the revised hiring tax credit would apply only to employers that pay between 150 percent and 350 percent of the minimum wage, which is $12 to $28 an hour.

Johnson noted this new version of the hiring tax credit would equal the difference between $12 and the employee's wage. The credit would therefore be $4 an hour if the wage was $16, which he argues is a number small enough to make companies pass on it. He also is concerned about the exclusion of temp employee jobs, retail and food service jobs from the new program.

"And so now you're shrinking this pool of folks who are looking for work and now employers are going to be less inclined to give that hand up to those who are struggling to find work," said Johnson.

Brown introduced his reforms in January and the conversation about Enterprise Zones took off, with some calling for eliminating the program, using a 2009 PPIC study that discounted the EZ's effect and often using the story of a strip club that got a tax credit.

But business groups have fought back, touting the value of that the current EZ program brings to job creation and retention.

"In 2012, Enterprise Zone employers created more than 25,000 new jobs and retained another approximately 115,000 jobs statewide," said "Now I think, by any measure, you would call that program successful."

Kish Rajan, the director of the governor's economic development office, GO-Biz, told CAeconomy recently that the governor's proposal was designed to be more focused on creating jobs in areas most hurt by recession and in the manufacturing sector, seen as an area with a big multiplier effect.

"We want to take the existing enterprise zone program which has been really important to target  businesses in distressed areas, we believe in that principle and want to preserve that part of that program, but build on it with a new sales tax exemption for the procurement of equipment for manufacturing and biotech-related industries," said Rajan. "That would give those companies an immediate discount."

The Enterprise Zone changes are part of efforts since Brown took office to improve the business climate in California, including a reorganization and refocusing of the GO-Biz office.

The California Economic Summit is continuing the conversation on ways to make California more competitive in creating jobs and just wrapped up its series of regional forums. Ideas and priorities from the regions will give the second annual California Economic Summit an opportunity to advance common-sense initiatives to help Californians do business. 

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