Real Worth of Enterprise Zone Status Debated : Pacoima: Tax credits and a smoothed permit process don’t justify added red tape, some firm owners say. Others report that they didn’t know about the program.
As a state-designated enterprise zone, grimy, graffiti-scarred Pacoima is supposed to be a business Eden where wary investors are lured by tax credits to set up shop and hire the unemployed.
But four years after its birth, Pacoima’s enterprise zone has a mixed record of success that is similar to that of the other four such zones in economically depressed areas of Los Angeles.
Even so, the experience of California and Los Angeles with enterprise zones has become topical as policy makers seek new cures for the nation’s inner-city ills in the wake of the Los Angeles riots.
In a meeting Friday in Los Angeles, President Bush told Los Angeles Mayor Tom Bradley of his interest in creating nationally recognized zones where qualifying businesses would be stimulated by federal tax credits. Bradley is set to testify before a U. S. Senate fact-finding panel this week in support of establishing such a federal program, a spokeswoman said.
But is the state’s program working?
To be sure, Pacoima has seen a spurt of industrial activity since 1986. Witness, for example, a two-block-long strip of Norris Avenue. Once a jumble of dilapidated homes and marginal back-yard businesses, it is now lined with concrete warehouses and industrial buildings trimmed with bright colors.
But the revival of Norris Avenue or Sheldon Street or Glenoaks Boulevard cannot be easily linked to the tax lures of the enterprise zone, according to area business people.
Even its government managers doubt that the tax incentives, including a state income tax credit for hiring the unemployed, have been responsible for Pacoima’s fragile industrial rally.
“In all honesty, I wouldn’t be so bold to say that businesses are moving here only because of this,” said Alex Nuno, city coordinator of the Pacoima zone.
Indeed, some of Pacoima’s notable industrial newcomers were completely unaware of the tax incentives. And some who knew of the tax breaks had not taken advantage of them because they were leery of government red tape.
Signs of renewal are also hard to find on Van Nuys Boulevard, Pacoima’s main street. Here, mom-and-pop businesses, many owned by Latino merchants, seem untouched by the breeze of revitalization blowing through the community’s industrial sections--even though both areas are in the enterprise zone.
“I’ve been frustrated with the way the program’s been handled in Los Angeles myself,” said Assemblyman Pat Nolan (R-Glendale), author of the 1986 law that created the enterprise zone designation.
Enterprise zone officials in Sacramento, who have no administrative control over Los Angeles, say the city has a lackluster record and cite annual reports showing that the Pacoima zone has created only 212 jobs in the past four years. The zone in Watts has created 159 jobs, and the Central City zone, south of the city’s thriving downtown area, only 220 jobs during that period.
Most of those are low-skill assembly, warehouse or manufacturing jobs paying the state minimum wage of $4.25 per hour or slightly more.
The weak job-creation record should not be interpreted to mean that the state’s enterprise zone program is a failure, said John King, marketing director for the state office in the state Department of Commerce. Rather, he said, it marks a failure by the city of Los Angeles to market the program.
“City officials don’t want to get off their dead butts,” King said.
Los Angeles officials and some Pacoima business owners say that assessment is unfair.
They say the city offers incentives beyond those sponsored by the state, including help in getting City Hall permits and utility rate discounts to persuade businesses to locate in Pacoima. Given time, the city’s enterprise zone program will bear heartier economic fruit, its adherents say.
Defenders also say it’s unfair to compare the city’s record of creating jobs in the enterprise zone with that of other, less urbanized areas of the state such as West Sacramento or Barrio Logan in San Diego. State officials say those areas have attracted up to five times as many jobs as any of the Los Angeles zones and are models for how the program should work.
Meanwhile, policy-makers and congressional fact finders have begun looking to California for guidance in shaping a federal enterprise zone plan.
Under such a plan, California businesses in the zones would get federal income tax credits in addition to the break they get on their state returns.
The city’s enterprise zone program began in 1988 in earnest in five areas: Pacoima, Watts, the Central City, the East Side and Wilmington-San Pedro. Statewide, there are 29 enterprise zones.
In California, the juiciest incentive to do business in an enterprise zone is a $19,110 tax credit over five years for each state-certified unemployed person hired. Other incentives enable manufacturers to take a state income tax deduction for the state sales taxes paid on some equipment purchases and offer banks tax breaks for lending to enterprise zone businesses.
To win state approval to set up its enterprise zones, the city also had to pledge to provide business sweeteners of its own.
These included making it easier for new businesses to get building permits and creating a low-interest loan fund. But an audit of that program due out in the next month will sharply criticize the city for making too few loans, sources said.
Even so, business owners said that in some cases, the city’s incentives were more effective in encouraging new business growth than the state tax breaks.
It is indisputable that there has been some new business activity in Pacoima’s 6.7-square-mile enterprise zone in recent years, said John Gallarza, manager of Trans World Bank’s Pacoima branch and a member of a local advisory panel to the zone staff.
Even though the city has reported to the state that businesses in the area are taking tax credits for 212 workers, Reynold Blight, head of the citywide enterprise zone program, said the actual number of new jobs is far higher.
Many businesses in the area may not be willing to bother with the hassle of receiving the credits, he said.
“Maybe we’re having our cake and eating it too--that is to say, it’s not costing us anything in lost tax dollars and we’re putting the unemployed to work,” Blight said.
To get the credits, businesses must hire unemployed workers who meet certain hardship criteria or who have completed government-sponsored welfare or job-training programs.
Many businesses in Pacoima find it simpler to just hire from the ready market of people who line up outside any time a sign is posted saying there’s work available, Nuno and Blight said.
Harvey Greenberg, president of Pens Plus Inc., a firm in the enterprise zone, said he was skeptical of taking advantage of the tax credits.
“We small entrepreneurs don’t want to report to anybody,” Greenberg said. “I want to be able to hire anyone I want and fire them when I want.”
Qualifying for the credits requires retaining the employees for certain periods and keeping certain records.
Still, others are sold on the advantages of the zone.
George Lanning, owner of B & J Metals, an aluminum distributing company in Pacoima, is one such enthusiast. Lanning has built more than half a dozen industrial-commercial projects in the enterprise zone.
He said his marketing of those properties emphasizes their location in the enterprise zone.
“Absolutely, we highlight it,” he said.
Lanning also recently got help from enterprise zone officials and City Councilman Ernani Bernardi, who represents the area, when he needed a community plan amendment and zone change to permit him to build another industrial-commercial complex on Osborne Street.
Although it was opposed by city planning officials and Bradley, Bernardi and Nuno pushed for it because they believed that Lanning’s project would further the enterprise zone goals.
Also part of the growth of industrial businesses in Pacoima is ceramics maker Jules Fogel, who moved his company last year from Culver City to hardscrabble Pacoima, and jewelry manufacturer Leonard Shriver, who moved his plant and its 400 workers from Alhambra last month.
Like executives everywhere, these two were looking to increase profits and lower overhead by moving to Pacoima, where land and labor costs are relatively low. But they were also tempted, at least in some small measure, by the lures of the enterprise zone, they said.
Fogel, whose Jaru Inc. has 11 employees, said he met with enterprise zone officials before deciding to move to Pacoima. Afterward, he said, “we felt there was going to be a spirit of cooperation here that we wouldn’t find elsewhere.”
Later, Nuno proved that Fogel’s optimism was well-placed when Nuno helped expedite the issuance of permits needed to install gas lines for Jaru’s ceramic kilns.
Although Fogel has not taken hiring tax credits, he is seeking tax deductions available under the enterprise zone program for his purchase of new manufacturing equipment--in his case, his expensive kilns.
Shriver, president of Accessories du Jour Inc., maker of costume jewelry, said the enterprise zone was “not a deciding factor in our decision to move to Pacoima, but it had some weight.”
Accessories moved to Pacoima recently and is preparing to hire about 200 workers in the next few months, Shriver said. He said he will consider applying for tax credits for those new employees.
Dick Wolowiec, owner of Fantasy Lingerie Inc., set up shop in Pacoima in 1989 with the help of a $140,000 working capital loan from the city, but has taken no hiring tax credits for his 118 employees.
But for every sign of the enterprise zone being a plus for businesses, there are other signs that it may be irrelevant.
Mike Belio, owner of Mianna Orthopedics Inc., a firm with 25 employees that moved from Sun Valley to Pacoima four years ago, said the enterprise zone played no role in the decision to relocate.
In fact, Belio said he had been in Pacoima for two years before he learned about the tax credits, which he has now claimed for four employees.
“No one came out and explained these programs to us,” he said.
Greenberg, whose Pens Plus firm moved with its 70 workers into the enterprise zone in 1988 from North Hollywood, said he learned only last week that he was in the enterprise zone.
“One of things we’re battling against is our own anonymity,” Nuno said. “We’re not like Coca-Cola with huge advertising budgets to get on TV or whatever. People don’t know we’re here.”
Company: B & J Metals Inc.
Product: aluminum distribution
Owner: George Lanning
Employees: not available
B & J Metals Inc. was already in the area when the zone was established. The company has built and leased or sold nearly a dozen industrial properties there, using the zone’s attributes to market them to tenants or buyers.
Company: Jaru Inc.
Product: ceramic sculptures
Owner: Jules Fogel
Employees: 11
Jaru took an enterprise zone business expense deduction when it bought kilns. The company moved from Culver City to Pacoima in mid-1991, partly because Fogel believed that the zone staff would help him achieve his business plans. He later got help with the installation of new natural gas lines.
Company: Accessories du Jour Inc.
Product: costume jewelry
Owner: Leonard Shriver
Employees: 400
Accessories moved to the zone last month from Alhambra, partly in anticipation of receiving tax credits for an expansion that could involve more than 100 new jobs.
Company: Mianna Orthopedics Inc.
Product: medical devices such as arm slings and ankle braces
Owner: Mike Belio
Employees: 25
Mianna receives tax credits for four employees hired after the company moved to the zone in 1988 from Sun Valley. Belio was unaware that the zone existed, however, prior to the move.
