Break Zone Ahead : Santa Ana Enterprise Area a Success Story in State Program

Last summer, Ernie Rodriguez was so close to relocating his plastics company from Santa Ana that he had already picked out a site in Corona. But by fall, Rodriguez had decided to stay put.

He credits his change of heart to Santa Ana’s enterprise zone, which, through various tax incentives, will probably save his 50-employee company, Southern California Plastics, at least $25,000 this year in state business income tax--and much more in the future.

“It’s a pretty good chunk of money,” said Rodriguez, an immigrant from Argentina who bought his business nine years ago for $150,000.

Rodriguez is one of about 90 business owners who have signed on with the enterprise zone, helping make the program highly successful in its first full year of existence.

Since the city received the special economic designation in June, 1993, Santa Ana officials say the program has helped create or save 540 jobs, has filled up much of the city’s vacant industrial space and is expected to reduce the state tax burden to participating companies by at least $3.4 million--enabling them to pump those dollars back into their businesses and the community.

State officials say those 540 jobs--most of them in manufacturing and some paying annual salaries as high as $71,000--mark the most in a single year for any of the state’s 34 enterprise zones.

“Santa Ana is one of the top performers in the program right now,” said Sam Paredes, director of California’s enterprise zone agency in Sacramento, which over the years has taken some heat for not being more effective.

The state’s enterprise zone program, which started in 1986, is intended to give economically depressed areas a boost by offering state income tax breaks to businesses. Santa Ana, with Orange County’s highest jobless rate--10.2% for June--is the county’s only city to be designated an enterprise zone.

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Most businesses in California must pay a state income tax of 9.3%. But companies in enterprise zones can reduce the tax by as much as $1.3 million a year if they buy machinery and other equipment.

Also, companies can earn as much as $19,000 for each employee over a five-year period by hiring certain categories of people, including those with low incomes or those who have lost their jobs through layoffs or plant closings. The program also includes incentives for lowering business expenses.

From 1986 to 1993, the program statewide helped create or save almost 39,000 jobs. But some zones, especially those in economically depressed areas of Los Angeles County, have been criticized for failing to create much interest, let alone jobs.

“They just weren’t high-priority,” Jack Kyser, economist for the Economic Development Corp. of Los Angeles County, said of the zones.

State and city officials, as well as local business owners, attribute the early success of Santa Ana’s zone partly to aggressive marketing by the city.

Sandi Gottlieb and Bonnie Birch, the city’s two full-time officials working on the program, say they have mailed out tens of thousands of brochures and spent $30,000 in advertising.

The city “took the program very seriously,” said Hal Duensing, who runs Long Beach’s highly rated enterprise zone, which helped create or keep 350 jobs in 1992, its first year of operation.

Another advantage was that Santa Ana started out with an ample supply of available industrial space. The Altadena-Pasadena enterprise zone, for example, has had a tough time attracting new businesses or helping existing ones expand because its industrial real estate is pretty well developed, officials said.

In addition, Santa Ana’s zone is huge, encompassing about 6,200 acres, or 98% of the industrial space available for lease in the city. Most of the zone is in southeast and southwest Santa Ana, with the largest stretch along Main Street.

Just before the zone was formed, Santa Ana had about 4 million square feet of vacant industrial space, according to CB Commercial in Anaheim. That has since dropped to 2.6 million square feet, a decline brokers attribute to firms such as GT Bicycles, which left Santa Ana years ago but came back after the zone was created, and California Connection, an apparel maker that moved much of its Los Angeles operations to Santa Ana to take advantage of the enterprise zone.

For those and other companies, city officials estimate the total tax credits for hiring certain categories of workers to be $3.4 million in the first year. Those businesses are also expected to reap millions of dollars more in tax credits for the purchase of machinery.

Mark Press, owner of Gold Coast Baking Co. in Santa Ana, was skeptical when he filled out the paperwork for the program last year.

“At the beginning, I was an agnostic,” said Press, who started his business five years ago with one small oven and one employee. “I said, ‘Yeah, right, the government’s going to help someone grow a business.’ ”

But since then, he has moved to a bigger site in the enterprise zone, bought two tunnel ovens at a total cost of $450,000 and hired 50 employees--23 of them through the enterprise zone program--for positions that include maintenance and production.

Press said that for its fiscal year ended April 30, his company paid just $800 in state income tax--the minimum amount. How much did he save? While declining to be specific, Press said that without the zone benefits, his state tax bill would have been in the “high five digits.”

Gold Coast Baking now has 93 workers, and Press expects his company’s revenue to reach $10 million in the current fiscal year.

“It’s allowed me to take those dollars and put it into new equipment,” Press said of the enterprise zone. “I think this program goes further for the state of California in turning around its negative business climate image than anything else I’ve seen.”

Enterprise Zone Thrives

Businesses within the Santa Ana enterprise zone receive state tax advantages and other economic incentives. The year-old zone, the only one of its kind in Orange County, is one of the most successful in California.

State-Provided Incentives

* Up to $1.3 million in sales tax credits a year for purchase of machinery and equipment

* Up to $19,000 per employee in tax credits over five years for hiring certain workers who have lost their jobs

* No tax on interest earned on borrowed funds

City-Provided Incentives

* Hiring assistance

* Economic development advice via toll-free number

Source: City of Santa Ana. Researched by JANICE L. JONES / Los Angeles Times