Special Zones Offer Firms Tax Breaks and Other Incentives
Foremost Industrial Exchange was considering moving out of its plant in Van Nuys until the company’s accountant pointed out the advantages of staying put. The industrial tool maker found out the firm could take advantage of certain tax credits just because of where it was located--in a state-designated Revitalization Zone.
Businesses located within parts of Pacoima, Van Nuys, Panorama City and North Hollywood can take advantage of state tax credits for construction work or hiring employees who are residents of these zones. The Revitalization Zone, established in May, 1992, also offers special tax credits toward future profits for businesses operating within the zone.
“The credits can add up to huge savings and a lot of accountants don’t know of the advantages available,” said Karen Hartsfield, a CPA at Century City accounting firm Altschuler, Melvoin & Glasser. Foremost Industrial didn’t decide to stay in Van Nuys just because of the tax credits, Hartsfield recalled, “but it was an encouragement to stay.”
Another client, Hartsfield said, was able to get $900,000 in state tax credits last year by doing business in a Revitalization Zone. That enables the company to generate up to $900,000 in future tax liability, she said.
The Revitalization Zones are just one of the several types of special zones in the city offering tax breaks and other special incentives to many businesses and property owners.
“Companies are often in the dark about the incentives available to them,” said Reynold Blight, manager of program operations for the Los Angeles Community Development Department, which has an office in Pacoima. “Probably not many businesses have moved into the Revitalization Zones because of the tax credits,” Blight conceded. But the various incentives help to buoy an area and keep businesses from moving away, he said. “The incentives tell people we are interested in having them and keeping them.”
Enterprise Zones are specific geographic areas within the city of Los Angeles designated by the state as needing commercial revitalization and investment. Five areas have been designated Enterprise Zones in Los Angeles, including a 7.5-square-mile area of Pacoima in the north San Fernando Valley. Pacoima is the only Enterprise Zone in the Valley, with 20% of its population in poverty, according to the 1990 U.S. Census.
A business located in Pacoima may qualify for reduced state taxes, low-interest financing, job training programs, various tax credits to apply against future profits, and special tax credits for buying certain equipment and hiring certain employees.
Government assistance is also provided in the form of loan packaging, business counseling, site location and other counseling. City departments are authorized to streamline the construction approval process in an Enterprise Zone by expediting building permits and waiving certain building and zoning rules.
The Department of Water and Power offers Revitalization Rate discounts of 25% for businesses within an Enterprise Zone. Information about this utility discount is available by calling the city’s Community Development Department at (818) 899-1053.
The Los Angeles Community Redevelopment Agency has another type of special zone, called the North Hollywood redevelopment area, which covers 740 acres and uses various funding sources to try to remedy conditions of blight. Money has been used to help build the Television Academy of Arts and Science office project, various public improvements, new rental housing and--most recently--a new shopping center at Vineland Avenue and Magnolia Boulevard.
“Neighborhoods go through a certain cycle,” said Don Spivak, director of operations for CRA, which has an office in North Hollywood. “At one time North Hollywood was a booming area. As it developed and as the suburbs evolved, investment leapfrogged out of there to other areas.” The aim of the CRA in North Hollywood is to revive construction and provide incentives for residents and businesses to rebuild.
The CRA has been funded over the years by a Byzantine variety of federal, state, county and city funds from: Community Development block grants, Economic Development Administration funds, Urban Development Action grants, Title I urban renewal funds, proceeds from the sale of notes and bonds, land sale proceeds and something called local tax increment financing. This financing works by directing a sizable portion of property tax revenue within the redevelopment area back into the area.
Several other types of business incentive zones may also soon make their debuts in Los Angeles.
Empowerment Zones and Enterprise Communities are part of the Clinton Administration’s program to aid cities. There will be a total of six Empowerment Zones nationally and 65 Enterprise Communities. It is likely that at least one Empowerment Zone will be established in Los Angeles, which may include Pacoima.
The Empowerment Zones and Enterprise Communities will offer wage credits for zone employers who hire employees living in the zone. There is also priority access to various federal programs and increased availability of tax-exempt facility bonds.
Finally, look for upcoming Earthquake Disaster Assistance Redevelopment Projects. The CRA is being asked to develop these projects using state Community Redevelopment Financial Assistance. The idea behind these project areas is to offer grants, loans and other assistance to aid in reconstructing residential, commercial and industrial areas damaged by the Northridge earthquake. Similar to other CRA areas, the projects would utilize tax increment financing.
If approved by the Los Angeles City Council, these projects would cover large portions of Sherman Oaks, Reseda, Canoga Park and Northridge. “At this point we don’t know the precise parameters,” said John Spalding, CRA director of policy planning. “The major objective is to give people faith in their neighborhood.” The CRA plans to report back to the city about implementation of the earthquake-related zones by the end of September.