Pacoima a Stroke of Luck for Golf Firm : Business: Club maker finds tax breaks, big labor pool in enterprise zone.

When Michael Cheng decided to move his golf club shaft business to Pacoima, his friends were blunt: “They said, ‘You are going to Pacoima? You are going to get killed,’ ” recalls the president of Harrison Sports Inc.

Cheng didn’t buy it. In a reversal of what’s become a familiar trend, he has moved the manufacturing operations of Harrison Sports from Taiwan to one of Los Angeles’ most troubled neighborhoods--passing over Arizona and such Mexican cities as Nogales and Tijuana, where workers can be hired for a dollar an hour.

The decision makes Harrison Sports one of the larger businesses in recent years to take advantage of the Pacoima Enterprise Zone, a state program that offers employers tax breaks to help develop poor neighborhoods.

Cheng is convinced that, despite Pacoima’s reputation for drugs and violent crime, the building he has leased there will give Harrison Sports an edge on Third World rivals--including a competitor that manufactures shafts in Bangladesh.

“Yes, the labor costs here are higher” than Tijuana, he said. “But this way, we don’t have to travel down there, we don’t have to be subject to the instability there and we can enjoy all the niceties of a metropolitan area. . . . Bangladesh is not L.A.”

The state’s 34 enterprise zones--five of which are located in Los Angeles--were created in 1986, springing from Reagan-era ideology that favored incentives for private industry over expensive public projects.

Recently, the zones have been overshadowed by President Clinton’s ‘empowerment zones,’ a new community development program for blighted urban areas. Los Angeles is not getting an empowerment zone, but it is getting a substantial package of related aid.

Meanwhile, the enterprise zones keep trudging along. What sporadic attention they have drawn has often been critical. Although proponents contend the zones create jobs, detractors say they are ineffective. Many eligible businesses don’t use the tax breaks, or even know they exist, they say.

But since no thorough study has been done on Pacoima, there is no hard data to back either point of view, said Alex Nuno of the Los Angeles Community Development Department. Nuno has administered the program for years, working in a sparse office in a Pacoima mini-mall with no sure sense of the impact he’s making.

So in the absence of data, he relies on anecdotes. By that measure, Harrison Sports figures as one of the zone’s most significant victories in recent years--although by no means the only one, he said.

Cheng has already conducted large-scale interviews to hire new employees, many of whom will come from the local neighborhood. Some of the jobs are salaried. Others pay just $4.50 per hour.

Because the enterprise zone offers a hiring tax credit of up to 50% on certain employees, Cheng says he expects to pay virtually no state tax on his workers during his first five years. This means substantial savings.

It also means good fortune for Josephine Lopez, who Cheng just hired as a full-time receptionist at $4.75 an hour. Lopez has lived in Pacoima all her life, and agrees with those who say the area needs help. “There’s gangs and drugs--a lot of stuff,” she said.

Lopez lives just blocks away from her new job--a good thing, since she doesn’t have a driver’s license. At 16, she is basically on her own, living with two sisters with whom she shares household expenses.

Harrison was the only place that did not turn her away in her search for work, she said. Now, her neighborhood friends are envious. “I gave applications to all of them for jobs here,” she said. “They all say, ‘You have a job? Get me a job, get me a job,’ ” she said.

Harrison Sports’ 30,000-square-foot plant south of the Simi Valley Freeway will serve as both a headquarters and a factory. It will eventually employ about 60 people, 40 of whom are new hires, Cheng said. Harrison Sports has spent months renovating the property, and will fire up its machines as soon as it receives a final go-ahead from city inspectors.

Previously, the building stood empty, he said. Every window was broken. The parking lot was sprinkled with bullet casings. Even now, the curbs of the street outside are decked with graffiti.

The company has overhauled the building inside and out, put in security gates and joined the local Neighborhood Watch group, Cheng said. He attacks the area’s reputation with gusto. “There is way too much stereotyping. There is no justification for it,” he said.

Cheng, 36, is a corporate executive who darts around his newly painted hallways in khakis and a polo shirt. He seems often to be three places at once--everyplace, in fact, except cloistered in an office. Sports equipment is a business here and a lifestyle: Cheng says he plays golf with his employees every Thursday, and softball each Tuesday.

Cheng started Harrison Sports with a group of golfing buddies a decade ago. “All golfers like to fool around with their equipment, change it, custom-fit it. . . . But we went one step further,” Cheng explained. At first, the partners, who included both business types and engineers, worked during their off-hours in Cheng’s garage.

Their product, shafts for golf clubs made out of new, lightweight composites instead of steel, were then revolutionizing the golf club industry. Numerous competitors were already making graphite shafts for big club manufacturers such as Calloway Golf Co. and Taylor Made Golf Co.

So Harrison focused instead on custom-made clubs--a small but growing segment of the market. The partners began providing the shafts to pro shops that assembled them into clubs for customers. They lost money for three years, and made it all back in the fourth, Cheng said. Today, Harrison sells shafts in 25 countries. He is tight-lipped about the company’s finances but claims more than 7,000 accounts.

Still an avid golfer, Cheng is also a naturalized citizen from Taiwan and an unabashed L.A. enthusiast who rhapsodizes about L.A.’s cultural life, its ethnic diversity and especially, its restaurants. “I love this city,” he said. “I enjoy every bit of it, the good and the bad. Even O.J. It’s part of the variety of this city, the excitement of it . . . it’s the center of the world.”

But sentiment alone was not enough to keep him in L.A. When he first realized the company would have to switch from its network of vendors in Taiwan to meet growing production demands, Cheng took a more typical approach: He looked first to Arizona, then to Mexico.

Harrison Sports was a week away from signing a contract to lease space in Tijuana when Cheng struck up a conversation with city officials and was put in touch with L.A. Mayor Richard Riordan’s newly launched L.A. Business Team, a city agency charged with retaining employers.

Cheng credits the Business Team with introducing him to the enterprise zone program and with keeping him in L.A. “The assistance I got, you wouldn’t believe it,” Cheng said.

The Pacoima Enterprise Zone covers about seven square miles extending southwest from Foothill Boulevard and northeast from the Golden State Freeway. Besides the income-tax credit, incentives for moving into the area include tax credits on equipment and machinery purchases and a 25% discount on electricity costs. The city also helped Cheng get what he called a small but significant economic-development loan to move in.

Brokers say they routinely use the enterprise zone as a selling point to attract clients to Pacoima. Brad Koehler, a broker with Encino-based Seeley Co., said the combination of the tax breaks, low rents, abundant low-skilled labor and good freeway access has kept vacancy rates at 9.3% in the East Valley compared to 10.6% in the more prosperous west San Fernando Valley.

Alan Berns, a broker with Charles Dunn Co. in Encino, said he is now seeking a Pacoima property on behalf of a Midwest firm that plans to build a factory employing as many as 500 people. The company took pains to ask for an enterprise zone, Berns said. “They know the savings, and they tell me on labor it’s unbelievable,” he said.

Still, he added, “a lot of businesses don’t know about [the enterprise zone], don’t take advantage of it, or aren’t interested.”

Business owners in the zone say the tax breaks are effective but only go so far. “Anything helps,” said Terie Stokes, controller of WMC Corp., an industrial sewing machine firm in the zone. “But [the zone] is not why we are here. We are here because of the labor pool and the convenience” of the location, she said.

The tax breaks “matter a whole lot,” said Walt Mosher, president of another enterprise zone company, Precision Dynamics Corp., a medical supply firm. But Mosher is thinking of expanding out of state, anyway. Tax breaks “may have taken some of the pressure off incentive to move, but incentive to move is still pretty strong,” he said, adding “I have been offered free land in Kansas.”

Numerous proposals have been made on the state level to sweeten the deal for enterprise zone companies. The state Assembly Taxation and Revenue Committee has scheduled a public hearing Nov. 8 in Long Beach to examine them.

Enterprise zones should be regarded as a tool, not a cure, cautions Margaret Wilder, a professor of urban planning at State University of New York in Albany. Wilder, who has studied the zones nationwide, said many are success stories, “but that’s not to say a zone will suddenly stop gang warfare.”

Cheng, though, remains a firm believer. His challenge now will be to stay ahead of a fierce bevy of competitors who pay low wages overseas.

Investing in computers and labor-saving machines will help him close the gap, he said. Despite the greater initial expense, he is adamant that going abroad would have been a timid choice. Companies should give the city another chance, he said. “My feeling about American industry is that people give up too early,” he said.

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Pacoima Enterprise Zone

A golf-club shaft business called Harrison Sports is one of the larger businesses to take advantage of the Pacoima Enterprise Zone. The zone, the centerpiece of President Clinton’s urban revitalization efforts, provides tax breaks, grants and social services programs. It includes a 2.4-square-mile area of Pacoima that has been plagued by poverty and high unemployment rates for years.