Jerry Brown targets enterprise zone program
SACRAMENTO — During his State of the State address last week, Gov. Jerry Brown detoured from his high praise for state government’s recent thrift to take aim at a program that he says wastes hundreds of millions of tax dollars.
Brown’s previous efforts to scale back or eliminate the $700-million Enterprise Zone Program gained little traction with lawmakers. The program, which gives employers tax credits of up to $37,000 for each hire they make in areas designated as blighted, has survived despite numerous studies concluding that it does little to create jobs or development.
Many businesses that receive the credits are in tony neighborhoods where there has been no blight for years. Tax breaks are going to companies in such places as San Francisco’s trendy SOMA district and sections of city waterfront where real estate prices are stratospheric and Michelin-starred restaurants abound.
Parts of Santa Clarita, a suburban community that is hardly depressed, make up an enterprise zone, which could benefit warehouses and the Hollywood film companies that shoot movies in them.
Under a law that has not been updated for years, those areas are deemed as blighted as the zone in Compton or the one in rural Calexico, where unemployment is above 30%.
Three in four state legislators have enterprise zones in their districts, where local businesses benefit from them. And a group formed by supporters of the zones say they have provided a major boost to the state economy.
Craig Johnson, president of the California Assn. of Enterprise Zones, said after Brown’s address that in 2011 the zones retained or created more than 124,000 jobs “in some of our state’s most distressed communities.”
His organization credits the zones with helping to save the state millions of dollars by moving Californians off government aid and into jobs that would not otherwise exist.
Brown says the program has not been shown to create jobs and at best merely rewards employers for moving from one city to another, something state taxpayers should not be subsidizing.
A new report from the state Department of Housing and Community Development says that in many cases the tax credits, used as incentives to draw companies to depressed areas to create jobs, are discovered and sought years after location and hiring decisions are made.
Brown included a detailed critique of the program in his 2011 budget plan with essentially the same finding. It noted that consultants scour the state to find companies that are eligible for the credits but not collecting them, then sign the businesses as clients and receive a commission on the windfall.
“Clearly taxpayers’ behavior to relocate or expand is not being driven by the existence of the EZ program if they have to be told that the program exists after they have already relocated or expanded,” the budget document said.
A 2009 review by the nonpartisan Public Policy Institute of California had already concluded that the tax breaks created no net increase of jobs in the areas where credits were available.
Brown wanted to eliminate enterprise zones in 2011, but lawmakers balked and Brown backed off. Now, the governor has a different approach, proposing that companies be required to collect the credit within a year of an employee’s hire. An administration paper outlining the proposal calls the idea a common-sense reform that would eliminate the retroactive “loophole.”
Such a change, which the administration could put into effect without going through the Legislature, would save the state $310 million over five years, officials say, for roughly a 10% cut in the program.
Administration officials said the governor would also seek legislation to reduce the program in other ways. Options include remapping the zones and reducing the amount of each tax credit.
Johnson responded to Brown’s claim that the program was not working by issuing a statement immediately after the governor’s speech saying, “Nothing could be further from the truth.”
He said his organization is still studying Brown’s proposal.
Legislative leaders said they welcomed a review of the program but were otherwise noncommittal.
Senate President Pro Tem Darrell Steinberg (D-Sacramento) said he believes some of the tax breaks granted through the program have helped create jobs, but said that “no program that has existed for a long time can be immune from real scrutiny.”
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