On the drawing board, enterprise zones were a good idea. The state identified 40 economically distressed parts of the state where businesses would get tax breaks if they located there and hired local workers. They would be good for small companies: Tax credits for them could make the difference between staying in business or failing. They would be good for many workers: Employers who otherwise wouldn’t give them a second look would instead give them training and job opportunities. They would be good for disadvantaged communities: Areas that were economically distressed would be able to demonstrate that they were good for business, could attract more employers and move more people from the unemployment rolls to the tax rolls.
But there are a lot of good ideas that, in practice, fail to become good programs. The state’s enterprise zones have been one of them. Instead of helping struggling businesses keep their doors open, the tax credits — amounting to about $4 billion since 1984 — have been largely claimed by huge corporations with assets of $10 million or more rather than smaller businesses more in need of assistance. A study by the Public Policy Institute of California found that enterprise zones had no net effect on job growth or business creation. The state legislative analyst found little effect on job creation.
The program instead has encouraged companies to move into zones, use the tax credits until they expire, then lay off their workers and move to another location for some other benefit. People are hired for the tax subsidy, then let go. Instead of lifting up communities, businesses breeze in and move out, shuttling around the state from zone to zone at public expense.
It’s not the first time a public program has been gamed and ended up helping people and companies that don’t need it while hurting those that do. And, as is all too typical, the program creates an interest group with the means to lobby lawmakers to defend the new status quo.
That group, consisting of chambers of commerce, financiers and some cities, is opposing a bill to revamp the rules governing enterprise zones. AB 434 would tweak the hiring credit to encourage companies to keep their employees longer, and would require employers to take their workers with them — if they want to go — when they abandon one zone for another.
These changes are also good ideas, but in the end not good enough. There simply isn’t enough evidence that California has gotten its money’s worth with enterprise zones. They were a well-intentioned experiment that was tried, failed and has been kept around too long. This is one experiment that should be ended, not merely mended.