In his revised budget plan released this week, Governor Jerry Brown calls for the state’s enterprise zone program to be completely “reshaped.”
California has 40 of these “distressed” neighborhoods where the state offers tax credits in order to encourage investment and hiring.
A promotional video on the website for Riverside’s Coachella Valley Enterprise Zone describes it as a place where the sun shines 350 days a year and businesses bask in tax breaks that have them end up paying “little or no state income tax.”
Businesses in an enterprise zone can get tax credits for up to five years. They can also write off part of their equipment purchases and other operating costs.
Los Angeles City has three of these tax havens. The City of Long Beach has one that includes most of downtown and some of the port. Craig Johnson, who manages that project, also heads the California Association of Enterprise Zones. He says the zones help create and — more importantly— sustain jobs.
“I’ve heard these comments from some of the business people in Long Beach about how during tough economic times, this enables them to hang on to employees," says Johnson, "to keep the business flowing at that level until we see that uptick in the economy. Then they’re able to add employees and expand businesses. And we’ve seen this in zones all over the state.”
Enterprise zone tax credits are so popular that the state’s non-partisan Legislative Analyst estimates they cost California $700 million in tax revenues each year.
At a capitol press conference this week, Governor Brown said the return on that investment is lacking: “We have a proposal to make it more efficient.”
As part of his revised budget, Brown proposed to “redirect” the hiring credit for employers.
“People get rewarded after they’ve already made the hiring — maybe a year or two later," Brown said. "So that’s not an incentive."
Brown wants an upfront credit for businesses anywhere in the state who hire people living in neighborhoods with high unemployment and poverty rates. Those hired would have to be veterans, people who’ve been unemployed for a long time, or who collect public assistance.
Dan Carrig with the League of California Cities said Brown’s plan dismantles the enterprise zones, which he fears could destabilize local economies.
“I think it’s very disruptive to think about shifting quickly from one thing to another," said Carrig, "especially when businesses have made decisions and they’ve invested, they’ve purchased equipment, built buildings, hired people.”
Carrig said the elimination of enterprise zones poses other risks: “A lot of businesses are being wooed by other states and we’re in a more global economy now. Businesses are obviously considering their options.”
Brown’s proposal to overhaul California’s enterprise zones faces a tough battle in the state legislature. Making the changes will require a super-majority vote.
Three Assembly Democrats issued a statement opposing the Governor’s plan immediately following the revised budget’s release.
Assemblyman V. Manuel Pérez (D-Riverside), whose district includes the Coachella Valley Enterprise Zone, called the program "one of the state’s most important tools for creating economic opportunity in economically depressed areas."
Assemblyman Jeff Gorrell (R-Camarillo) also issued a statement rejecting the idea: "The elimination of funding for the state’s enterprise zones pulls the rug out from under hundreds of businesses that have relied in good faith on this program."