Business Update with Mark Lacter |

Time for enterprise zones to get the heave-ho

Jerry Brown didn't quite say they were a waste of taxpayer dollars, but in proposing to eliminate enterprise zones he all but acknowledges their limited value. The program, which was created in 1984, supposedly encourages development - and job creation - by offering companies special tax breaks if they open operations in chronically depressed areas. I say supposedly because enterprise zones typically do not create jobs that wouldn't otherwise be created. Oh, and they cost quite a bit. The Public Policy Institute of California concluded as much in a 2009 study. From press release:

The PPIC report contrasts employment growth in enterprise zones with comparison areas and concludes that the program, on average, has no effect on job or business creation. The report recommends a re-examination of the program, which offers tax credits and incentives to businesses in 42 designated zones throughout the state. The program's cost in the next fiscal year is estimated at nearly half a billion dollars. "The state can ill afford to continue the enterprise zone program without clearer evidence of its benefits or a well-defined plan to make it more effective," says Jed Kolko, PPIC associate director of research, who co-authored the report with David Neumark, PPIC senior fellow and professor of economics at the University of California, Irvine.

As you might guess, Brown's proposal isn't going down well in certain quarters. L.A. Mayor Antonio Villaraigosa says that "any scenario that would completely eliminate the redevelopment zones and state enterprise zones is a non-starter." This knee-jerk stance has little or nothing to do with economic development and everything to do with political brinkmanship. Elected officials rely on these costly, unnecessary programs to support claims that they're actually doing something about jobs. The reality is that mayors, city council members, and even governors play only a marginal role in boosting employment. All that ultimately matters is the strength of the overall economy - and right now companies are still hesitant about expanding, with or without tax breaks.

As if on cue, members of the L.A. City Council were making their pitches this morning on keeping the enterprise zone program - all in the name of job creation. Very little attention paid to the cost of the program versus the payback in economic activity, not to mention whether that activity would have happened anyway.