EZ Policy Blog

From the Sacramento Bee:

With the state budget overdue and California’s cash flow drying up, Gov. Arnold Schwarzenegger said Tuesday that he expects Democrats and Republicans to reach a compromise quickly and bring him a spending plan by next week.

The governor also raised the bar for negotiations. Schwarzenegger said he will not agree to any budget deal that fails to include long-term reforms to help the state ride out rocky economic times.

“I will not sign a budget that doesn’t have budget reform in it, because otherwise I could not keep the promise to the people of California. I told them in 2003 that we are going to become more fiscally responsible and that we are going to go and to start living within our means,” Schwarzenegger told The Associated Press in a telephone interview.

Senator George Runner, writing at Flashreport.org, makes a strong argument about the effect of tax increases:

While I don’t agree with Democrat Assemblyman Lloyd Levine’s proposal to create a 25 cent fee on plastic grocery bags, I do agree with a statement he made recently saying that charging such a fee will change consumer behavior.

Nobody wants to pay another buck or two for a plastic bag fee on top of an expensive grocery bill. Naturally, consumers will sidestep the fee by bringing reusable bags on grocery shopping trips.

Applying the same principle, consumers will find a way to avoid any tax or fee thrown their way – something Republicans have been saying for years. Consumers will either buy less or avoid the taxed item altogether, which harms businesses and eventually the economy.

From the Sacramento Bee’s “Capitol Report“:

It might be wishful thinking, but Gov. Arnold Schwarzenegger said Monday in Stockton, “I think this is the week when we should do a budget.”
…
At the event in Stockton this morning, Schwarzenegger was asked whether he was serious last week when he told The Bee that he eventually wants to force legislators to stay in a room until they agree to a budget. The governor said he went even further months earlier when he said legislators should be locked in a room and not be allowed to even use the bathroom.

Sometimes the existence of an Enterprise Zone can help a California business avoid a decision to move out of state.  But can an Enterprise Zone prevent a whole city from annexing itself to Nevada?

In Needles, that may just be the case.

The next CAEZ board meeting will be in Sacramento on July 24th.  Here is the agenda.

That meeting will be followed by a workshop by HCD for those zones that are still in a conditionally approved state on how to complete the MOU phase and obtain final designation.  The workshop is only open to jurisdictions that have not yet completed MOUs for new zones.  Hopefully this will result in a more rapid completion of those designations.

Yesterday’s Wall Street Journal had a stark commentary on the Democrat proposal to make California’s taxes the highest in the country: “California as No. 1.”

Today’s Los Angeles Times has an extensive article by Evan Halper on the potential effects of the tax hike: “State legislators consider increasing income taxes on the wealthy.”

From the Sacramento Bee:

Frustrated that the state lacks a budget 16 days into the fiscal year, Gov. Arnold Schwarzenegger said Wednesday that he may insist legislative leaders “sit in the room and not leave the room until it’s done.” “It is almost like there is no emergency there,” Schwarzenegger told The Bee in an interview.
…
Asked whether he can ultimately agree to some tax increases, Schwarzenegger said, “I’m not here to negotiate against myself.”

Last March I reprinted an article from BNA by Laura Mahoney regarding the SBOE decision in the Taiheiyo case.  In the July 11, 2008 edition of BNA Daily Tax Report, Laura reports that the SBOE recently decided to rehear the case.

It’s not clear exactly what Los Angeles City Council President Gil Garcetti has in mind for new or expanded enterprise zones to help the film industry in L.A. The Los Angeles Daily News reports:

With Hollywood facing its second major strike of the year, a Los Angeles city official on Tuesday called for more municipal effort to accommodate the film industry and state legislation to give it job-training credits.

“Without Hollywood there is no Tinseltown,” council President Eric Garcetti said after introducing a proposal to expand enterprise zones and tax credits the city offers and to develop proposals to accommodate film shoots around the city.

Garcetti said he and Councilman Tom LaBonge believe the city needs to do more to keep productions - and their jobs - in the city.

Among proposals to be studied are building electrical plug-ins on streets to avoid the use of large generators, improving the facades of buildings and restoring historical sites.

Garcetti cited the potential of a strike this week by the Screen Actors Guild, which would come on the heels of the Writers Guild strike earlier this year. The writers strike cost the region an estimated $1 billion in direct income and in revenue to other industries.

SAG is scheduled to announce Thursday whether it will call a strike.

Garcetti said he hopes to create three enterprise zones - Hollywood, the San Fernando Valley and downtown Los Angeles - to provide job credits for the entertainment industry.

“One of the issues we have to deal with is the requirement that these be full-time jobs,” Garcetti said. “With the industry, a lot of the jobs are seasonal. What we hope to do is work with companies that have multiple productions to keep people working on a steady basis.”

Garcetti and LaBonge also said they want to see an analysis of the revenue the city lost when “Ugly Betty” TV producers moved their show out of Los Angeles.

Jack Kyser, chief economist at the Los Angeles County Economic Development Corp., embraced the proposals.

“Anything the city can do to help is welcome,” Kyser said.

Here is the Sacramento Bee’s collection of reactions to the Democrats’ tax increase proposal.

From Senator George Runner’s website today:

Congratulations to the City of Santa Clarita, which just celebrated the one year anniversary of its successful Enterprise Zone. Here’s why Enterprise Zones are important: They encourage economic growth – particularly jobs – through offering tax incentives for business. The results are a larger tax base for the community and the improvement of blighted areas.

Furthermore, in Santa Clarita and other Southern California locations, Enterprise Zones are steps in the right direction by encouraging more businesses to keep money and jobs in California.

Enterprise Zones began in the 1980s when the state offered special tax incentives for businesses that chose to locate in designated areas. In an effort to revive economically depressed or blighted regions, businesses received incentives to provide well paying jobs for people living in those communities. This win-win situation provides economically disadvantaged residents with more employment opportunities and businesses with cost savings.

In Santa Clarita, businesses can earn up to $37,000 in tax credits over five years for hiring an employee either living within the targeted development zone, one who was recently laid off, or on one who participated in qualified training programs. This gives businesses the incentive to hire local people who need these jobs the most.

Businesses can also receive a $40,000 business expense tax deduction for purchasing equipment and supplies. All told, the Santa Clarita Enterprise Zone offers $3.7 million in potential savings.

The Antelope Valley Enterprise Zone also provides similar incentives, offering $31,574 in tax credits over five years for hiring, $20,000 in business expense deductions, and providing corporations with up to $20 million for purchasing qualified machinery and equipment.

The Victor Valley offers incentives too through the Local Agency Military Base Recovery Act, which also provides sales tax credits for up to $20 million for qualified machinery and equipment, hiring credits and other deductions.

With the deficit looming over the Capitol, policy-makers are frantically searching for ways to close the $16 billion hole in the budget. Some suggest eliminating the tax credits for these Enterprise Zones throughout the state. This wrongheaded approach would only serve to drive more businesses away and exacerbate an already sour economy.

With the celebration of the Santa Clarita Enterprise Zone’s one year anniversary, and the continued success in the Antelope Valley’s Enterprise Zone, we should look to expand the tax base by encouraging increased investment in California.

Enterprise Zones are the right approach to fixing blighted areas, and I believe these policies would work statewide. Let’s continue utilizing strategies that encourage growth rather than hinder it.

CAEZ is calling on concerned citizens to oppose SB 1103:

SB 1103, Senator Cedillo’s new version of SB 103 which was vetoed by the Governor last year (and which CAEZ opposed), passed the Assembly Committee on Local Government on June 4 and could be scheduled for an Assembly floor vote at any time now. As previously reported, this bill adds onerous and duplicative public noticing and reporting requirements for what are termed “economic development subsidies”, including EZs, Empowerment Zones, grants, loans, tax increment financing, etc. CAEZ has sent in a letter opposing the bill and is urging you to do the same ASAP.

You can download the sample letter CAEZ has prepared here.

From Salinas Mayor Dennis Donohue’s State of the City address:

“The agricultural downturn is real, and it threatens our city’s livelihood,” Donohue said.

He warned the economic downturn could cost Salinas farm-worker and agricultural business jobs. To compensate, “we will need more companies to relocate to Salinas so that high-paying jobs will replace those that may be lost in agriculture,” he said.

Donohue also expressed optimism about Chiquita Brands International announcing a research and development headquarters at Fresh Express in Salinas - its second worldwide.

With the Salinas Valley’s designation as a state enterprise zone that offers tax breaks and job-creation incentives to employers, Salinas is poised to have an economic advantage in rough economic times, he said.

Donohue finished his speech by saying, “I don’t know if these are the worst of times that we face now. But I do know they are tough times. And I also know my town, and I know we are more than capable of doing the best thing, no matter how tough the times.”

Here is the July 2008 edition of the FTB’s “Tax News” newsletter.

According to the Phoenix Business Journal, Arizona is trying to keep up with California’s tax incentives:

An expanding research and development tax break has made it into budget plans being finalized by the Legislature.

The R&D measure expands Arizona’s tax credits bringing them more in line with other states such as California.

Last year I wrote about electric car manufacturer Tesla Motors‘ decision to locate its new facility in Albuquerque instead of the Pittsburg Enterprise Zone.

Today Motor Trend reports that Tesla has been wooed back to the Golden State:

Like a major-league baseball team threatening to leave for a new city out West unless its rundown, depressed hometown builds a shiny new stadium, “zero-emissions” carmaker Tesla Motors was looking to move its fledgling electric auto manufacturing to New Mexico. California has come through with the equivalent of Baltimore’s Camden Yards. It will waive the sales tax for Tesla’s investment in business equipment, resulting in “millions of dollars in savings,” governor Arnold Schwarzenegger announced Monday. “If they choose to build their factory in an enterprise zone, they’ll save millions more,” he says.

The Governor made a presentation at Tesla, here is the full video of the event and press release. Of particular interest is the description of this brand new tax incentive in California:

Last Wednesday, CAEATFA [California Alternative Energy and Advanced Transportation Financing Authority] approved a new program that exempts new ZEV [Zero Emissions Vehicles] manufacturers from paying sales and use tax on the purchase of manufacturing equipment to encourage ZEV manufacturing in California. For Tesla, these incentives will mean millions of dollars in savings when the company invests in building their new plant in California. And if they choose a city that is in an Enterprise Zone, they will save millions more. Tesla will also be eligible for at least $1 million in Employment Training Panel Workforce Development Funds to train employees.

Gov. Schwarzenegger at Tesla Motors from Max Shenker on Vimeo.


It’s nice to hear the Governor promote the Enterprise Zone specifically. And another nugget from the speech transcript:

Now, last year it looked like Tesla Motors would build its electric cars in New Mexico. Now, you have to understand, I myself bought one of the first Tesla cars and so for me to see this company build a manufacturing plant in New Mexico drove me absolutely insane. But, the fact of the matter is my good friend, Bill Richardson, offered better incentives than we could offer here in California and so, therefore, they were thinking about going with a plan through New Mexico.

So, we left no stone unturned and we started going to work and thinking and thinking, what can we do, what other incentives can we offer?… And we were sitting down and we came up with all kinds of great ideas for business incentives to attract companies like Tesla that make zero-emission vehicles here in California, because we both want these cutting edge companies not just to start here in California, do research and development in California, but actually manufacture here in California.

Today is the first day of the new fiscal year in California, but, as in years past, there is no new budget in place. The Sacramento Bee’s Daniel Weintrib wonders how different this year is. From “Capitol Alert“:

Actually, the constitution requires the Legislature to pass a budget by June 15, but July 1 has become the defacto deadline for getting it done.

No such luck this year, which is pretty typical. But this year has a different feel to it. The sides are so far apart that serious budget negotiations have not even begun. It’s almost as if the legislative leaders don’t even know where to begin because they disagree so fundamentally about the condition of state government and how to fix it.

Here is the video of Governor Schwarzenegger’s appearance on “Meet the Press” this past Sunday with Tom Brokaw:








Some key quotes:

“We see other states are struggling, the country is struggling, people are struggling, and I think we see it now all over the world. And I think the key thing for it is to again, bring everyone together and just start right away with an economic stimulus package, which of course is done on a national level, but also each state has the responsibility to do that.”

“Well, first of all, let me just say that it is sad when you see the kind of people that are unemployed, and how tough it is to get a job, and this is why we want to pump in as quickly as possible the billions of dollars to get people back to work, especially in the construction business.”

You can find the whole transcript here.

Here are two new interesting analyses of the budget situation in the Sacramento Bee:

Dan Walters: “Could California budget gap get wider?”

Daniel Weintraub: “Spending limit likely key to any state budget deal”

The Stockton, Shasta Valley, and Kings County Enterprise Zones all expire today, June 21, 2008 after 15 years of operation.  Tomorrow marks the first day of the conditional designation of the new San Joaquin County, Siskiyou County, and Kings County zones.