The Desert Sun published a rather extensive discussion of the Enterprise Zone program, how it effects the Coachella Valley, and the May Revision of the budget. Particularly interesting are comments by Assemblyman V. Manuel Pérez, “Though the governor proposes some very significant changes to the program that differ from the reforms I am advocating, bottom line isthat the door is now open for negotiation.”
The whole article is worth reading:
Gov. Jerry Brown’s plan to restructure the state enterprise zone program is sparking a debate over whether the tax incentive initiativereally boosts the economy.
On one side is the desert’s elected and economic leadership, who argue that they’ve been able to court and retain businesses in the eastern Coachella Valley because of the tax breaks offered in the local enterprise zone.
On the other side is a governor who is trying to cut costs and economic experts who believe the state has given away $3.6 billion in tax credits and netted few jobs in return.
The debate over the future of enterprise zones comes as lawmakers debate Brown’s plan to close California’s $9.6 billion budget deficit.
How the dispute is resolved could have long-lasting repercussions for the Coachella Valley.
Not only is one of the state’s 42 enterprise zones based in Indio, but an effort is under way to create a second zone for three valley cities.
“California is already known for not being business-friendly,” said Indio Mayor Pro Tem Glenn Miller, chairman of the Coachella Valley Enterprise Zone’s executive committee.
“We’re trying to draw people into our cities, and this is one of the last tools we have to draw them into our area.”
The state’s enterprise zone program dates back to the mid-1980s, though the local zone wasn’t created until 1992.
Businesses in the zone get tax breaks for new hires, purchasing machinery and other investments.
That includes a credit worth about $37,000 over five years for each qualified employee they hire.
The local zone’s popularity has soared as businesses took advantage of the financial benefits.
In 1992, the zone issued 53 tax credits worth about $352,000.
This year, officials are on pace to issue about 2,000 credits to nearly 200 companies, which range in size from a national chain of movie theaters to local insurance companies and restaurants.
Enterprise zone manager Mark Weber declined to say how much the tax credits were worth in all, as the value depends on how long an employee is with a company.
“A lot of our enterprise zone vouchers are to small businesses, and the $12,500 credit means the world to them,” said Miller, referring to the maximum allowed in the first year of a new hire’s employment.
“It means more jobs for them and the ability to keep their doors open.”
In January, Brown suggested the program be scrapped in order to save $924 million through the next fiscal year.
With the Legislature reluctant to support the idea, Brown this week unveiled a new budget plan and sweeping modifications to the enterprise zone program.
They include limiting the tax break to a one-time $5,000 credit for each new full-time employee who is hired.
“Enterprise zone programs should reward employers for creating new jobs,” Brown’s budget plan states.
“Instead of repealing state tax benefits for enterprise zones, the May Revision (budget plan) proposes to reform enterprise zone hiring credits so that credits are only available to firms which actually increasetheir level of employment.”
The revised proposal could save $93 million through mid-2012 and even more after that, according to the Legislative Analyst’s Office.
The idea now goes to lawmakers, who have until June 15 to pass the budget.
While several local lawmakers have expressed support for the local enterprise zone, it is not clear if they will be in the majority in Sacramento.
“I am pleased to see the governor’s progress on the enterprise zone program,” Democratic Assemblyman V. Manuel Pérez, a Coachella Democrat whose district includes the enterprise zone, told The Desert Sun by email.
“Though the governor proposes some very significant changes to the program that differ from the reforms I am advocating, bottom line isthat the door is now open for negotiation.”
Local advocates of the enterprise zone are quick to tout the success stories.
They include Ernie Ball Inc., an internationally knownguitar string company that spent $8 million to move into Coachella in 2004 and has posted 7 percent annual growth since.
The company has about 300 employees.
But new businesses in enterprise zones don’t automatically translate into new jobs for the desert.
In 2009, Coca-Cola Bottling Co. broke ground on a new distributing facility in Coachella, taking advantage of the incentives offered through the enterprise zone program.
It left Cathedral City — taking 100 jobs down-valley but did not immediately add any more to the payroll.
Critics of enterprise zones say examples like these can be found throughout the state.
Research by several notable agencies — including the LAO, Public Policy Institute of California and the California Budget Project — have found that enterprise zones have little to no impact on creating new jobs.
In urging state officials to eliminate the enterprise zone program, the LAO said the possible impact on statewide job growth is “limited” because the “incentives may just move jobs around the state.”
Many also argue that the program isn’t really helping mom-and-pop shops.
In 2008, about half of the hiring and sales tax credits went to businesses with more than $100 million in assets, according to a report the LAO issued in February.
About 40 percent of those credits went to employers with more than $1 billion in assets, the report concluded.
“Certainly, local officials will say this is a great benefit to our local community. The problem is, the dollars spent on enterprise zone tax breaks are dollars not available for local schools or public safety programs,” said Jean Ross, executive director of the nonprofit and nonpartisan California Budget Project.
“In a time when every dollar we have is so scarce, we can’t afford programs that don’t work.”
When asked about the studies that showed a lack of jobgrowth, local enterprise zone officials said job retention efforts were just as important as job creation.
“They could have easily moved out of this area and gone into Arizona,” Miller countered.
With the budget still being debated, the future of theenterprise zone is in limbo.
Officials with the Coachella Valley Enterprise Zone, which spans 50 square miles, had tentative approval to expand its boundaries. That’s now on hold, Miller said.
Also on hold are plans to create a second enterprise zone encompassing more than 17,000 acres in Cathedral City, Desert Hot Springs and Palm Springs.
Each desert city invested $50,000 into the applicationprocess.
Supporters of the economic development program aren’t giving up their plans without a fight.
Weber said he was in Sacramento this week, and similarlobbying efforts are likely to continue until lawmakers figure out just what to do with enterprise zones.
Locals say they’re not opposed to some changes. But they say the plan Brown outlined does little for job creation and offers no incentives for job retention.
“True reform would be doing improvements to it. What he’s doing is dismantling it,” Weber said. “It’s a joke for retention (efforts). California can do better. We can do better than this.”