EZ Policy Blog

Just in from Long Beach: Paul Codiga, Key Location Manager for the hit TV series “CSI: Miami” will be be keynote speaker for the 2008 CAEZ Conference.

Registration for the conference is already available online.

Online registration is now open for the 2008 CAEZ conference in Long Beach, October 22-24.

Go to www.VisitLongBeach.com/CAEZ.

And finally, CAEZ received an update from Frank Luera of HCD.

• The Department is in the process of auditing the zones.  Frank was very careful to emphasize that the goal of these audits is to strengthen the zones and provide constructive guidence; they are not out there looking for ways to dedesignate zones.
• He told us to expect two policy memos very shortly: 1. regarding how LAMBRAs should calculate their designation periods, and 2. how to treat the TEA in cases where a new TEA is replacing an old TEA.
• There are four zones expiring in 2009 (Los Angeles Harbor, Madera, Sacramento Army Depot, and Sacramento Florin Perkins).  HCD intends to begin the application process for those four slots in early August with applications due in late January.  The application process is expected to be even more streamlined than the last round.  For those four slots, HCD has already received 16 informal indications of interest.

CAEZ also had the benefit of again hearing from Toni Symonds, Chief Consultant, Assembly committee on Jobs, Economic Development and the Economy.  Toni raised the concern that one of the proposals in the Democratic Conference Committee is a three year suspension of Net Operating Loss carryforwards.  Since the last time the NOL was suspended in 2002-2003 Enterprise Zones were not exempted, there is a concern that this year’s proposal would do the same.

The small business community is understandably concerned about this and have floated a proposal to exempt companies with under $5 million in revenue.  Here is the press release from Small Business California.

There seems to be some openness to consider such a compromise.  An alternative compromise that CAEZ may propose would be an exemption for Enterprise Zone businesses thus preserving the strength of the incentive.  It is important to keep in mind that three years is a full 20% of an Enterprise Zone’s designation.

At the CAEZ board meeting yesterday in Sacramento, we had the benefit of hearing a budget update from Tom Sheehy, the Deputy Director for Legislation at the Department of Finance.  He provided us with a rather sobering, but extremely clear picture of the fundamental problems behind California’s chronic budget deficits.

In a nutshell, since the top 1% of income earners in the state pay 50% of all personal taxes collected by the state, when they have a good year the state collects a lot of extra money, and when they have a bad year the state collects a lot less money.  But since in good years the legislature spends all of the revenue it collects, then when there is a bad year the state doesn’t get the revenue it needs to pay for all of that added spending.  According to Sheehy, it is this volatility which is the real root of the problem.

He provided us with the following colorful illustration:  For every Tiger Woods that leaves California, we have to create 4000 new jobs paying $70,000 each to replace that revenue.

Sheehy noted that while it may be politically popular and easy to simply increase taxes on the “wealthy,” that option actually exaserbates the underlying structural problem for future years.

Sheehy also commented on the possibility that the Governor will cut government workers pay in order to save cash while waiting for the budget to pass.  He challanged the notion, as argued by Dan Walters, that the cut is a tactic or gimmick, explaining that the California Constitution does not actually allow any state employees to be paid anything in the absence of a budget.  A California Supreme Court decision affirmed this fact, but then allowed the state to pay workers the federal minimum wage under such circumstances.  The state is likely to face a cash crisis if the budget is delayed too long.

Regarding Enterprise Zones Sheehy said, “I don’t think you have anything to worry about regarding the integrity of Enterprise Zones.”

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.

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.

Long Beach, the 2008 CAEZ Conference hosts have just released the following:

The 2008 California Association of Enterprise Zones Training Conference will be held October 22 – 24, 2008 on board the historic Queen Mary in Long Beach.

To begin preparing for this year’s conference, organizers are once again opening
up the “Name That Theme” contest to anyone interested in suggesting a theme for the conference.

If you have a theme you’d like to suggest for the conference, simply fill out the form below and either email it to Craig_Johnson@LongBeach.gov or print out the form and fax it to (562) 570-3897.

WINNER RECEIVES ONE COMPLIMENTARY CONFERENCE REGISTRATION!!!

CONTEST RULES:

• Entries accepted until 5:00 pm on June 12, 2008.
• No more than five entries per person.
• Decision of the judges is final.

CAEZ is looking for Enterprise Zone business and employee success stories to dispel any misconceptions and help promote the EZ program, particularly at this crucial time in the budget process. They are also asking for copies of any letters zones have sent to the Governor or their legislative representatives in support of the program. Please send copies of any of these letters and letters from your businesses, success story write-ups, news articles about your zone or businesses, and any other pertinent documentation to info@caez.org.

Click here for a sample letter for an EZ business, or click here for a sample letter from a zone manager.

The quarterly CAEZ board meeting was yesterday in Sacramento. There wasn’t too much activity except for a substantive report from HCD.

So far, only four of the 23 zones conditionally designated at the beginning of 2007 have received their final designation. With the exception of Arvin, all of the others continue to function under the “gap language” in AB 1550. What became clear at yesterday’s meeting was that at least some of this delay seems to be stemming from the zones themselves and is not necessarily a function of HCD’s legendary backlog. The question now becomes how long will such delays be tolerated before some of these conditional designation are taken away. The problem is, however, that there doesn’t seem to be any formal rules on how long this process can be allowed to go on. We should expect to see a final designation for Pasadena within the next few weeks and others will drag on throughout the year.

On the other hand, as a result of SB 341, the final designation process for the most recent eight zones could be done before the final designations of the last zones.

The next round of new zone applications will kick off in late April or early May.  There are four zones expiring in 2009 and the applications will be due some time next January.

HCD is undertaking a concerted effort to update and correct the zone street ranges published to their website.  Since FTB uses those as their primary source and will generally ignore or dismiss other sources of information, this is an important endeavor.  My concern is that street range listings are inherently problematic and notoriously difficult to maintain accurately.  HCD needs to make it clear to FTB that the street ranges are only guidelines and are likely not to be perfect; they should not be considered an exclusive and conclusive description of a zone.

HCD is still working on approving the W4 as a TEA supporting document.  The plan is to allow it as soon as the HCD legal department give a thumbs up, then move into a regulatory amendment process that will ultimately result in removing the I9 and adding the W4.  They are also working on guidelines for the acceptance of electronic I9s and W4s.

We should also expect to see about five more voucher appeals resolved and posted to the website within the next few weeks.  So far only one has been posted and that was on 8/28/07.

CAEZ was lucky enough to have Jeanne Harriman of the FTB available throughout their recent conference. As far as Enterprise Zones go, she’s the closest thing we have to a rock star. The following are some highlights:

1. In September, the Board of Equalization heard the appeal of Taiheiyo Cement and found in favor of the FTB. An official ruling will be issued in the near future. The case dealt with EZ Sales or Use credit and the correct application of “placed in service.” Listen to the audio of the hearing by clicking that little, blue “play” button.
2. FTB will issue a “Tax News” article on October 31 discussing the ramifications of the BOE decision in the Jessica McClintock appeal (see earlier blog posts here and here).
3. Currently pending with the BOE is the appeal of URS Corp. which will deal with documentation requirements for dislocated worker vouchers.
4. Also pending at BOE is an Enterprise Zone Net Interest Deduction case involving Farmers & Merchants Bank.
5. The Economic Development Areas Manual sections on Enterprise Zone will be updated by December.
6. Regarding the 8886 issue, Jeanne conceded, based on arguments previously made here, that it would have been better had they simply asked taxpayers to mail the forms to a P.O. Box rather than to the aggressively frightening Abusive Tax Shelter Unit. However, even though making Enterprise Zone credits an exception seems to be under consideration, it doesn’t sound likely that will happen this year.

A very successful CAEZ conference has just wrapped up in Modesto, CA.  I would like to personally express my gratitude to all of those responsible for organizing and executing a great conference, and to all of the presenters who provided practical, relevant and timely information.  Thank you.

I will post a series of entries on the main items covered at the conference, beginning with some updates from HCD:

1. The new vouchering form, which was supplied in a draft form, will be released for use on 11/1/07.  The new form will not be required until 1/1/08, but everyone is encouraged to implement it as soon as possible.
2. The applications for the eight new Enterprise Zones are due on 11/16/07.  While there was initially an expectation that there may be as many as two applications for every opening, HCD now feels that there will almost certainly be nine applications and likely a small number more than that.
3. Regarding the regulation that makes it sound as if there is a limit to how far back a zone can issue vouchers in an expired EZ, HCD was very clear that this was never the intention of the regulation.  They committed to issuing a memo that would clearly state that HCD’s interpretation of the statute and regulation is that there is no limit to ability of a taxpayer to request a voucher retroactively.
4. The question of acceptable TEA documentation has become a serious issue.  There are concerns with the continued use of I-9 forms in this capacity and HCD is working toward offering alternatives.  It is clear that they are very open to well-reasoned suggestions.
5. The prevailing nervousness of vouchering agents to issue vouchers continues to be problem.  HCD is working toward publishing, as soon as possible, the results of voucher appeals that they have decided on.  This, as well as their future audits of the local vouchering procedures, will hopefully enable the vouchering agents to understand the level of flexibility they can apply.  For example, it was clear from the discussion, that it is inappropriate for a voucher to be rejected if the hire date on the supporting document is simply several days different than the date on the application.

To be continued…

We had a very good meeting of the CAEZ board last week in Sacramento. The highlights were presentations from Team California, Toni Symonds of the Assembly Jobs Committee, and of course, Frank Luera of HCD.

Toni introduced us to an important new resource that Committee Staff developed, a white paper entitled “California’s Economic Development Programs: Meeting the Challenges of Today’s Economy.” This is a 148 page Word document (available here) that provides a summary of all of California’s economic development programs. Being an electronic document, it has the advantage of actually containing live hyperlinks to the internet resources associated with the programs.

HCD is busy. Frank reminded us that at our last board meeting in April they had promised to release the new EZ voucher application form by May 2007. Apparently, certain people involved at the legislature have asked that a questionnaire for employers be appended to the voucher application in order to obtain additional data about the program. This has been holding up the ultimate release of the form. Frank assured us that this was now his top priority and we should be seeing a final form by mid-August either with these questions or without them.

The application process for the eight EZ expirations in 2008 is well under way. Corrections and additions are still being made to the application handbook, and a FAQ on issues related to the application is under development for the HCD website. HCD is expecting to receive twice as many applications as zones available.

On that note, everyone seems highly optimistic that Senator Lowenthal’s SB 341 is headed for passage including an urgency clause that will make it effective for those applying in the current round. It is scheduled to have a hearing in the Assembly Appropriations Committee on Aug. 22 after which it would go to the Assembly floor and then to the Governor.

The memo concerning the creation of new TEAs is pending management approval at HCD and could be available with a week or two.

The next board meeting will be on Oct. 24 at the annual conference in Modesto.

The next CAEZ board meeting will be this Thursday in Sacramento from 10:00 to 1:30.  See the CAEZ website for details.  As usual, we should be hearing updates from HCD as well as on the legislative front.

Carrie Rogers, erstwhile manager of the Palmdale Enterprise Zone, has just become the erstwhile manager of the new Santa Clarita EZ - before it ever got its final designation! The Signal has the whole story:

After a little more than two years with the city, Carrie Rogers resigned Friday as Santa Clarita’s marketing and economic development manager.Rogers, who will officially leave her position April 27, has taken a job with the Los Angeles Economic Development Corp, where she will be responsible for business attraction and retention in the county as the firm’s vice president of business assistance and development.

City spokeswoman Gail Ortiz said “it is too early to say right now” who will serve as Santa Clarita’s interim marketing and economic development manager as the city searches for a replacement for Rogers.

Santa Clarita’s marketing and economic development manager is responsible for recruiting and retaining business, redevelopment, tourism and film.

“While Carrie will be missed, we wish her much success on her new endeavor,” City Manager Ken Pulskamp said in a statement.

Rogers, who began working at the city on Oct. 11, 2004, is credited with several achievements, including the city’s application for enterprise zone status.

The designation provides Santa Clarita businesses in the zone with several incentives, including tax credits, interest and expense deductions and priority for some state programs and contracts.

Rogers has spent more than a decade in the field of economic development.

Prior to working for Santa Clarita, she was the economic development project manager for the city of Palmdale and managed the state-designated Antelope Valley Enterprise Zone.

Carrie has also resigned her position on the board of the California Association of Enterprise Zones.

I have had the benefit of knowing and working with Carrie for several years, both in Palmdale and in Santa Clarita, the accolade and promotion are well deserved. I wish her all the best and hope to have opportunities to continue working with her.

The next CAEZ board meeting will take place in Sacramento on April 23. This is a schedule change to enable people to attend both this meeting as well as the FTB training the following day. Here is a copy of the agenda [PDF] for the CAEZ meeting.

I just returned from an intense three day CAEZ meeting in Sacramento. Most of the time was spent setting the agenda for the coming year, but we also managed to get some substantive updates on what’s happening in the Capitol.

Frank Luera provided the HCD update and fielded a lot of questions. Foremost on peoples’ minds was when and where will they be conducting training sessions on vouchering using the new regulations. The tentative dates are currently 2/22/07 in Sacramento and 3/1/07 somewhere in Southern California. There was some discussion as to whether these sessions would be open to all or just the zone managers. I tried to make the case that it would be more beneficial for the sessions to be open and cooperative between those preparing voucher applications and those processing voucher applications and it seems there was some support for that idea. Keep an eye on the HCD website (and right here on EZ Policy Blog) for a final announcement of the meetings. He expects to have that posted within a week. In the mean time they are still working on the new voucher application forms.

Believe it or not, it is just about time for new Enterprise Zone applications to go out. The next group of zone expirations are early 2008 and in order to have new zones designated by then the application process has to start soon. The application season should begin in March or April with deadlines for completion sometime in September or October.

On the legislative front, Toni Symonds, the Chief Consultant to the Assembly Committee on Jobs, Economic Development and the Economy, ran through the list of things being discussed in the Legislature. There is interest in making adjustments to the eligibility criteria required for new EZ designation, adding an net interest deduction incentive to LAMBRAs, and perhaps even reevaluating EZ incentives more generally. She thought that we might expect to see another hearing held by the committee and that it promises to be an active legislative session for Enterprise Zones.

Good news for those in the process of applying for a new EZ: Mark Stivers, consultant for the Senate Transportation and Housing Committee is working on a bill to remove the requirement of an environmental impact report (the dreaded EIR) from the process and reported that he had made some important progress.

If you have any specific questions that I haven’t covered here, email me, I’ll probably get back to you: max@ezpolicyblog.com.

The Desert Sun has a nice article highlighting the Coachella Valley Enterprise Zone and the CAEZ conference.

The annual CAEZ conference is underway in Indio, California and I believe there is a record level of attendance. Thursday promises to be an exciting day with major updates on the new enterprise zones and the forthcoming vouchering regulation as well as a keynote address from Lynn Jacobs, HCD’s director.

I have been very gratified at the response to this blog, it serves as an inspiration to make it even better and more informative. I’ll be very impressed if you tell me you saw this post — please introduce yourselves.

Please note that the CAEZ annual conference is being held next week - Nov. 15-17 - in Indio, CA. The keynote speaker is slated to be Lynn Jacobs, Director, Department of Housing and Community Development. I look forward to seeing you there.