EZ Policy Blog

Check it out. Very nice.

Here is a link to the final 2009 CAEZ Conference brochure and schedule.  See you in Fresno.

CAEZ President Craig Johnson appeared on KTIE News Radio last Friday, here’s the audio:

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At yesterday’s CAEZ Board meeting we were once again treated to an update from Frank Luera at HCD.

• Of the 31 zones designated in 2006-2008, 16 remain only conditionally designated.
• The deadline for applications in the 2009 round is March 27.  There are four slots available and HCD expects the round to be “highly competitive;” they have received close to 30 serious inquiries.
• There will be a 2010 application round with two open slots.
• A process has been initiated to amend the vouchering regulations.  The primary issue is to replace the I-9 form as acceptable documentation for TEA with the W-4 form.  There is also a process underway to develop regulations for the establishment of TEAs and for the expansion of zones.
• There have been some staff changes at HCD, and due to a general hiring freeze, open positions remain unfilled.

As in past years, the CAEZ Conference had the benefit of receiving updates from Frank Luera of HCD and Jeannie Harriman of FTB.

HCD expects the final application for the next round of zone designations to be released as early as the week of Oct. 27.  Those applications would then be due sometime next March or April.

As noted before, HCD is still working with the LAMBRAs to reexamine what ought to be the correct designation dates of those zones.

In addition, we should expect HCD to begin a process of modifying the vouchering regulations.  While the main impetus for doing so is to codify the allowance of the W4 form, there will likely be an opportunity to revisit many of the issues dealt with in the regulations.  That should be fun.

How does the current economic climate effect the program?  HCD feels that the Governor is actually embracing the program to an even greater degree than in the past and views it as an important part of an economic stimulus.

Most of the discussion with FTB centered around trying to understand the technical implications of the new budget and AB 1452 with SBX1 28.  Both the NOL suspension and the 50% usage limitation will not apply to taxpayers with “net business income” less than $500,000.  FTB is still not entirely certain how to define “net business income,” and will hopefully have some guidence out for us in the near future.

The requirement to file IRS forms 8886 and 8918 were reiterated (see also FTB Notice 2008-1).

When asked if the current budget troubles are resulting in an increase in FTB audits of credits, Jeannie answered that in fact the FTB is “winding down” their heightened interest in hiring credits.  FTB is operating with increased confidence in vouchers issued since the implementation of vouchering regulations in January 2007.  As more and more returns are filed based on vouchers issued subsequent to the regulations, FTB is reducing its audit activity with regard to the credits.

I have just returned from another great CAEZ Conference, this year in beautiful Long Beach. First of all, congratulations to Craig Johnson for hosting a very successful conference as well as being elected the new President of CAEZ.  Congratulations also to Kelly Trevino of Fresno on her election to the CAEZ Board.  Fresno, incidentally, will be the site of the 2009 CAEZ Conference.  I am honored to have the opportunity to serve along with them as a new Board Advisor.

Over the next week or so (because I’m busy) I will try to fill in the various updates we got from HCD, FTB and the zones.

Don’t forget to register for the CAEZ Conference in Long Beach October 22-24.

When did CAEZ get expanded powers?

In early 2008, the Salinas Valley received a conditional Enterprise Zone designation. Final designation from the California Association of Enterprise Zones is expected soon.

Here is a press release issued today by the California Association of Enterprise Zones:

SACRAMENTO, Calif., Sept 29, 2008 /PRNewswire via COMTEX/ — Commenting on the state budget just passed, “The California Association of Enterprise Zones (CAEZ) appreciates that the Governor and the Legislature could have considered larger and additional cuts to various economic programs throughout the state and did manage to keep many programs intact, including the Enterprise Zone (EZ) Program,” said Lydia Moreno, San Diego Enterprise Zone Coordinator. “However, we are concerned about the impact of the various tax credit and Net Operating Loss provisions of the budget and how they will impact small businesses in our state, especially those located in EZs, which are comprised of distressed communities.” As managers of the EZs in California, the CAEZ is keenly aware of the difficult decisions that had to be made during this tough budget year.
With the highest unemployment rate in the history of California of 7.7 percent, putting the state in a tie with Mississippi for the third-highest jobless rate in the U.S., now is the worst time to add to the costs of doing business in our state. Lydia continued, “We are concerned these small businesses will face higher costs and will have trouble making ends meet, which could impact their ability to keep and retain employees. Even the businesses within EZs, where there have been added benefits for employers to stimulate job growth in the highest unemployment areas, will not be able to take advantage of those cost-cutting measures. Additionally, attracting companies to California will be difficult.”
“In rural areas, it’s worse,” said Tonya Dowse, Siskiyou County Economic Development Director and EZ Coordinator. “The jobless rates already are high in our area. At least being in an EZ had helped to attract businesses that might not have come here. Now the benefits of being in an EZ truly are hindered.”
“We look forward to working with the Legislature next year to find solutions that will help stimulate our economy and grow jobs. Additional jobs will help keep California strong by infusing more revenue into the state to help keep important programs that serve the people,” said Lydia Moreno.

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.”

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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.