Having followed the budget process closely this year, one of the Capitol reporters I came to rely on was the Sacramento Bee’s Kevin Yamamura. So when Kevin called me last week to discuss recent developments regarding the Enterprise Zone program, I was happy to speak with him for a while.

Just in time for the kick-off of CAEZ’s annual conference, the Bee has published Kevin’s article with the headline, “California’s enterprise zone program lets companies cash in on existing workers.”

Since I have come to respect Kevin’s work on budget reporting, I found this article disappointing primarily because it doesn’t really add anything new to the discussion. Most of the article focuses on the, admittedly poor, marketing approach of one small industry consultant. Anyone who has attended a few legislative hearings will recognize this as one of California Labor Fed’s talking points. There are plenty of interesting new issues to explore which are only hinted at in this article.

The following is the whole article:

Against a snapshot of $100 bills, the Wincentive Corp. asks on its website, “ARE YOU LEAVING MONEY ON THE TABLE?”

The cash isn’t generated from sales or casinos, but state taxpayers.

As California struggles to combat an 11.9 percent unemployment rate, a $581 million economic development program designed to create jobs has drawn scrutiny for rewarding companies that hired workers years ago.

The state’s enterprise zone program offers $37,440 tax credits to employers for new workers in beleaguered areas. But employers also claim tax rebates for existing workers by amending old tax returns, often at the urging of consultants such as Wincentive.

“The concern is, if the program is intended as an incentive to change companies’ behavior, why are we essentially rewarding them for something they did in the past?” said James Nachbaur, who studies enterprise zones for the state Legislative Analyst’s Office.

The enterprise zone program promotes economic growth in 42 distressed areas around the state. It encourages companies to hire disadvantaged job candidates such as parolees, disabled residents and welfare recipients.

But employers also can qualify for tax credits simply based on where their employees live.

State officials say most hiring credits are claimed based on residency rather than disadvantaged criteria, in part because residency is easier to verify. The qualifying residential areas generally encompass impoverished neighborhoods, but some are drawn so broadly they include middle-class and wealthy blocks.

Besides worker tax credits, the program offers sales tax credits, greater tax flexibility and preference for state contracts.

The hiring and sales tax credits alone cost the state $674,504 in lost revenue when the program began in 1986, according to the Franchise Tax Board. In 2009, after expansion and greater awareness, those same credits cost $262.5 million. Companies worth at least $1 billion received 68 percent of those credits.

Gov. Jerry Brown sought to eliminate enterprise zones in January to raise an estimated $581 million in additional tax revenue for the state in the current fiscal year and $924 million over 18 months. Stymied in the Legislature, he sought to scale back the program in May by eliminating retroactive job credits.

That proposal failed, too, as industry experts likened the practice to an individual taxpayer who realizes after filing he qualified for a credit to which he was entitled. Businesses and individuals have four years to amend their returns.

Business advocates also argued that enterprise zones help California compete for jobs, and said it would be wrong to remove hiring subsidies as the state struggles with the second-highest unemployment rate in the nation.

“Businesses are continuing to scale back, to leave, to be wooed by neighboring states,” said Craig Johnson, president of the California Association of Enterprise Zones.

Eliminating retroactivity altogether isn’t possible, those in the industry said, because the program requires that employees remain on the job for 270 days to validate the credit.

It is unclear how widespread the practice known as “retroactive vouchering” is because the state does not regularly gather such data from local enterprise zone administrators. In 2006, the California Budget Project determined that corporations claimed, on average, 14.5 percent of enterprise zone tax credits through amended returns from 1999-2003.

Besides its picture of $100 bills, Sacramento-based Wincentive quotes one client, a San Francisco restaurateur, describing $850,000 in enterprise zone credits as “manna from heaven.”

Wincentive CEO Sidney Singleton was unavailable for comment.

Another client, William Mendonca, president of Universal Service Recycling in Stockton, said he hired Wincentive in 2005 after learning about the program in a city seminar. Mendonca said he received $250,000 from the state after amending tax returns.

“Would I hire someone of less quality because they happen to live in an enterprise zone?” Mendonca said. “No. But we’ve kept a lot of people on staff and not laid people off because we’re part of the program.”

Christian Larsen, a partner at the Newport Beach-based CLC Tax Credits, said tax consultants help business owners who lack the expertise to file the necessary paperwork.

“Some are savvy enough to decide that if I move to Santa Ana instead of Irvine, I can qualify for the enterprise zone program,” Larsen said. “But I find there are businesses in these enterprise zones who have no idea they’ve been in one, and they’ve been around 20 years. The state doesn’t have the budget to market it properly, so a lot of times the marketing these companies get are from companies like ours.”

As the state considers further cuts in education and social services, labor groups are pushing Brown and lawmakers to continue looking at enterprise zones.

“The retroactive vouchering spawns some of the worst abuses, so if there’s a way we can rein that in, we’d be very supportive,” said Sara Flocks, public policy coordinator at the California Labor Federation.

Brown’s administration hopes to reshape the program through its own rule-making process – and without legislative approval – where possible.

In a memo released this month, the state Department of Housing and Community Development suggested two changes to retroactive vouchering. One proposal would limit to one year how long a business could retroactively claim a credit. Another would require firms to submit preliminary paperwork at the time of hiring.

Enterprise zone advocates indicate they are open to some change.

“I think it’s reasonable to expect there should be some limitation on it, but there are a lot of different tax rules that make (retroactivity) a necessity,” said Max Shenker, vice president of the Los Angeles-based consulting firm Tax Credit Co. and an adviser to the association.

Assemblyman V. Manuel Pérez, D-Coachella, represents Imperial County, which had a 29.6 percent unemployment rate in September, highest in the state.

With three enterprise zones in his district, he is among a handful of Democrats who opposed Brown’s elimination plan. But he is working on legislation, Assembly Bill 231, to change enterprise zones, including a reduction in the amount of time companies could file for retroactive tax credits.

He also wants to tighten the program so that more impoverished residents find work via the tax credits.

“People are really struggling and this is an opportunity for them to have a job,” Pérez said. “The best social welfare program for them at end of day is a job.”

The Santa Clarita Signal is reporting that an LAEDC economist has found flaws in the methodology used by the PPIC in its report critical of Enterprise Zones:

The Los Angeles County Economic Development Corp. announced Thursday the methodology used to determine the effectiveness of California’s enterprise zones is flawed.

The Public Policy Institute of California claimed there is no employment impact in enterprise zones, but Christine Cooper, Ph.D., senior economist for LACEDC said eliminating tax credits would result in a raise in the state-unemployment rate by as much as 3.4 percent.

The state’s poverty rate would increase by as much as 8.6 percent, and average wage and salary income would fall by $3,100, reducing personal income and sales-tax revenues collected by the state, Cooper said. While the state would initially save nearly $5,100 per year for each tax credit, it would lose an average of $20,000 per year to unemployment insurance payments for those workers who would lose their jobs.

The PPIC study differs from others in that it uses a privately developed database of businesses that self-report employment levels. LACEDC officials said the problem is that the method for reporting employment is grouped into sets of numbers so that if an employer with two employees selects the “1-5 employees” and later has five employees, it would still check the same category showing no increase in employment. The intervals for larger companies range in hundreds of jobs masking the true results for an even greater new-employee count.

Reporter Jack Dolan wrote a story for Sunday’s Los Angeles Times highlighting perceived problems with the use of Targeted Employment Areas in the Enterprise Zone program. Dolan is the same reporter who broke the story on the use of State issued ATM cards for welfare recipients at casinos.

While the article on Enterprise Zones raises some important points, I found the article deficient in three major areas:

1. Dolan fails to clearly distinguish between the Enterprise Zone and the Targeted Employment Area. Dolan repeatedly infers that wealthy residents of Targeted Employment Areas may themselves be the recipients of State tax credits that would otherwise be going into the pockets of the poor. As in the story’s lede,

Among the advantages for those who live in multimillion dollar houses on the hillside in Los Feliz are celebrity neighbors, sweeping views of the downtown skyline, the Griffith Observatory in their backyard and designation by state tax authorities that they are economically disadvantaged.

Or in this quote from a “man on the street”:

“I’m a big believer in tax breaks for the disadvantaged,” said waitress Kelsey Jessup. “But it’s hard for me to justify them for the people in here.”

Dolan does not connect all of the dots to demonstrate all of the pieces that need to fall into place in order for a tax credit to actually be generated for a wealthy TEA resident. Instead, the implication is that there is a direct State expenditure related to the fact that Charlie Sheen’s house is in a TEA. Proof of this implication can be seen in the Times‘ PolitiCal blog where Dolan’s article is plugged, “Jack Dolan reports that some affluent areas are taking advantage of tax breaks designated specifically for the poor.”

2. Dolan also did not fully explore or report on current efforts in the legislature to enact certain reforms to the Enterprise Zone program especially regarding the TEA. The Assembly Jobs Committee, at the behest of Speaker Perez, has been working for nearly a year with a working group of various stakeholders to come up with a package of Enterprise Zone reforms or fixes. The group has come up with three proposed changes to the TEA which would address all the concerns raised in the article and more. Only two of the recommendations were even hinted at in the article in his quotation from CAEZ President Craig Johnson,

Craig Johnson, president of the California Assn. of Enterprise Zone administrators, who has strongly opposed Steinberg’s bill, acknowledged that using census tracts to identify disadvantaged neighborhoods is too broad and would allow businesses to claim tax breaks for hiring highly paid professionals.

“That’s a valid concern and one we take seriously,” Johnson said, suggesting that the employment areas be smaller and the hiring credit limited to new employees making no more than the median income for the county.

The proposed legislation from the working group would a.) institute a wage cap for the TEA category so that higher income individuals who happen to live in a TEA would not make their Enterprise Zone employers eligible for the credit; b.) change the way the TEAs are drawn from census tracts to census block groups, a smaller division of the census geography; and c.) require that the TEAs be redrawn more frequently to take advantage of more up to date census data.

3. Dolan reports that City officials refused to release information about employees qualified by Enterprise Zone employers under the TEA category, but he does not report on data that zones would have been willing to provide such as the average wage rate of such employees. A sample of nearly 10,000 vouchers statewide shows that the average annual wage of employees living in a TEA was $25,200.

CAEZ President and Long Beach Enterprise Zone manager Craig Johnson had the following editorial printed in the Long Beach Press-Telegram:

Lately many business writers have taken to beating up on the state of California. Chief Executive Officer magazine recently ranked California as the worst state to do business in. Traveling around the state to business meetings, I often hear the joke that California is “like Detroit with sunshine.”

I think that is an exaggeration, but unfortunately there are some reasons why California is seen as being unfriendly to businesses. California has the highest business tax among Western states and combined with California’s high workers’ compensation costs, many business owners feel they are under assault and they’re not getting any help from Sacramento.

Many California business owners have surveyed the economic and political landscape and are looking to relocate to more business- friendly locations. I witnessed a perfect case of this in Long Beach. Cal Worthington Ford is an icon in the Long Beach area, but the company was recently considering a move.

If that business had left Long Beach it would have had a devastating effect on the local economy. Cal Worthington Ford employs about 100 workers and contributes hundreds of thousands of dollars in annual sales tax revenue to the city of Long Beach.

The state of California needs to offer companies like Cal Worthington Ford more incentives to stay in the Golden State. The best incentive is the California Enterprise Zone program. An enterprise zone is an area that has been deemed economically distressed by the California Department of Housing and Community Development. Businesses located in an enterprise zone qualify for special tax incentives.

The program’s goal is to stimulate business and job growth – and it works. Studies show that companies located within an enterprise zone pay higher wages and enterprise zones have lower rates of poverty.

Sacramento needs to understand that we can no longer assume that employers will simply stay in California because of the good weather. There is fierce competition from other states to attract our businesses.

Many California business owners have considered moving to neighboring states such as Nevada and Arizona, because of lower operating costs. In addition, many states have very attractive relocation packages. These states offer incentives such as paying worker’s salaries for a year, tax credits and even constructing buildings for new businesses.

California was once known as a leader in business and innovation. The only way we can retain that title is by continuing to back entrepreneurship through programs like the enterprise zone.

We need to give business owners more reasons to keep and add jobs in California. The Enterprise Zone program is a proven business retention and job creation tool that provides California businesses the opportunity to grow and prosper.

Dan Walters has published yet another commentary critical of the Enterprise Zone program. Walters wrote very similar columns on Nov. 9, 2009 and Jan. 12, 2010.

CAEZ president Craig Johnson and I met with Walters in his office at the Bee a few months ago to discuss his columns and provide an alternate perspective. He is a friendly and interesting person with a deep historical knowledge of California policy and politics. I’m surprised, however, to find Walters repeating the same themes as his earlier columns.

Today Walters writes:

A few weeks ago, Los Angeles Mayor Antonio Villaraigosa proudly announced that the city and the state had designated a 1,078-acre “enterprise zone” near Los Angeles International Airport.

But he leaves out the contextual story of Baxter Bioscience’s decision to stay and expand in Los Angeles as a result of the zone expansion.

In our conversation on the subject we discussed the many unintended consequences that could result from a dismantling of the Enterprise Zones such as the harm to California’s business climate that would come as a result of breaching the contract made with local governments and employers when zones were designated for 15 year terms. Walters agreed and argued that nobody was suggesting that existing zones should be canceled, rather, he wasn’t sure the State should designate new zones after the current zones expire. That’s certainly not the message that comes across in his columns.

All three columns depend on the negative study published by the PPIC last year. In today’s column Walters says:

Last year, the Public Policy Institute of California, in an exhaustive study of EZs, declared that despite their cost, they generated “no statistically significant effect on employment.”

Again, when we sat down with Mr. Walters we discussed the extremely limited focus of the PPIC study; to call it “exhaustive” requires one not to examine the study. We found him much more thoughtful and reasonable when we had a chance to have a real discussion. That is why it is so surprising to find Mr. Walters “phoning it it” with this column just repeating the same things he’s already said without any new effort to reveal the complexity of the issues.

Los Angeles Times columnist Michael Hiltzik blasts the Enterprise Zone Program as “corporate welfare” in his column published June 18.

Some people think that the Enterprise Zone program doesn’t do a good enough job of demonstrating that employers made a definite, proactive decision to hire an employee that will provide them with a tax credit. The federal WOTC program attempts to do that more, but there is a flip side to the issue, as reported in a Fort Wayne, Indiana newspaper:

Job app gets personal when tax break is aim

Dennis Pequignot of Whitley County is retired from General Electric, but the pension he receives covers only basic living expenses. And he isn’t old enough to receive Social Security benefits.

So to fill the financial gaps when his car needs work or property taxes are due or when an unexpected expense arises, Pequignot worked at a local hardware store.

About 19 months ago, that changed. Business was down, workers saw their hours cut, and Pequignot was laid off. Because he was receiving a pension, though, he was ineligible for unemployment benefits.

His only choice was to look for another job, and so far, he’s found nothing.

What he has discovered, though, is that some unusual questions – questions he’s never seen before – are showing up on job applications. Are you a veteran? Are you receiving unemployment benefits? Are you receiving food stamps or aid for dependent children? How old are you?

The questions left Pequignot stumped.

They are part of something called a Work Opportunity Tax Credit that gives employers tax breaks for hiring people who fall into 12 categories, including unemployed veterans, people receiving food stamps or other government aid, felons, and youth who have few skills and aren’t working or going to school.

The tax credit companies get for hiring people from select groups ranges from $2,400 to $9,000 per employee, depending on how long they remain employed, according to the Department of Labor website that explains the program.

This made Pequignot wonder. He’s hasn’t drawn unemployment or other assistance. He’s got a good work history. But he won’t create a tax credit for anyone who hires him.

Does this put him at a disadvantage? Will he ever make it through an initial screening if employers hire only people who carry tax credits with them?

Various officials familiar with the program don’t think it puts people at a disadvantage. The program makes people who have issues in their background that would preclude their getting a job worth taking a chance on, I was told, but the WOTC program hasn’t been used much in this area.

Marc Lotter, communications director for the Department of Workforce Development, said he hasn’t heard any objections to the way the program operates.

Anthony Hudson, who runs a program called Blue Jacket, which helps felons find work, was surprised to hear some of the questions on the applications, though answering those questions is usually designated as voluntary.

“People who put those questions in their applications are violating the law,” Hudson said. “It’s like asking how old you are (a question that is being asked) or whether you have any health problems.”

To Hudson, it encourages businesses to hire people just to get a tax credit. He fears it could be abused, with companies hiring people and discarding them just to get a tax break, though the credit appears to be based on a percentage of what the employee was paid. According to the program, a company can get a credit for an employee who works as few as 120 hours.

From the questions that are appearing on applications, some companies are obviously seeking to take advantage of the credits, but Hudson said if he ran a small, for-profit business, he probably wouldn’t even try because it is so complicated. He said that in this area, 83 percent of all businesses never take the tax credit on an employee when they are eligible, largely because they aren’t aware of the program or because the process is so complex.

Blue Jacket, in trying to find jobs for people with felony convictions, does make employers aware that all prospective employees have criminal records, but it doesn’t bring up the tax credit until a company has hired someone.

Then Blue Jacket fills out the necessary paperwork, which takes about four hours, and notifies the hiring company that it is eligible for a tax credit.

Workforce Development, on the other hand, certifies that certain prospective employees are eligible for a tax credit before hiring takes place.

It’s a federal program, Lotter said. “They passed the law and designated us to administer it.”

The headline given to Dan Walter’s column in yesterday’s Sacramento Bee was “Schwarzenegger’s job programs same old stuff.” In the piece Walters suggests:

Even when there are evaluations that question the efficacy of “job creation” subsidies, those who benefit from them resist any effort to erase them.

A case in point are the several dozen “enterprise zones” that local governments created with state permission. In theory, employers locating within the zones receive various tax breaks for hiring the unemployed. In fact, the loopholes cost the public treasury about a half-billion dollars a year, or just about what Schwarzenegger wants to spend on his new scheme.

Last year, the Public Policy Institute of California released a landmark study of California enterprise zones, saying that despite their cost, they generated “no statistically significant effect on employment.”

“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,” Jed Kolko, co-author of the PPIC study, said.

And what was the response? Schwarzenegger’s administration shortly thereafter authorized creation of new enterprise zones and the business community launched a public relations drive to support the program.

Here’s a novel thought: If Schwarzenegger and the Legislature want to give new subsidies to employers for jobs that would cost $500 million, why don’t they pay for it by erasing an enterprise zone program that already costs $500 million and isn’t working?

The choice of headline is ironic, since Walters himself is just repeating the “same old stuff.” Back on November 9 Walters wrote a piece using the PPIC study to blast the Enterprise Zone program. There was a good amount of reaction to this article: From USC Professor Chuck Swenson, in the Sacramento Bee by CAEZ President Craig Johnson, and from Deidre F. Kelsey, chairwoman of the Merced County Board of Supervisors in the Merced Sun-Star.

I’m in Sacramento this week, and it is very clear that folks in the Capitol read Dan Walters. It’s a shame that Walters doesn’t take his analysis seriously enough to deal with some of the very good points made on the other side of the argument.

Dan Dufresne, director of government relations for Epsilon Systems Solutions Inc., published the following Op-Ed in the San Diego Union-Tribune yesterday:

The state’s nonpartisan Legislative Analysts’ Office (LAO) just released some staggering figures: our state must address a deficit of $20.7 billion between now and the time the Legislature enacts a 2010?11 budget. What is perhaps even more frightening is the LAO prediction that California will have a deficit of around $20 billion each year for the next several years.

In the same report, the LAO also states that unemployment is expected to fall slowly as the unemployment rate usually peaks several quarters after a recession ends. “By 2015, unemployment is projected to be down to 7.3 percent – well above the pre-recession level,” the report says.

In the face of this ongoing fiscal crisis, the LAO recommends that lawmakers look for new sources of revenue and consider ending certain tax breaks for businesses.

Most unwisely, this includes the suggestion to reduce or eliminate the Enterprise Zone Program.

The mere suggestion of cutting back California’s only economic development tool when unemployment is not expected to drop for several years does not make any sense. The reality is that California’s economy will not recover on its own. Enterprise zones were created to revitalize distressed communities, entice business development in California and create jobs. The LAO’s own predictions about the state’s continued economic woes only highlight the need for the Enterprise Zone Program now more than ever.

In fact, the program is ultimately revenue generating as it creates more taxpayers – corporate and individual – paying more money back to the state. This is the type of program that will help get our state back on track and has already proven to reduce unemployment and poverty levels.

Other states such as New Jersey, Massachusetts and Oklahoma have embraced economic development in the midst of the recession. For example, the New Jersey Legislature enacted legislation creating a new $3,000 grant for each job created in that state during 2009, as well as another grant to offset 7 percent of new investment in plant and equipment costs. Massachusetts created a package of new programs intended to attract new investment from life sciences companies and Oklahoma is encouraging new higher wage jobs by offering a 6 percent incentive payment on payroll for new jobs that pay 150 percent of a company’s current average wage.

California needs to be able to compete with these and other states. Now is time to bolster our economic development initiatives and encourage participation in the Enterprise Zone Program so we can turn our state’s economy around.

Epsilon Systems Solutions Inc., which is headquartered in San Diego, has two locations in the San Diego Regional Enterprise Zone. Epsilon Systems’ National City location employs approximately 90 people and the Otay Mesa facility has 10 employees. Most of Epsilon Systems’ work is focused on offering technical support for government agencies such as the Department of Defense, Department of Energy and the Department of Homeland Security. More than 90 percent of the work performed at Epsilon Systems’ National City and Otay Mesa locations is performed by those in good-paying blue collar jobs, ranging from pipe fitting to welding to general laborer duties.

With a population of just over 60,000 people, National City has been especially impacted by this recession, with a 19.4 percent unemployment rate as of September 2009. Epsilon Systems – a growing company – just hired several people in the last month and a significant portion of them work at the company’s National City facility. Over the past few years, the company has hired a number of Vietnam veterans and recently discharged veterans, providing opportunities for those who often face barriers to employment.

The money that our company has saved by participating in the Enterprise Zone Program has allowed us to offer additional training for employees, hire more people, provide top-notch benefits and expand the National City facility.

While other companies are laying off workers or closing their doors, Epsilon Systems has remained competitive and continues to succeed in California’s depressed economy – and this is due, in part, to the Enterprise Zone Program’s valuable tools for business growth. The Enterprise Zone Program is crucial for businesses and residents not just in the San Diego area, but throughout California. It’s a program that California cannot afford to be without.

Deidre F. Kelsey, chairwoman of the Merced County Board of Supervisors, published a response to Dan Walters’ column in today’s Merced Sun-Star:

Contrary to Dan Walters’ column (“It’s time for a hard look at California tax dodges,” Nov. 9) enterprise zones create jobs.

Proof is in the numbers: Since the designation of the Merced County Enterprise Zone in December 2006, 577 new jobs have been created.

These jobs are a lifeline for residents in Merced, many of whom face barriers to employment.

Merced County and its cities have typically struggled to attract new businesses and is an area that has been hard hit by the economic downturn.
In September of this year, Merced County had a 15.7 percent unemployment rate, which is down from 20.2 percent in March 2009.

Our state desperately needs concrete economic development tools in order to remain competitive.

We cannot afford to be short-sighted; we should not cut back programs that will fundamentally help us grow our economy and recover from the recession.
Merced has seen first-hand the benefits of the enterprise zone designation.

Recent research has shown that enterprise zones increase employment, increase wage, salary and income levels, and decrease poverty rates. These are measurable benefits that are eagerly welcomed in our county.

The enterprise zone program represents an important investment in the future of Merced, and in the health of our state. We can no longer take for granted that businesses will locate in California and grow into a healthy and sustainable tax base.

We need to show that our cities and county are open for business, and the enterprise zone helps deliver that critical message.

The Sacramento Bee has printed a rebuttal to Dan Walters’ last column by CAEZ President, Craig Johnson:

Dan Walters’ Nov. 9 column, “It’s high time for hard look at tax dodges,” questions the effectiveness of “enterprise zones,” yet evidence to the contrary points to the continued success of the program. Business owners large and small face the challenges of the cost of doing business, meeting payroll and ensuring a return on investment in a state with the highest state sales tax, the second highest state income tax and the second highest workers compensation rates in the nation. Simply put, the enterprise zone program is an investment in our state’s future.

A 2006 report to the Department of Housing and Community Development revealed that poverty decreased 7.35 percent more in enterprise zones, unemployment rates fell by 1.2 percent, household incomes grew 7.1 percent faster, and the wages and salary levels grew 3.5 percent more than the rest of the state. Hardly the signs of a “tax dodge” designed to give employers an incentive to do business in California.
Looking beyond the numbers, there are countless stories of businesses that have remained or expanded their California operations because of the enterprise zone program. Most recently, the Bayer manufacturing facility in Berkeley was on its way to the East Coast, but the expansion of the Oakland enterprise zone to include Berkeley persuaded Bayer to keep its operations and its 1,300 employees in the East Bay. Bayer now will invest more than $100 million in plant upgrades to manufacture a new drug to treat hemophilia.

The value of enterprise zones is clearly understood by local governments – there were 15 applications submitted to the Department of Housing and Community Development for four openings in the most recent round of designations. Rather than being viewed as a drain on local budgets, cities and counties compete through a rigorous and costly application process for an enterprise zone designation that will bring measurable economic development benefits to their communities.

Enterprise zones encourage economic growth and job creation, resulting in higher revenues for state and local budgets. The program puts people to work who face the greatest barriers to employment, reducing the strain on overburdened social service programs.

In the face of deep spending cuts, it is short-sighted to suggest elimination of the enterprise zone program. It is the cornerstone of our state’s economic recovery strategy and will lead the way to economic growth and expanded business activity in California.

On Monday the Sacramento Bee’s Dan Walters published another attack on the Enterprise Zone program touting the PPIC’s critical study and dismissing a University of Southern California study charging that it had been “quickly re-released,” and that Dr. Charles Swenson’s “affiliation with a company, National Tax Credit Group, that advises firms on how to obtain government tax breaks,” had not been disclosed.

I asked Dr. Swenson to react to Walters’ column. He said that,

The Universities of Maryland and Southern California and my two esteemed colleagues, economists Dr. John C. Ham and Dr. Ayse Imrohoroglu, who performed all the analysis and write-up, would be astounded with an insinuation that my membership on the advisory board of NTCG could have had any influence on this study.

Dr. Swenson added,

These universities and researchers have only one agenda: doing good science. My role was primarily to generate the idea, and to provide some input as to how the various states’ EZ systems worked. I could not have influenced the analysis or conclusions on this paper, even if I had wanted to.

Dr. Swenson was also on hand at the annual conference of the California Association of Enterprise Zones last week in Fresno to present the findings of the USC/University of Maryland study. At that presentation he pointed to serious flaws in the underlying business data that PPIC relied on.

It seems that Mr. Walters is less interested in actual academic findings than in promoting a specific agenda.

See also this additional paper authored by Dr. Swenson discussing specific issues in the related PPIC study.

The Sacramento Bee‘s Dan Walters has a new attack on the Enterprise Zone program today:

Last June, the Public Policy Institute of California released a highly critical report on California’s “enterprise zone” program that provides big tax breaks to businesses for supposedly hiring workers in areas of high unemployment.

PPIC’s study of the 42 zones, which are created by local governments with approval from the state Department of Housing and Community Development, concluded that state and local governments were losing about a half-billion dollars in revenue each year without any discernible impact on joblessness.

“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,” said Jed Kolko, co-author of the PPIC study.

There were three reactions to the densely sourced study:

• The University of Southern California’s Marshall School of Business quickly re-released a study by Dr. Charles Swenson declaring that California’s enterprise zones had “statistically significant” positive impacts on employment and incomes of affected households – without revealing Swenson’s affiliation with a company, National Tax Credit Group, that advises firms on how to obtain government tax breaks;

• The state certified or recertified enterprise zones in Kern and Tulare counties and five cities; and

• The California Chamber of Commerce and other business groups ramped up a public relations campaign to defend the enterprise zone program.

As California’s fiscal crisis deepens, the competition for ever-scarcer public funds is growing more intense. Spending programs and tax breaks – “tax expenditures” in fiscal parlance – are facing closer scrutiny.

The PPIC study is potent ammunition – as it should be – for those who question whether enterprise zones and other corporate tax breaks should remain untouched while health, education and welfare programs face deep spending cuts.

Michael Bolden, a lobbyist for the American Federation of State, County and Municipal Employees, cited the PPIC study during a legislative hearing on enterprise zones last month.

“There hasn’t been any sort of proof that the enterprise zone program works,” Bolden said. “It’s been a boon for business, but we don’t necessarily see the return on investment coming back to the state.”

Like many loopholes enacted on the premise that they would enhance employment, including a new batch approved just this year, enterprise zones have received little objective evaluation on whether their purported benefits have materialized.

The dueling studies from PPIC and USC frame the vacuum. And if Gov. Arnold Schwarzenegger and the Legislature are serious about navigating through the sea of red ink now engulfing the state budget, they’ll divert the energy they now expend on dreaming up gimmicks to making some hard decisions on how taxpayers’ money is being spent – or squandered.

Andrew Myrick, manager of the new Salinas Valley Enterprise Zone, has an Op-Ed in the Californian:

…In the midst of this recession, other states are expanding their enterprise zone programs and are implementing incentives that are focused on attracting businesses from California. It is absolutely imperative that California have a meaningful and useful economic development program to fight back. The enterprise zone program is just that.

Professor Charles Swenson from the University of Southern California Marshall School of Business confirms that enterprise zones work. His research found that California’s enterprise zone program decreases unemployment rates, boosts wage, salary and household incomes and decreases poverty rates. Another study by the California Department of Housing and Community Development found that poverty rates and unemployment declined and incomes increased more in enterprise zones than in the rest of the state.

That is exactly why the city of Salinas and its partnering communities worked hard to obtain a designation as an enterprise zone. As part of our commitment to economic development, the Salinas Valley Enterprise Zone is partnering with the Monterey County OneStop Career Center to help match qualified employees with eligible businesses and put people back to work.

Additionally, the Salinas Valley Enterprise Zone will soon start aggressively marketing the benefits of the zone to existing businesses. A new entity, the Salinas Valley Economic Development Corporation, is being formed to attract new businesses to the area.

As our state looks for ways to solve its financial crisis, our decision makers should focus on increasing employment opportunities and growing our economy. Designating the Salinas Valley as an enterprise zone is a step in the right direction. Our entire region, and now the state, is committed to enhancing residents’ quality of life by revitalizing distressed communities and creating high-paying jobs.

By encouraging businesses to stay in the Salinas Valley and attracting new ones, the Salinas Valley will be able to diversify and grow its local economy and ensure that the region has a healthy economy.

From the Senator’s own blog:

It’s no secret that California is facing an economic crisis not seen since the Great Depression. Unemployment in the Inland Empire has now reached 13 percent, and the state is facing a $26 billion deficit.

While the entire nation is suffering during this economic downturn, I believe there is a direct correlation between California having the fourth highest unemployment rate in the Country and this state’s anti-business climate.

I’ve repeatedly referred to study after study, including from Forbes Magazine, Chief Executive Magazine and the American Legislative Exchange Council which show that California continues to rank as the most expensive place to do business. I believe these studies and California having the fourth highest unemployment rate in the nation are directly related and why businesses are fleeing California for nearby states that offer a more business-friendly atmosphere.

Companies of all sizes are being lured to Texas, Arizona, Nevada, Washington and Oregon. Nevada, for example, has rolled out the welcome mat and is aggressively recruiting businesses to not only with an advertising campaign but by keeping costs and regulations to a minimum that make our neighbors to the west a very attractive place for a struggling California businesses to succeed.

California is a major economic power, but we are losing our standing in the nation and world because of the unneeded and unnecessary regulations on businesses that are forcing them to leave. If we are going to ever turn around California’s economy it must come through the creation of private sector jobs.

Recently, I met with representatives from the San Bernardino Valley Enterprise Zone along with some of the zone’s businesses who traveled to Sacramento to talk about the value of the Enterprise Zone Program. This program is one of the only remaining incentive programs that California still possesses. I believe it must be maintained and protected, if not expanded, to continue the support of business growth in this state.

We talked about how this valuable program played a key role in keeping these businesses in the state. Without it, their businesses would be in financial jeopardy and they would be forced to leave creating an even worse business environment.