Mr. Nunn reported that they are receiving a fair number of applications from zone for expansions, and that some of these applications are pushing the envelope of acceptability. He said that we should expect to see a management memo detailing the guidelines for expansions. He also said that there are another four management memos on a variety of policy issues in the works to be released in the near future.

There are two zones that will be expiring over the next year. HCD is placing a significant focus on releasing a new application to streamline the next round of new zone applications. Based on feedback they have received, Mr. Nunn anticipates that with only two slots open, there will be intense competition. The new application is scheduled to be released on Feb. 15 and they will be due on Aug. 15 with new zone announcements some time in October or November 2010. HCD anticipates that there will be a series of workshops about the application at locations around the State.

Vouchering workshops in the the works as well as “new zone orientations” for the four new zones that will be receiving designation shortly. In fact, Mr. Nunn explained that Hesperia is very close to receiving its final designation and the others will follow close behind.

Frank held the position of Section Chief for the State Enterprise and Economic Development Section which had broad responsibilities in addition to the EZ Program, especially the CDBG Program.  The Department is still seeking a replacement for the Section Chief position, however they have appointed John Nunn as the Program Manager for Enterprise Zones, a position which has not been filled for some years. Hopefully the Program will benefit greatly from having a dedicated manager.

In addition to the above, a new position has been added to he hierarchy, the Federal Programs Branch Chief which has oversight over the Section Chief’s programs as well as the Home Program.  This position has been filled by Tom Bettencourt who has many years of experience with the Department overseeing the Home Program.

Frank was officially appointed to lead the Program in November of 2006 replacing Mark Maldonado, but had been working with the Program for some time before that. During his tenure, Frank oversaw the most sweeping and significant changes in the Program’s twenty-plus year history including the implementation of regulations, the expiration of the majority of zones and the designation of new zones to replace them.

I would like to personally thank Frank for all of the hard work he has put in, his extraordinary patience, and openness to new ideas. I wish him all the best in his future endeavors.

• 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.

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.

Update on the 2008/2009 Designation Round — The Department is currently drafting the Application Guidebook for the next designation round. For this round, there will be four slots available. At this time, the Department expects to release the guidebook by September 30 with a due date of late January or early February. If you need more information on a release date, please call Lesley James at (916) 322-1112.

AB 2875 changed the effective date of each LAMBRA’s eight-year period. Because AB 2875 stated that a LAMBRA would begin its eight-year period after it fulfilled the later of two conditions, the legislation in effect changed the designation period stated or implied in the MOUs executed by the State Agency and signed by the LAMBRAs. This change occurred because most, if not all, of the LAMBRAs in 2002 had not met the later of the two conditions. Therefore, according to AB 2875, their eight-year period had not begun.

The conditions set forth in AB 2875 indicated that the State had to modify the terms of the original MOUs. However, based on our research, it appears that the State did not fully or accurately implement these modifications. For example, we found only two instances in which the State executed new memoranda of understanding. In both instances, the State concluded that the LAMBRAs had met the later of the two conditions specified in AB 2875 and, therefore, had begun their eight-year designation period. Upon further review, we found that at least one of these LAMBRAs had not transferred its economic development parcels as required by one of the conditions and, therefore, should not have started its designation period.

• New enterprise zones must apply for a Targeted Employment Area.
• A TEA may include a census tract that overlaps with the boundaries of a jurisdiction that is not participating in the enterprise zone.
• Enterprise zones that previously attempted to include a census tract that overlapped the boundaries of a non-participating jurisdiction may re-apply to include this census tract.
• New enterprise zones may use their former TEAs during their conditional stage.
• The use of a former TEA is not impacted by the absence of former enterprise zone partners unless the TEA expired prior to 2006.
• Once approved, a new TEA will become effective on the enterprise zone’s designation date.
• Because of the Department’s policy of allowing former zones to use their former TEAs during their conditional stages, these zones will have their former and new TEAs coincide for the conditional period.

• 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.

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.

Some have been wondering if Arvin will ever complete their conditions for becoming an Enterprise Zone. In the mean time, they occupy one of California’s 42 EZ slots preventing any other jurisdiction from attaining that designation until some other zone expires.

But just last week Arvin Mayor Tim Tarver published an Op-Ed in The Bakersfield Californian supporting the Enterprise Zone program in general, and the Arvin EZ in particular, against any attempt to limit the program in the current budget cycle:

Faced with a budget crisis that is set to impact every Californian, tough choices will have to be made to bring order and stability for the years ahead.

The governor and our state Legislature are looking for programs they can cut without too much political backlash. But these choices must not be made in haste. We need to consider the unintended consequences of cutting statewide programs that truly make a difference in cities like Arvin, far away from the Sacramento budget epicenter.

As mayor of the City of Arvin, I know that one of these programs the Enterprise Zone program will help create needed employment opportunities for our city. Yet today this program is under serious threat of being phased out.

The EZ program will bring jobs to Arvin. And it will keep them here. One of the biggest challenges facing our area is being able to recruit local business investment and keep a healthy amount of employees working in our area.

The EZ program, with its attractive mix of incentives and credits, will aid our city in building a stronger base of local businesses and employees. This means a more financially secure and bright future for Arvin.

I spoke with a representative of the City working on the Enterprise Zone and I was told that Arvin has just completed their EIR process which will be presented to the City Council for ratification on June 24th and their intention is to send that last piece to HCD the following day. They have a letter from HCD giving them until July 18th to complete their EIR, so their hope is to be ahead of schedule. After that the ball falls into HCD’s court to compose the Memorandum of Understanding required to assign the final designation date.

As far as Arvin is concerned, they are moving their zone full steam ahead.

Hat tip – Chris Micheli.

Effective immediately, employers applying for a hiring tax credit certificate or voucher may temporarily use an Employee’s Withholding Allowance Certificate, Form W-4 (“W-4”), to verify that an employee resided in a Targeted Employment Area (TEA) immediately preceding the commencement of employment for purposes of eligibility for the TEA category. This change indicates the Department of Housing and Community’s (Department) intention to permanently add the W-4, subject to regulatory approval, as an acceptable document for TEA eligibility. It also signals the Department’s plan to delete the Form I-9, U.S. Department of Justice, Immigration and Naturalization Service, from the list of acceptable documents. The following sections describe these changes.

The State of California’s Department of Housing and Community Development (HCD) was presented with the “Above and Beyond Excellence Award” at the California Association for Local Economic Development’s (CALED) Annual Conference in Anaheim last week. Staff from HCD’s Division of Financial Assistance received the honor, recognizing their hard work in providing excellent service to California communities, specifically regarding the Community Development Block Grant – Economic Development program (CDBG-ED). The program provides communities with resources to address a wide range of unique economic development issues.

“It’s an honor to be recognized by CALED for the work that the Department of Housing and Community Development does every day to expand safe and affordable housing opportunities and promote strong communities, “ said Lynn L. Jacobs, Director of HCD. “I’m proud that employees of the State of California are being recognized as leaders in service for communities throughout the state.”

Long Beach received their final designation on April 9th bringing the total number of conditionally designated zones to receive final designation to 7 out of 23.  They are:

Compton, Fresno City, Fresno County, Long Beach, Oroville, Pasadena, and Santa Clarita.