EZ Policy Blog

From the San Bernardino Sun:

It is no secret this is one of the most challenging budget years for California. It is understandable that a thorough review of the state’s expenditures is taking place.
One such expenditure under review – the California Enterprise Zone Program – is directly tied to the success of many of our small and medium-sized businesses. The changes in policy being discussed could increase the cost of doing business for many local companies and put jobs at risk.

The San Bernardino Valley Enterprise Zone is our local zone in this program. It is a 42-square-mile region that includes the cities of San Bernardino and Colton plus portions of county property, and contains 4,000 businesses. These businesses are eligible for tax credits and business incentives if they meet certain specifications. These incentives not only serve to attract businesses to locate to the zone, but also allow companies to reduce the cost of doing business. This leads to greater and more stable employment in the enterprise zone.

California’s Assembly Committee on Jobs, Economic Development and the Economy is reviewing and considering revisions to the California Enterprise Zone Program statewide, and recently completed a series of pubic hearings in the process.

These hearings, held in San Diego and San Jose, were attended by a number of businesses from enterprise zone areas that shared and identified ways the program is helping to stimulate their local economy and keep their businesses stable.

The Assembly Committee heard them and I hope their testimony will be considered.

Some of the feedback received from businesses in the San Bernardino Valley Enterprise Zone also makes a strong case in support of this zone and its impact to help our local employers continue to thrive and employ residents.

It is difficult to argue with evidence of an employer that is not just surviving, but thriving in this difficult economy.

For example, Brithinee Electric, a manufacturer of industrial electric motors, wind generators and custom motor control centers, has utilized the enterprise zone program for nine years, and as a result, has doubled its work force. The tax credits allowed Brithinee Electric to hire local residents, and the savings produced by the tax credits funded additional technical skills training for these new hires.

According to Tom Lund, director of operations for Isolatek International, a leading manufacturer of passive-fire resistive materials for commercial construction, the enterprise zone was an additional incentive to move to San Bernardino in 2007. The company has filed hiring tax credits and will file for sales and use tax credits on equipment purchased, which will increase their savings. Now in the process of hiring an additional 20 employees, the incentives are helping make the company more competitive and employ more people.

These are two examples of how effectively this program is working in our local economy, and there are many more similar stories.

Unfortunately, not all the businesses located in the zone are taking advantage of these incentives. In an economy like this, no company should be leaving money on the table.

Businesses located in the San Bernardino Valley Enterprise Zone may reduce state income tax by more than $35,000 per qualified employee over a five-year period. Another incentive helps enterprise zone businesses by allowing a tax reduction for property and equipment that is purchased and used within the boundaries of the zone. For our small and medium-sized businesses, these incentives can make a difference between profit and loss.

I urge all businesses located in the enterprise zone to take advantage of these incentives that will reduce their business costs. The process is not complicated and more information can be found at www.sbvez.com.

I also encourage legislators considering revisions to the enterprise zone program to avoid removing any incentives that may increase the cost of doing business for our local employers. This program is helping to sustain our struggling businesses and keeping our residents employed during these challenging times.

The first speaker of the fourth panel from the 10/19/09 JEDE hearing was Professor Samuel Bornstein, Professor, Kean University, School of Business, Union, NJ. While most of the discussion surrounding the Enterprise Zone program has always focused on the hiring credit, Professor Bornstein has a focus on the NID component of the program. He has done research which has found that many small business owners have used their homes as collateral to obtain loans to fund their businesses. Many of these loans are the very same toxic loans which have played such a significant role in the country’s economic troubles over the last two years. Professor Bornstein has a proposal for modifying the NID benefit of the Enterprise Zone program to help these small business owners and help prevent many of them from losing their homes.

Here is a repeat of Professor Bornstein’s testimony to the panel:

JEDE Committee Hearing 10-19-09: Professor Bornstein from Max Shenker on Vimeo.

Professor Bornstein also provided me with the transcript of his remarks, as well as a much more detailed written version of the proposal. The following is the transcript as provided to me by the professor:

Introduction:

Good afternoon Chairman Perez, and Members of the Committee. Thank you for inviting me to discuss the California Enterprise Zone Program.

I would like to propose a Refinement of the Net Interest Deduction for Lenders that addresses the main concerns of California’s present economic crisis—to stimulate economic recovery, enhance small business survival, save and create jobs, and provide small business owners a means for effective loan modification which will prevent foreclosures.
My name is Samuel Bornstein. For the past 33 years, I have been a Professor of Accounting and Taxation, — as well as a CPA and Consultant in public practice.

Since 2000, I and my partner Jung Song, of Bornstein and Song CPAs & Consultants, have conducted small business research.

We discovered a Link between the Mortgage Crisis— and Small Business Owners. We found that small business owners often took out mortgages on their homes to get cash for their newly created or existing businesses, but the main problem was that they used toxic mortgages. In fact, small business owners were targeted by the lending community for these toxic mortgages.

Read the rest of this entry »

Part four of the hearing included the following speakers:

IV. Business Activity within G-TEDAs: Focus on Small Business Development

• Samuel D. Bornstein, Professor, Kean University School of Business, Union NJ
• Daniel Fitzgerald, Executive Director, Calexico-County Enterprise Zone
• Matthew Gordon, Owner, Aztec Appliance
• Carlton Hargrave, Owner, Hargrave Restaurant Group, Hometown Buffet, and Imperial Catering
• Manuel Quintero, Director, Knight and Carver Wind Group
• Pamela Kvitli, Director, Laing Technologies, Inc.

Here is the first part of the fourth panel:

JEDE Committee Hearing 10-19-09 Clip 5 from Max Shenker on Vimeo.

And the remainder of the fourth panel along with answers to the Chairman’s questions:

JEDE Committee Hearing 10-19-09 Clip 5 from Max Shenker on Vimeo.

The final clip are the public comments:

JEDE Committee Hearing 10-19-09 Clip 7 from Max Shenker on Vimeo.

The following video segment covers part III of the agenda, however part of the panel was not recorded.  This clip begins in the middle of some comments by Senator Denise Ducheny and then continues the third and fourth presenters.  The agenda listed for this panel:

III. Measuring Success

• Lydia Moreno, Business Incentives Program Manager, City of San Diego, Office of the Mayor, Economic Growth Services
• Michael Bolden, Political and Legislative Advocate, American Federation of State, County and Municipal Employees
• Darren Solomon, Regional Director, Pacific Community Ventures
• Jim Euphrat, Tax Manager, Government Relations & Business Planning, National Steel and Shipbuilding Company (NASSCO).

JEDE Committee Hearing 10-19-09 Clip 4 from Max Shenker on Vimeo.

The following two video segments cover the first panel from the 10/19/2009 hearing in San Diego.  Here is the link to the final agenda, and the first panel of presenters were:

• Brian McMahon, Executive Director, Employment Training Panel
• Murtaza Baxamusa, Research Director, Center on Policy Initiatives
• Carrie Portis, Executive Director, San Francisco Works
• Vicky Lovell, Senior Policy Analysts, California Budget Project
• Ramon Valdez, Accountant, E&E Industries

JEDE Committee Hearing 10-19-09 Clip 2 from Max Shenker on Vimeo.

JEDE Committee Hearing 10-19-09 Clip 3 from Max Shenker on Vimeo.

We have had some technical difficulties getting the video from the 10/19/09 JEDE hearing in San Diego, but the initial bit is in.  This first clip includes all of the introductory remarks before the first panel of presenters.  It includes remarks by the Chairman, Manuel Perez; Jennifer Vanica, President of the Jacobs Foundation; Assemblymember Marty Block; and Assemblymember Mary Salas, and Committee consultant Toni Symonds. Here is the final agenda from that meeting.

At the very end of the clip Mary Salas makes what I find a critical comment:

There were certain points of legislation that were introduced last year that would have significantly changed the way Enterprise Zones operate. So this hearing is very, very important to make sure there are no unintended consequences in what we do, and that the Enterprise Zones continue to operate in a manner that are conducive for job development and job growth and the success of our business community.

Too often the legislative process fails to fully consider these “unintended consequences.”

Here is the video:

JEDE Committee Hearing 10-19-09 Clip 1 from Max Shenker on Vimeo.

The office of Assemblyman V. Manuel Perez just released the following press release:

(CALEXICO) – Today, Chair of the Assembly Committee on Jobs, Economic Development, and the Economy, V. Manuel Pérez (D-Coachella) held a roundtable meeting to discuss proposed changes to the California Enterprise Zone Program and other Geographically-Targeted Economic Development Area (G-TEDA) programs. Roughly 35 people attended, including leaders from the Calexico County, Imperial Valley, and Coachella Valley Enterprise Zones, city council members, and business owners who either operate businesses in the zones or are interested in relocating to one.

“We have spent many months developing a varied set of recommendations, gathering them through a public process that included hearings held in Sacramento, San Diego, and San Jose,” said Pérez. “Before we head into the next legislative year, I wanted to hear directly from local business and zone staff in the 80th District to gain their perspectives about the many different proposals we have in front of us.”

The meeting was held at the Hometown Buffet, located in the Calexico County Enterprise Zone. About the meeting, owner Carlton Hargrave remarked, “As a member of the Calexico community I was extremely proud to have Assemblymember Pérez host an Enterprise Zone roundtable here in our region. The economic benefits of this program are very important to our city and county and I appreciate the opportunity to have direct input on legislation and policy being worked on in Sacramento.”

Imperial Valley Enterprise Zone Manager Diane Cason also expressed enthusiasm for the event: “It is extremely beneficial to have the Assemblymember meet directly with the locals and ask them for their input. The roundtable was a great opportunity to speak with him one-on-one.”

The roundtable caps off a series of meetings and hearings conducted over the last several months by the Committee to thoroughly examine the state’s Enterprise Zone program to ensure it is meeting the needs of local communities during this time of recession.

The Assembly Committee on Jobs, Economic Development and the Economy is the policy committee within the California State Assembly responsible for reviewing policies and legislation related to small business development, international trade, G-TEDAs and other economic development related issues. The committee regularly publishes reports on these areas of interest. Copies of these reports are available online at www.assembly.ca.gov.

FOR MORE INFORMATION, please contact Antonio Ortega at 916-319-2080 or Amy L. Wilson at 916-319-2080.

Here is another updated agenda for Monday’s hearing in San Diego.

Here is an updated draft agenda for Monday’s hearing in San Diego.

Here is some more of the resource material presented at the hearing:

1. The white paper prepared by Toni Symonds, chief consultant for the JEDE Committee, and updated for the hearing. (77 page PDF)

2. The white paper prepared by Blake Christian, CPA of Holthouse, Carlin & Van Trigt covering important topics such as the limitations on the use of EZ tax credits.

Update: The San Jose Redevelopment Agency was kind enough to share a couple of photos from the hearing:

 Left to right: Toni Symonds, Assemblyman V. Manuel Perez, Assemblyman Jim Beall Jr.

San Jose Mayor Chuck Reed

Here is the final version of the agenda from last week’s hearing with the actual list of speakers.  This hearing predominantly featured the perspectives of businesses that utilize the program and the local governments who administer it.

It was notable that AB 1139 author Assemblyman John Perez was present for most of the meeting and engaged the presenters in serious dialogue highlighting some differences in understanding the actual purpose of the program.

On the second panel, John Weiss, Assistant Executive Director, San Jose Redevelopment Agency, gave a Power Point presentation which provided a very good perspective on how the program is being utilized in San Jose. The City was kind enough to provide me with a copy of the presentation here.

Arguably, the highlight of the hearing came at the very end of the public comment section when Andrew Myrick, manager of the new Salinas Valley Enterprise Zone, gave an impassioned presentation on the perspective from his zone.  The Committee Chair was clearly moved and invited Myrick to present again in a forum which woud have a larger audience.  I asked Andy if he happened to have his remarks in writing, and he provided me with the following notes:

Although the TEA is the most used criterion for claiming hiring credits, this is because it is the easiest one procedurally for businesses.

o Because an employee is claimed under the TEA does not mean they could not have been claimed under another criterion. For example, an employee residing in a TEA could also be eligible for CalWORKS. This information does not show up in the statistics.

o We are working with the Monterey County OneStop Career Center (the local CalWORKS, WIA, and WIB Administrator) and they have agreed to review all of the TEA vouchers we approve and see if they can determine if they would qualify under another criterion. Hopefully, this will provide information about the use of the TEA.

o OneStop is also pre-screening job-seekers to see if they qualify them for credits. If they qualify, they are giving them “Gold Cards” with information on the Enterprise Zone that they can show to potential employers. Employers can contact OneStop for more Zone information and to get the documentation necessary to obtain the Credits. This helps employers identify potential employees at the hiring phase, rather than simply claiming the credit after the fact.

Even if every person living in a TEA may not be individually disadvantaged, the true value of the TEA lies in rehabilitating suffering communities.

o Unemployment in the Salinas Valley is (and has been) double-digit for years…some communities already unemployment of 20%-25%.

o If past trends continue, some communities in the Salinas Valley could see unemployment rates of 35%-40% in the coming months when the ag jobs heads south for the winter.

o The unemployed and their families are attractive targets to criminal gangs looking to recruit new members.

o We have implemented a new program in Salinas known as Operation Ceasefire. It involves offering gang members a chance to get out of the gang lifestyle through incentives of job training and support services.

o The Enterprise Zone has partnered with Operation Ceasefire to help them in their efforts. We can help convince the targeted youths that getting a job is a real possibility because their first-year wages will be cut in half through EZ tax credits. Similarly, businesses will be more willing to take a chance on these youths if there is a financial incentive to do so (for this reason, tax credits should remain high during the first year of employment…providing low credits during the first year provides little incentive for a business to take a chance on that employee).

o The TEA is vital in helping us to make sure that every at-risk youth would qualify for tax credits.

The threshold for the Employee Tax Credit should be increased

o We will be making efforts to publicize this benefit by putting information on our website and training VITA program volunteers in how to claim the Credit.

o However, the threshold is too low – a full-time minimum wage worker would make too much to qualify for the credit.

o This limits its effectiveness. We don’t know where the threshold should be, but we believe it is too low if even minimum wage workers cannot take advantage of this program.

Here is the updated agenda for the next hearing to be held in San Diego on the 19th.

Yesterday was the second of three hearings being held by the Assembly Jobs, Economic Development and the Economy Committee.  Unfortunately, there was no recording of the meeting, so I will have to try to use some of my notes to reconstruct the event.

For starters, here is a video news report from San Francisco ABC affiliate channel 7 which has some footage from the hearing.

Here is the latest version of the draft agenda for the next JEDE Committee hearing on October 8th.  Now we have a schedule and a location:  From 10:30 am to 2:00 pm at the Roosevelt Community Center, 901 East Santa Clara Street, San Jose, CA 95116.

Thank you for the feedback on my poll, based on the results I’ve reverted to linking the document in good old fashioned PDF.

The following document is a table of all proposed changes thus far to the Enterprise Zone program being considered in the JEDE Committee hearings. The next hearing is currently scheduled for October 8th in San Jose.

JEDE Committee Summary List of Reform Issues (DRAFT) –

Find all related blog posts on the JEDE hearings here.

Here are the draft agendas for the next two JEDE Enterprise Zone hearings. These are, of course, subject to change.

For October 8th in San Jose:

Draft Public Agenda for October 8 JEDE –

For October 14th in San Diego:

Draft Public Agenda for October 14 JEDE –

Assembly Speaker Bass has approved the dates for two additional hearings on the Enterprise Zone Program. The next hearing will be on October 8th in the Bay Area and the final hearing will be on October 14th in Southern California.

These dates may still be subject to change pending room availability.

Stay posted for more details.

The Imperial Valley Press issued the following report on the recent JEDE Committee hearing:

Representatives from the Imperial Valley are promoting the effectiveness of local enterprise zones as some state representatives have attempted to pass legislation that would drastically weaken them.

Last week Tim Kelley, the president and chief executive officer of the Imperial Valley Economic Development Corp., spoke in Sacramento about how the zones are closely tied with the county’s development plans.

“It’s an integral part of economic growth in the county,” Kelley said.

There are two more upcoming hearings, including one Oct. 8 in San Diego.

Lately, the zones have encountered criticism from Assemblyman John Perez, D-Los Angeles, who drafted legislation that would essentially remove several economic incentives provided to businesses that locate within the zones.

Imperial County has two zones, one in Calexico and one in Brawley, and both cities’ councils passed resolutions opposing the legislation in May. Since 2006, more than 40 local businesses have taken advantage of Enterprise Zone programs.

Kelley said the legislation would eliminate a simple tax credit given to businesses that hire local workers and replace it with a complex voucher system that would cost larger businesses hundreds of hours to implement and track, essentially eliminating any benefits from the credit.

“It puts an extra burden and cost on the employer,” Kelley said.

Danny Fitzgerald, who manages the Calexico Enterprise Zone, said the legislation has been put on the back-burner, but there are still a lot of questions from state legislators as to whether the zones spur economic development or are another form of corporate welfare.

Fitzgerald said many of these concerns come from urban areas, which face different issues compared to the rural Valley.

“Locally, there’s massive support for enterprise zones,” Fitzgerald said.

The third and final panel of the hearing was titled, “Economic and Workforce Development in G-TEDA’s” and had the following panel of speakers:

• Clifford Weiss, Deputy Director for Economic Development, City of Los Angeles
• Timothy Kelley, President of Imperial Valley Economic Development Corporation and past Chair of local workforce investment board
• Barry Broad, Legislative Advocate, International Longshore and Warehouse Union
• Sunaena Chhatry, Senior Policy Associate, EARN
• Shawn Guttersen, Vice President, BLT Enterprises

There was a certain amount of anticipation surrounding this panel because of comments made previously regarding the Enterprise Zone by Mr. Broad. He did not fail to entertain the crowd.

First up, Cliff Weiss from the City of Los Angeles:

JEDE Committee Hearing 8-18-09 Clip 12 from Max Shenker on Vimeo.

Timothy Kelley explained the significant difference the Enterprise Zone has made in the Imperial Valley:

JEDE Committee Hearing 8-18-09 Clip 13 from Max Shenker on Vimeo.

Before this next clip I am compelled to issue a warning. I try to run a family friendly blog here, so the material may be shocking to some. Certainly if you are at work or other public place you will want to be very careful with the volume control. By all means, this is not for children. At about 2:30 into the clip the Chairman has had enough and tries to bring the extreme rhetoric to a halt, but Mr. Broad persists:

JEDE Committee Hearing 8-18-09 Clip 14 from Max Shenker on Vimeo.

In the middle of Mr. Broad’s diatribe, Shawn Guttersen, who was scheduled to be the final speaker on the panel and who had been seated at the table with the rest of the panelists, got up and left. That left Ms. Chhatry to follow alone:

JEDE Committee Hearing 8-18-09 Clip 15 from Max Shenker on Vimeo.

The next clip is the wrap up of the third panel with questions from the Committee members:

JEDE Committee Hearing 8-18-09 Clip 16 from Max Shenker on Vimeo.

Then there was opportunity for additional public comments:

JEDE Committee Hearing 8-18-09 Clip 17 from Max Shenker on Vimeo.

And in the final clip, Chairman Perez wraps it up and sets the stage for subsequent hearings:

JEDE Committee Hearing 8-18-09 Clip 18 from Max Shenker on Vimeo.

Part 3 of the series will cover the second of three panel discussions, “Business Activity within G-TEDAs.” The panel presenters were:

• Charles Swenson, Professor, University of Southern California
• Jed Kolko, Associate Director, Public Policy Institute of California
• Enita Elphick, President, Unity Forest Products, located in Yuba City Enterprise Zone
• Lenny Goldberg, Director, California Tax Reform Association
• Chris Micheli, representing the Aerospace Industry

The first two presentations cover the most recent academic work published about California’s Enterprise Zone Program by the USC Marshall School of Business and by the Public Policy Institute of California. First was USC’s Dr. Swenson:

JEDE Committee Hearing 8-18-09 Clip 6 from Max Shenker on Vimeo.

Followed by PPIC’s Dr. Kolko:

JEDE Committee Hearing 8-18-09 Clip 7 from Max Shenker on Vimeo.

These were the two longest presentations of the day and each one did a good job of trying to differentiate their study from the other.

The next presenter, Enita Elphick, was one of the definite highlights of the day. Enita started a successful business by putting everything on the line – and the Enterprise Zone made the difference. The Chairman was clearly impressed by her remarks:

JEDE Committee Hearing 8-18-09 Clip 8 from Max Shenker on Vimeo.

This inspiring presentation was followed by long time critic of the program Lenny Goldberg of the California Tax Reform Association. For those who have been to hearings like this in the past, there was very little new here:

JEDE Committee Hearing 8-18-09 Clip 9 from Max Shenker on Vimeo.

Be sure to see the comments of the Chairman and Vice-Chair Assemblyman Logue in the middle of the segment.

The final presenter in the second panel was Chris Micheli representing the business community. He was also very effective at explaining the business climate context of the program such as the fact that over the last year the Legislature has enacted over $10 billion in tax increases on the businesses of California as well as the reforms already adopted in AB 1550:

JEDE Committee Hearing 8-18-09 Clip 10 from Max Shenker on Vimeo.

And finally, questions, answers and the conclusion of the second panel:

JEDE Committee Hearing 8-18-09 Clip 11 from Max Shenker on Vimeo.

Next, the third and final panel – the one with all of the fireworks.