EZ Policy Blog

Back in July, CAEZ went on the record in opposition to SB 1103.  That bill has now been “gutted and amended” and no longer has anything to do with economic development.

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.

Via Californiachronicle.com:

SACRAMENTO – Assemblymember Nicole Parra (D-Hanford) announced her landmark legislation, AB 2342, which would place the California Partnership for the San Joaquin Valley in statute, has moved an important step forward, passing out of the State Assembly today. The bill now goes to the State Senate.”The California Partnership for the San Joaquin Valley is a vital economic development tool for the Valley. The Partnership has been an invaluable source of Valley coordination,” said Assemblymember Parra. “For example, all eight Valley counties successfully partnered to pursue through the Trade Corridors Improvement Fund. They sought funding for California Transportation Commission projects because it was the best policy for the region despite the fact that the projects would not directly serve some of the counties.”

Assemblymember Parra initially introduced legislation three years ago to create The California Partnership for the San Joaquin Valley and has worked with Governor Schwarzenegger to make the Partnership a reality. Assembly Bill 2342 maintains the Partnership’s primary focus and work and would place the Partnership in statute to allow it to carry out the 10-year Strategic Action Proposal. The Partnership will sunset on December 31, 2008 without action.

The Partnership has existed for several years with numerous successes, including ascertaining $1 billion in funds for the improvement of Highway 99. The Partnership has also awarded $2.5 million in seed grant monies to 14 different organizations that will leverage additional dollars from other sources to begin the implementation of recommendations of the Partnership. The Partnership was also instrumental in helping the Valley attain five new Enterprise Zones, including: the City of Arvin, City of Delano, City of Fresno, County of Fresno, and Merced County.

AB 2342 is supported by a number of community leaders and organizations, including the Friant Water Authority, Kern County, Tulare County Economic Development Corporation, Fresno County Economic Opportunities Commission, Kings Community Action Organization, City of Bakersfield, City of Fresno, City of Hanford, and many others. For additional information on the California Partnership for the San Joaquin Valley, visit www.sjvpartnership.org

From the CalChamber website:

Each year the California Chamber of Commerce releases a list of “job killer” bills to identify legislation that will decimate economic and job growth in California. The CalChamber will track the bills throughout the rest of the legislative session and work to educate legislators about the serious consequences these bills will have on the state.

Among the bills on this year’s list are new health care taxes, rollbacks of workers’ compensation reform, limits on affordable housing and development, restrictions on the use of voter-approved transportation funding, and a tax on freight movement.

The list can be found here.

According to the Sacramento Bee’s Capitol Alert:

Speaker Karen Bass announced the core of her new leadership team on Friday, naming Assemblywoman Noreen Evans as the next chair of the Budget Committee and Assemblyman Kevin de León as the next chair of the Appropriations Committee.

The CAEZ website shows that Noreen Evans has the Mare Island Naval Shipyard LAMBRA in her district, while Kevin de León has parts of the Los Angeles and Los Angeles Eastside Enterprise zones in his.

A new analysis of SB 1194 makes several interesting points. In particular I found the following astute:

If at First you Don’t Succeed:

Currently, there are 42 EZ designated by the Department of Housing and Urban Development (HCD). The Coachella Valley has a 56 square mile conditionally designated EZ, covering the cities of Indio, Coachella, Thermal and Mecca. However, HCD recently denied an application for a second EZ within the Coachella Valley covering Desert Hot Springs and Cathedral City.   As SB 1194 gives many of the same tax incentives as an EZ, this bill may grant the very incentives HCD just denied to the Coachella Valley.  Is SB 1194 an end run around HCD and their EZ designation process?

Interestingly, if you follow the logic of this point, it would support the process of the recent zone designations in opposition to the arguments that the LAO has been making.

Here is the draft agenda for the Assembly Rev. & Tax. Committee hearing I mentioned earlier:

 

DRAFT

 

AGENDA

 

Tax Policy in a Period of Budget Crisis:

 

An Examination of Revenue Options and Tax Expenditures

 

April 7, 2008
Approximately 2:30 p.m.
Upon Adjournment of Committee Hearing
State Capitol, Room 126

1) Introductory Remarks by Charles Calderon, Chair (5 min.)

2) Introductory Remarks by Chuck DeVore, Vice-Chair (5 min.)

3) Overview of the State Budget (20 min.)

a) Elizabeth Hill, Legislative Analyst, Legislative Analyst’s Office (10 min.)

b) Mark Hill, Program Budget Manager, Department of Finance (10 min.)

4) General Overview of Tax Expenditures (30 min.)

a) Alan J. Auerbach, Professor of Economics and Law, U.C. Berkeley (15 min.)

b) Steven M. Sheffrin, Dean of the Division of Social Sciences, U.C. Davis (15 min.)

5) LAO’s Revenue-Raising Proposals (30 min.)

a) David Vasché, Director of Economics, Revenue & Taxation,Legislative Analyst’s Office (10 min.)

b) Allen Prohofsky, Senior Economist, Legislative Analyst’s Office (10 min.)

c) Brandi Rhoads, Fiscal and Policy Analyst, Legislative Analyst’s office (10 min.)

6) Perspectives on California’s Sales and Use Tax Law (30 min.)

a) Annette Nellen, Professor of Accounting and Finance, San Jose State University (10 min.)

b) Margaret S. Shedd, Legislative Counsel, Board of Equalization (10 min.)

c) Dave Hayes, Manager of Research and Statistics Section, Board of Equalization (10 min.)

7) Perspectives on the Enterprise Zone Program (15 min.)

a) Willie L. Pelote, Sr., Assistant Director of Political Action, International, American Federation of State, County and Municipal Employees, AFL-CIO (5 min.)

b) Chris Micheli, Principal, Aprea and Micheli (5 min.)

c) Terri Feeley, Executive Director, SFWorks (5 min.)

d) Lydia Moreno, President, California Association of Enterprise Zones (5 min.)

8 ) Business Community Perspectives (40 min.)

a) Michele Pielsticker, Vice President and General Counsel, Cal-Tax (10 min.)

b) Eric J. Miethke, Partner, Nielsen, Merksamer (10 min.)

c) David Slater, State and Local Tax Manager, Intel (10 min.)

d) Kyla Christoffersen, Policy Advocate, California Chamber of Commerce (10 min.)

9) Public Interest Group Perspectives (30 min.)

a) Lenny Goldberg, Director, California Tax Reform Association (10 min.)

b) Jean Ross, Executive Director, California Budget Project (10 min.)

c) Joanna Gin, Legislative Advocate, Service Employees International Union
(10 min.)

10) Public Comments (15 min.)

11) Closing Remarks of Chair

Will be holding a hearing on “Tax Policy in a Period of Budget Crisis: An Examination of Revenue Options and Tax Expenditures.”  There will be a special panel discussion specifically on the Enterprise Zone program.  The committee meets at 1:30 on April 7th in room 126.

The bill now goes to the Assembly.

The Desert Sun explains a new bill, SB 1194, introduced by Senator Battin that would create a new kind of Enterprise Zone:

The four-member Coachella Valley delegation will focus on issues such as the Salton Sea, crime, drugs, foreclosures, school lunches and carbon neutral cars in carpool lanes this year.
…
Sen. Jim Battin, R-La Quinta, is working on a Clean-Tech Investment Zone for the Coachella Valley that might have hiring and equipment purchasing tax breaks similar to enterprise zones.

“That would really work for the Coachella Valley” by attracting non-polluting industry to expand the region’s economic base, Battin said. “It doesn’t make us reliant on ag or tourism for our future.”

The Coachella Valley is currently home to one Enterprise Zone, but recently lost a bid to gain another one.

The LAO’s recent, and somewhat unprecedented, budget recommendations have gotten an extraordinary amount of press. A search on Google News for “Elizabeth Hill Budget” reveals well over 400 news items. Within the recommendation is a broad attack on the Enterprise Zone program (George Skelton’s Los Angeles Times column on the subject refers to Enterprise Zones as a “business loophole”). The following appears within the report “LAO Revenue-Raising Proposals“:

Phase Out Enterprise Zone Programs

Background. California offers several tax programs that provide benefits only to taxpayers affiliated with designated areas of the state. (These are typically blighted areas in need of economic redevelopment.) Tax programs for these areas include hiring credits, wage credits, credits for sales taxes paid on purchases of certain machinery, exclusions of interest earned on qualifying loans to businesses, and expensing of qualified business investments. Current law allows for the designation of 42 enterprise zones (EZs) as areas qualifying for these treatments. Zone designations are for 15 years, with some zones having received an additional five–year extension. More recently, Chapter 718, Statutes of 2006 (AB1550, Arambula), enabled roughly 20 EZs whose designations had expired to be redesignated as EZs for an additional 15 years. Thus, many EZs have now been in existence for more than 20 years.

Proposal. Cancel the recent redesignations of EZs and deny future extensions for all other EZs. Revenue gain of about $100 million in 2008–09 and $120 million in 2009–10.

Rationale. Many studies of EZs question whether they are efficient or cost–effective tools for improving the economic conditions of the targeted areas. Our December 2003 report, An Overview of California’s Enterprise Zone Hiring Credit, concluded that EZ incentives have little, if any, impact on the creation of new economic activity or employment, but that they can be effective in shifting activity into the EZ that otherwise would have occurred elsewhere in the same geographic region. As noted above, many EZs have already been in effect for many years. It is not clear what additional benefits will be gained by extending the same incentives that have already been in place for as many as 20 years. Rather, other redevelopment policy tools could be more effective than extended use of EZ tax incentives.

The basis of these assertions are simply inaccurate. AB 1550 did not enable expiring zones to be redesignated and no expired zones were in fact redesignated. The expiration of zones initiated a completely open application process available to every jurisdiction in the State. It happened that in most cases the same jurisdictions who had expired zones applied for new zone designations and received them, but these were by no means redesignations.  Besides the significant technical differences, the misrepresentation is disturbing.

Therefore the proposal that grows out of the inaccurate background is equally disturbing if not preposterous.  Jurisdictions who recently applied for Enterprise Zone designations invested heavily in the process.  It would be the height of unreliability for the State to then pull the rug out from under these communities.  I would think that applicants, both successful and unsuccessful, would have a valid basis to sue the State for damages.  What kind of message would be sent to the business community if commitments could so easily be discarded, and what impact would that have on the economy?  There is no need to deny future extensions of EZs since there is no statutory basis on which to extend them, nor are extensions contemplated.  In addition, I think to achieve a $100 million revenue gain would require changing existing law in order to cancel all tax credits immediately notwithstanding credits already generated or qualified employees already vouchered, etc.  I don’t know how one would calculate the negative revenue impact of such a colossal reneging of commitment.

It seems disingenuous to generalize that studies show Enterprise Zones to be ineffective.  There have been a series of studies touting extraordinary benefits and return on investment from the program.  Specifically, the August, 2006 study, “Report to the California Department of Housing and Community Development on Enterprise Zones” which was commissioned by a state agency and is three years newer than the study cited by LAO.

Anyway, it seems highly unlikely that the Governor would agree with such a proposal.

SB 1103 passed the Senate Local Government Committee 3-2 yesterday with amendments that have yet to be published.

There is a $50,000 budget reduction for the Enterprise Zone program in ABX3_3, part of the emergency budget reduction package signed  by the Govenor on Saturday.  According to the Los Angeles Times:

The Legislature passed a package of emergency budget measures Friday, which lawmakers touted as swift, responsible bipartisan action that averts a cash crisis and erases nearly half the state’s $14.5-billion deficit.

But their move would not actually reduce spending on that scale; rather, it would push most of the red ink forward with accounting maneuvers and borrowing.

SB 1103 (Cedillo) will have a hearing with the Senate Committee on Local Government next Wed., Feb. 20th, at 10:00 am.

Update: Bill analysis.

As mentioned in the Sacramento Bee’s Capitol Alert, the Assembly Appropriations Committee yesterday placed most of the bills it was hearing in its suspense file - including AB 579 and AB 1398:

In all, the Assembly Appropriations Committee considered 72 bills that would have totaled $6.2 billion in new spending. It approved 27 measures that seek $1.6 million in funding.

New analyses were posted today for AB 1398 and AB 579 in time for their Assembly Appropriations Committee hearing today. The AB 1398 Analysis explains how the bill achieves revenue neutrality for LAMBRAs while making the significant improvement of eliminating the net increase in jobs requirement:

Fiscal Impact:
1)FTB estimates that the provision that removes the $2 million limit on qualifying wages will reduce revenues by $1 million.
2)FTB estimates that the provision that allows hiring credits to reduce tax liabilities below the AMT will reduce revenues by $2 million.
3)FTB estimates that the provision reducing the rate from 50% to 49% for first year employment will increase revenues by about $3 million.
4)Eliminating the net job increase requirements for LAMBRAs will likely result in General Fund revenue losses potentially in the range of $250,000 per year.

The bill reduces the first year hiring credit from 50% to 49% for the LAMBRAs thus saving the money to allow for the other potential increases.

The most recent amendments of AB 1398 are now available online.  The short lived gang member qualification has been removed.

Remember SB 103 that was vetoed last year?  I originally wrote about it last March.  Well, it’s back, but now it’s called SB 1103.

AB 579 and AB 1398 both passed out of the Assembly Rev. & Tax. Committee yesterday.  There were very few bills that could claim the same.  They head to Assembly Appropriations next week.

New analyses for AB 1398 and AB 579 have been posted ahead of their hearings this afternoon in the Assembly Revenue & Taxation Committee. The analysis for AB 1398 points out an important, and heretofore unmentioned, amendment adding a new eligibility category to the Enterprise Zone program. The language of the bill now reads:

(VIII) Is an individual who is a former member of a criminal street gang, certified as such by a federal, state, or local law enforcement agency.

It is important to remember that the addition of this category was a proposal under the Governor’s CalGRIP proposal last year. I wrote about this back on May 28th referencing this Gubernatorial Press Release which proposed:

CalGRIP adds former gang member to list of criteria allowing companies in Enterprise Zones to receive tax credits of up to $29,234 per employee. Status of former gang member verified by completion of a program recognized by the gang coordinator.

Given the earlier discussions regarding AB 1398 and the desire to change the program only in ways that would be “revenue neutral,” I think it would be important for proponents to point out that Enterprise Zone advocates were not behind the addition of a new qualification category, but rather that it is an outgrowth of the Governor’s policy initiatives.