The Sacramento Business Journal has the following extensive article on on Enterprise Zones today:

The death of California’s redevelopment agencies makes enterprise zones more necessary than ever to keep and create jobs, say some business and city officials. But ominous language about reform in Gov. Jerry Brown’s proposed budget has them worried.

“The governor was very vague in his budget message,” said Craig Johnson, president of the California Association of Enterprise Zones. “I quite frankly don’t know what his idea of reform is.”

Johnson said he expects one or more bills to be introduced this month. Last year Brown proposed eliminating enterprise zones entirely to save the state $900 million.

The move was backed by a report from the Public Policy Institute of California that claimed employment grew no faster in enterprise zones than in similar areas and that big companies reaped the tax benefits while small-business owners received little benefit.

The state created the enterprise zone program in 1986 to stimulate business investment in depressed areas, offering tax credits to companies that hire workers who often have a tougher time landing jobs – such as military veterans, former foster children or ex-convicts. A business in an enterprise zone can qualify for tax credits of up to $36,000 over five years. Enterprise zones also offer sales-tax breaks, increased deductions for expenses and preference for companies bidding on state contracts, among other benefits.

With the shuttering of redevelopment agencies, enterprise zones are one of the few economic development tools remaining, said Barbara Hayes, president and chief executive at the Sacramento Area Commerce & Trade Organization.

In 2009, the city and county of Sacramento merged their zones and joined Rancho Cordova, which was seeking a zone at the time. The combined zone – a dozen industrial districts on 31,000 acres scattered over the region – more than tripled the area where the benefits are available. The expanded zone received final approval last month.

There’s also a zone in West Sacramento, plus areas where similar benefits are offered, such as McClellan and Mather – former Air Force bases that have been turned into business parks.

Businesses that participate say the enterprise zone program has been essential to keeping them competitive.

“What else is left for employers? What else is left for industry?” asked Tom Kandris, chief executive of American River Packaging in Sacramento. The company, which fashions corrugated cardboard into boxes for wineries and food processors like Blue Diamond Growers, has been participating in the enterprise zone program for years. In 2009, the company weighed closing its Sacramento plant but chose to shut one in Reno instead, partly because of the benefits the local enterprise zone offered.

“I want to stay in California and I was looking for every excuse I could to stay here,” he said. “If we didn’t have the enterprise zone, I don’t know what the recommendation would’ve been.”

The company has about 140 workers in Sacramento, and Kandris said a significant number of them have been hired through the program. He estimated his tax savings was in the six figures.

“It’s necessary for manufacturing if we’re going to survive in this state,” said Dorinda McMillan, director of operations for Woodmack Products Inc. in Rancho Cordova. “There are tremendous fees on us that our competition outside of the state doesn’t have.”

The firm makes burners and other hardware for gas appliances and uses the enterprise zone and various federal programs for all its hiring because of the tax breaks and other benefits.

McMillan said the company has been using federal hiring programs for 20 years, but only recently hired through the enterprise zone when the zone expanded to include Rancho Cordova. Woodmack, which at one point was down to 30 employees from about 120 due to overseas competition, has been hiring of late and has doubled its work force to more than 60 as clients have been coming back to the company.

The hiring of disadvantaged workers requires the same screening as hiring any employee, she said. Some with criminal records have been good employees for decades.

Dean Peckham, a senior project manager with the city of Sacramento, said that hiring through the enterprise zone program has nearly tripled from 2009 to last year. He said he believes the program is safe and won’t be gutted by lawmakers.

He and Micah Runner, economic development manager in Rancho Cordova, said the zone has been an effective tool for keeping companies from relocating.

State Assemblyman Jose Solorio (D-Anaheim) just sent out a press release via email celebrating the new Anaheim Enterprise Zone which will be operational tomorrow, Feb. 1, 2012:

SACRAMENTO – State Assemblyman Jose Solorio (D-Anaheim) heralded the fact that the City of Anaheim Enterprise Zone designation will be effective starting tomorrow. He issued the following statement:

“As a fighter in the Assembly to save Enterprise Zones from statewide extinction, it is particularly gratifying to see the Anaheim Enterprise Zone designation finally get off the ground effective February 1.

The successful effort to bring Enterprise Zone designation to Anaheim is the result of much hard work by City officials and Anaheim business and community leaders. I’m glad the City will continue to partner with the Anaheim Chamber of Commerce to market the Enterprise Zone. With their efforts, the fight for jobs will be a lot more robust in Anaheim. It’s expected the Enterprise Zone will create 20,000 jobs in the next five years.”

The Enterprise Zone program, established by the State of California, serves to stimulate economic growth by providing hiring tax credits and other incentives for businesses located within the Enterprise Zone boundaries. To receive the hiring tax credit, businesses must employ local residents, those economically disadvantaged or the unemployed.

In Anaheim, the Enterprise Zone boundaries include nearly all of the city’s industrial and commercial areas, and approximately 80 percent of all Anaheim businesses. The Enterprise Zone designation is for 15 years. In Orange County, now both the cities of Anaheim and Santa Ana have Enterprise Zones.

State Assemblyman Jose Solorio is the Chair of the Assembly Insurance Committee and also serves on the Assembly Appropriations and Transportation committees. He represents the Sixty-Ninth Assembly District, which includes the cities of Anaheim, Garden Grove, and Santa Ana. For more information about Assemblyman Solorio, visit www.assembly.ca.gov/solorio.

In an interview with KQED’s John Myers, Assembly Speaker John Perez has raised the issue of revising the Enterprise Zone program again:

A second look will also no doubt be taken at the issue of local economic development in the wake of the California Supreme Court ruling that abolishes more than 400 local redevelopment agencies next month. Speaker Perez dismissed any notion that actual RDAs will be recreated by the Legislature; instead, he emphasized the need for ways to promote job creation and economic stimulus that doesn’t favor one region over another. And he suggested that the scrapping of RDAs could reignite his the effort of many Democrats to revise the state’s enterprise zone program.

Assemblyman V. Manuel Pérez has made a strategic decision not to hear AB 231 in the Assembly Jobs Committee in January. Since Assembly bills need to get out of their house of origin by January 31st, this means that AB 231 will die. It appears that Assemblyman Pérez will rather use AB 1411, another Enterprise Zone related bill that has already passed in the Assembly, as a vehicle for some of the reforms that have been in AB 231. Since AB 1411 is in the Senate now, it will likely be heard by committees in June of 2012.

The Assembly Jobs Committee chaired by Assemblyman V. Manuel Pérez has scheduled a hearing for AB 231 on January 4, 2012 at 2 pm. This bill was originally crafted in response to Governor Brown’s proposal to eliminate the Enterprise Zone program, and seeks to achieve cost savings through a variety of substantial changes. The expectation is that this bill will be amended from its current form removing some of the most extreme changes near the time of the hearing next month.

Here is the League of California Cities reaction to the meeting held by HCD last week:

Last year, Gov. Jerry Brown sought to eliminate California’s Enterprise Zone Program, which provides tax incentives to help attract business to the state, retain and expand business and industry, and create job opportunities for Californians. This proposal was ultimately unsuccessful, partially due to the two-thirds vote requirement, but it’s likely that the Enterprise Zone drama will re-emerge in 2012.

The California Department of Housing and Community Development (HCD) indicated on Nov. 2 that it will be seeking changes to the Enterprise Zone process. HCD expressed its intent to make changes through rulemaking (when possible) and legislatively (if necessary). Because it isn’t clear how the program may change, HCD has also indicated that the two Enterprise Zones that will be expiring in 2012 (Antelope Valley and Watsonville) will not be re-designated until reforms are implemented.

Topics for potential rulemaking changes include, but are not limited to:

Better collection of data;
A review and update of audit procedures;
Limitations on retroactive vouchering;
Increasing the discretion of HCD to grant expansion requests; and
Updating criteria HCD uses to award designations.
Legislative reforms include any of the topics mentioned above that cannot be accomplished through rulemaking, limiting availability of credits to employers that create new jobs in California (not just for hiring new employees) and reviewing existing legislative efforts.

HCD has signaled that the process to reform Enterprise Zones will be open and transparent and that the topics for reform are open for discussion. As the process unfolds it will be important for cities to communicate how these proposals will affect various Enterprise Zones so that any changes will improve the current program and not handicap the ability for this program to be successful.

The League will continue to monitor this process closely to protect Enterprise Zones and assist cities with economic development.

On Wednesday HCD Director Cathy Creswell hosted a meeting in Sacramento for Enterprise Zone stakeholders to provide an update on the memo sent out on October 10, and to explain the Department’s goals and strategy for program reforms.

There was a handout listing “Topics for Potential Enterprise Zone Reform.” It was emphasized that these were starting points for discussion and that this was the beginning of a transparent and open process. Director Creswell was adamant in her commitment to open and transparent communication with stakeholders throughout the process.

HCD is attempting to pursue certain program changes through a regulatory process and then others via legislation. Besides revisiting the vouchering regulations, the Department is investigating whether it can enact rules that place limitations on the issuance of vouchers that will effectively create limitations on retroactive application of vouchers.

Their expectation is to have a series of public stakeholder meetings in coming weeks at locations around the State in order to have a draft of new regulations by the end of January 2012. They expect the rule making process to go into the summer of 2012.

The real question is whether this activity initiated by HCD, a branch of the Administration, reflects an actual policy of the Administration to work toward making changes to the Enterprise Zone program as opposed to eliminating it.

Just on the heels of his veto of SB 364, the Governor has also vetoed SB 508. That bill would have required:

any bill, introduced on or after January 1, 2012, that would authorize a personal income or corporation tax credit to contain, among other provisions, (1) specified goals, purposes, and objectives that the tax credit will achieve, (2) detailed performance indicators to measure whether the tax credit is meeting those goals, purposes, and objectives, and (3) a requirement that the tax credit cease to be operative no later than 10 taxable years after its effective date, as specified.

And the Governor’s veto message:

I am returning Senate Bill 508 without my signature.

While I agree that we should consider sunset clauses for personal income and corporate tax credits, one size does not fit all. The legislature should examine all its bills to determine how long they should exist or, indeed, whether they should exist at all.

The Governor has vetoed the tax credit related bill SB 364. This bill would have:

This bill would, with respect to any business tax credit, as defined, enacted after the effective date of this bill, require a qualified taxpayer, as defined, that claims a business tax credit and that has a specified net decrease in its employees in this state to pay a penalty, as specified.

This bill would also require a qualified taxpayer to submit to the Franchise Tax Board on the original return specified information, including the number of annual full-time equivalent employees employed by the qualified taxpayer in the state in the current and previous year, as provided. The bill would impose a penalty if that information is not provided.

In the past I’ve called this proposal the “Kick Them When They’re Down Act.” It is not difficult to imagine a case where a business is struggling in a difficult economy and therefore experiences a net decrease in the number of employees it employs. If this company would have taken advantage of the various tax credit programs that the State enacts in order to encourage business growth and investment, then the State is going to come after them with a a crippling assessment at a time when they can least afford it. Talk about a job killer.

Thankfully, the Governor has vetoed the bill, but not necessarily for encouraging reasons. Here is the veto message:

To the Members of the California State Senate:

I am returning Senate Bill 364 without my signature.

This bill imposes penalties on businesses claiming future-enacted hiring/employment credits should the business’s number of employees drop by more than 10% during a year.

The tactic used in this bill can be effective for assuring that businesses deliver promised employment to the State in exchange for valuable credits. Unfortunately, the bill’s approach is too broad. Penalties should be tailored to the unique provisions of each tax credit given.

Here is the press release from the Governor’s office on the new bi-partisan deal announced today. The following are the bullet points summarizing the proposal:

Applies the Mandatory Single Sales Factor (SSF) to all businesses in California.

Reduces the tax rate by a half percent for the first $50,000 in taxable income for most corporations (from 8.84 percent to 8.34 percent). Estimated tax relief: $18 million.

Offers a 10 percent exemption for the first $50,000 in business income for Personal Income Tax taxpayers. Estimated tax relief: $255 million.

Cuts the minimum tax from $800 to $750—a 12.5 percent reduction. Estimated tax relief: $59 million.

Increases the standard deduction of $1,000 for individuals and $2,000 for couples. Estimated tax relief: $306 million.

Enacts a sales tax exemption on manufacturing—approximately 4 percent reduction for start ups and 1 percent reduction for established businesses. Estimated tax relief: $299 million.

Here is the video of the Jobs Committee hearing on AB 1278. There was quite a lot of spirited discussion:

AB 1278 authored by Assemblyman Jerry Hill failed to pass through its hearing in the Assembly Jobs Committee yesterday. The bill sought to severely limit an employer’s ability to claim Enterprise Zone tax credits if they relocated to an Enterprise Zone from another part of the state.

Toni Symonds, the consultant for the Assembly Jobs Committee, has provided exhaustive analysis of the bill, its rationale, and some of its consequences. It is definitely worth delving into and provides a thorough background of the legislative activity involving the program over the last several years. The analysis begins by addressing the following policy questions:

This measure raises several potentially conflicting economic and workforce development policy issues:

a) Business Retention Incentives: To the extent that a business has decided to vacate its existing location, is it in the state’s interest to prohibit lower income communities from trying to attract and retain the business within the state?

b) Worker Protection Incentives: To the extent that a business lays off employees at one of its facilities and hires another employee at a new location at a potentially lower wage rate, is it in the state’s interest to provide that company with a tax credit?

c) Target Population Incentives: To the extent that a business hires an individual from a targeted population or who lives in an economically challenged census tract, is it in the state’s interest to limit the business’ access to state incentives?

EZ junkies will want to print this one out and save it.

According to the latest status update, Assemblyman V. Manuel Perez has delayed the next committee hearing for his Enterprise Zone bill AB 1411.

AB 1278 by by Assembly member Jerry Hill seeks to restrict employers’ access to Enterprise Zone tax credits if they relocate to a zone from within California. The following is a new amendment that was just introduced that is even more restrictive to the taxpayer and is reflective of a policy change introduced by the Governor in his May budget revision:

(k) (1) Notwithstanding subdivision (a), if a taxpayer relocated to an enterprise zone from within the state during any taxable year beginning on or after January 1, 2011, the taxpayer shall be allowed a credit for the taxable year only with respect to qualified wages paid for each net increase in qualified employees, and only if the taxpayer makes each employee at the previous location or locations a written bona fide offer of employment at the new location.

(2) The net increase in employees of a taxpayer shall be determined as provided by this subdivision:

(A) The net increase in employees shall be determined by subtracting from the amount determined in subparagraph (C) the amouD.t determined in subparagraph (B).

(B) The total number ofemployees employed in the state in the preceding taxable year by the taxpayer and by any trade or business acquired by the taxpayer during the current taxable year.

(C) The total number ofemployees employed in the state In the current taxable year by the taxpayer and by any trade or business acquired during the current taxable year.

As promised in the Senate Transportation & Housing Committee, some amendments have been made to AB 1411. Most significantly is an idea that has been floated repeatedly in Enterprise Zone reform discussions, the limitation of the size of future zones. Here is how the new language reads:

(1) If any portion of the proposed zone is within, or previously was within, the boundaries of a previously designated enterprise zone, the aggregate size of the proposed zone shall not exceed the size of the previously designated and expanded enterprise zone by more than 15 percent. For a proposed zone located in a rural city with a total population under 75,000 or in a county with a total population under 275,000, the proposed zone shall not exceed the size of the previously designated and expanded enterprise zone by more than 25 percent.

(2) If any portions of the proposed zone are within, or previously were within, the boundaries of two or more previously designated enterprise zones, the aggregate size of the proposed zone shall not exceed the size of the largest single previously designated and expanded enterprise zone by more than 15 percent.