EZ Policy Blog

The Stockton, Shasta Valley, and Kings County Enterprise Zones all expire today, June 21, 2008 after 15 years of operation.  Tomorrow marks the first day of the conditional designation of the new San Joaquin County, Siskiyou County, and Kings County zones.

The Santa Ana Enterprise Zone expires today, June 7, 2008 after 15 years of operation.  Tomorrow marks the first day of the new conditionally designated Santa Ana EZ’s existence.

In its March 2008 “Tax News,” FTB is extolling the virtues of Enterprise Zones in an article called “Possible boost to California’s economy“:

Governor Arnold Schwarzenegger recently announced the conditional designation for eight Enterprise Zones statewide. The zones are East Los Angeles, Kings County, Oakland, Salinas Valley, San Joaquin County, Santa Ana, Siskiyou County, and West Sacramento.

The new designations will take the place of the eight zones set out in statute that are expiring over the next several months. Each zone designation is in effect for 15 years.

In his announcement, the Governor noted, “Enterprise Zones play a key role in revitalizing economically challenged parts of our state. By helping businesses create well-paying jobs, we empower communities to climb the economic ladder and build the state’s overall economy.”
…
In 2006, a report commissioned by the Department of Housing and Community Development (HCD) evaluated the success of Enterprise Zones in spurring economic recovery. The report showed that, on average, within Enterprise Zones between 1990-2000:

* Poverty rates declined 7.35 percent more than the rest of the state.
* Unemployment rates declined 1.2 percent more than the rest of the state.
* Household incomes increased 7.1 percent more than the rest of the state.
* Wage and salary income increased 3.5 percent more than the rest of the state.

In the next step in the designation process, the HCD will issue a conditional designation letter to each of the new zones, outlining conditions that must be met before final designation can be granted. Examples of conditions include a signed memorandum of understanding with HCD, which includes performance measures and benchmarks.

The text of the article quotes the governor as stating rather clearly that Enterprise Zones “play a key role” in boosting the economy, yet the FTB’s title uses the word “possible” in describing the economic benefit.  Interesting.

The first article I could find expressing the reaction of one of the five losing EZ applications comes from the Desert Sun:

The western Coachella Valley on Thursday lost a statewide competition for tax breaks to boost economic development in Desert Hot Springs, Cathedral City and unincorporated areas.

The region was not among the eight new enterprise zones announced by Gov. Arnold Schwarzenegger as part of the state’s plan to aid economically distressed areas.

“It’s a huge disappointment for all of us,” said Riverside County Supervisor Marion Ashley, whose district includes the proposed zone.

“We saw that as a centerpiece for business attraction and retention,” added Rick Daniels, the city manager of Desert Hot Springs.

…

Thirteen applications were submitted for the eight zones open this year and seven of the new designations went to communities that had previously expired zones.

“I don’t think you have a leg up if you are a existing zone or not,” said Chris Westlake, deputy director for the division overseeing enterprise zones in the state Department of Housing and Community Development.

“You are starting from scratch with us,” he added.

Westlake said each application, which can cost in the range of $100,000 to prepare, is judged on a point system in eight categories, from unemployment and job development plans to marketing and property availability.

“They didn’t score very well,” he said of the valley application compared to the others.

Westlake said the scores of all the applicants will be posted on the Internet soon, and his staff will be glad to discuss the choices with applicants, which is just what valley leaders want.

“We want to find out about our scoring,” said John Soulliere, president and CEO of the Coachella Valley Economic Partnership, “to see if there are any issues with our application that would make it impossible for us” to apply again.

If not, then Ashley and Daniels said they plan to give it another shot.

“If we can, within a year or so, we’ll gear up and try to win next time,” Ashley said.

Westlake said there will be four open zones for new designations in 2009. Zones are good for 15 years.

The valley leaders said such a designation is really a key tool for business development, especially in trying to attract firms from out of state.

“My problem as an economic development professional is (that) without an enterprise zone or other benefits zone, a (prospective) business, unless they are flat out in love with California or willing to throw money away, it is hard to attract here,” Soulliere said.

The Sacramento Bee: “W. Sac designated as state Enterprise Zone”

The Sacramento Business Journal: “Governor tabs West Sac as one of eight enterprise zones”

The Monterey County Herald: “Your Town: Salinas Valley pegged for state economic program”

The Lodi News-Sentinel: “Will a state zone marker boost Lodi’s job growth?”

The Salinas Californian: “Valley given a business boost”

The Los Angeles Business Journal: “State Targets East L.A. Economy”

The Stockton Record: “S.J. beefs up enterprise zone”

The Orange County Register: “State renewing program to encourage Santa Ana businesses”

The Desert Sun: “Valley loses tax break bid“

From the Governor’s office:

Gov. Schwarzenegger Announces Eight New Enterprise Zones to Boost California’s Economy

Helping to grow jobs and improve California’s business climate, Governor Arnold Schwarzenegger today announced the conditional designation for eight Enterprise Zones statewide. The zones are Siskiyou County, San Joaquin County, East Los Angeles, Salinas Valley, Kings County, Oakland, West Sacramento and Santa Ana.

“Enterprise Zones play a key role in revitalizing economically challenged parts of our state. By helping businesses create well-paying jobs, we empower communities to climb the economic ladder and build the state’s overall economy,” said Governor Schwarzenegger.

The California Enterprise Zone Program targets economically distressed areas using special state and local incentives to promote business investment and job creation. By encouraging entrepreneurship and employer growth, the program strives to create and sustain economic expansion in California communities.

The new designations will take the place of the eight zones set out in statute which are expiring over the next several months. Each zone designation is in effect for 15 years.

Businesses within Enterprise Zones are eligible for substantial tax credits and benefits, for example:

* Firms can earn $37,440 or more in state tax credits for each qualified employee hired.
* Corporations can earn sales tax credits on purchases of $20 million per year of qualified machinery and machinery parts.
* Up-front expensing of certain depreciable property.
* Lenders to Zone businesses may receive a net interest deduction.
* Unused tax credits can be applied to future tax years, stretching out the benefit of the initial investment.
* Enterprise Zone companies can earn preference points on state contracts.
* Up to 100% Net Operating Loss (NOL) carry-forward. NOL may be carried forward 15 years.

In 2006, Gov. Schwarzenegger released a report commissioned by the Department of Housing and Community Development (HCD) that evaluated the success of Enterprise Zones in spurring economic recovery. The report shows that, on average, within Enterprise Zones between 1990 -2000:

* Poverty rates declined 7.35 percent more than the rest of the state.
* Unemployment rates declined 1.2 percent more than the rest of the state.
*Household incomes increased 7.1 percent more than the rest of the state.
* Wage and salary income increased 3.5 percent more than the rest of the state.

The next step in the designation process will be the HCD issuance of a conditional designation letter to each of the new zones. The letters will outline conditions which must be met to be granted final designation. Examples of conditions include a signed memorandum of understanding with HCD, which includes performance measures and benchmarks.

The eight expiring zones were: Kings County, Los Angeles East Side, Oakland, Pittsburg, Santa Ana, Siskiyou County, and Stockton. Seven of these eight areas have just been awarded new zones along with a brand new zone for Salinas in Monterey County. That leaves Pittsburg as the only expiring zone not to receive a new designation.

We were originally promised the results of the new Enterprise Zone selections on Jan. 2.  Then we were told it would be the week of Jan. 14th.  Well, as one government source put it, “this is the government.”  Another government source told me, “We are close.”

As reported in the Sacramento Bee, Governor Schwarzenegger declared a “fiscal emergency” today and proposed across the board budget cuts throughout the entire State government.

According to Chris Micheli of Aprea & Michel, a source in the Governor’s Office confirmed that the proposed budget includes a $59,000 reduction to the Enterprise Zone program’s budget.  However, there is no proposal to suspend or eliminate the program, nor is there any indication of delaying the announcement of eight new zones expected next week.

The original HCD deadline (Jan. 2 according to page 44 of the Application Guidebook) for releasing the results of the eight winning Enterprise Zone applications has come and gone.  I reported earlier that the Department had announced this date would be delayed in order to give the Governor’s Office time to review the results.

In the mean time, since the decisions have theoretically already be made, it might be interesting to speculate on who the 13 applicants were.  I have found a wide consensus agreeing that all eight expiring areas submitted applications for new zones.  That leaves five more to account for.  Here are some “clues” I have found:

1. The City of Gardena: This article in the Daily Breeze reports that one of the achievements of their City Manager has been the application for an Enterprise Zone.
2. The City of Salinas and Monterey County: There have been a number of article, including this one from The Salinas Californian, touting Salinas Mayor Dennis Donohue’s accomplishments, including the application for an Enterprise Zone including a number of jurisdictions in south Monterey County.
3. Riverside County/West Coachella Valley: The Desert Sun reported on the application for an Enterprise Zone including the cities of Desert Hot Springs and Cathedral City.
4. The City of El Monte: I managed to find these minutes of a meeting of the El Monte Community Redevelopment Agency held 8/21/07 in which a motion was passed to submit an application for an Enterprise Zone designation.
5. ???: I’m not sure who number 13 is, but I did come across these minutes of a City Countil meeting for the City of Carson on 12/19/06 in which a study was authorized to explore a possible EZ application.

Good luck and if all goes well, you will hear the results here first.

According to an email sent to the new zone applicants, the final scoring  announcements will be delayed until approximately the week of January 14, 2008 instead of Jan. 2 as per the original schedule.  While HCD still intends to complete its scoring process by the beginning of January, the extra time is needed to give the administration an opportunity to review the results and time the announcement.

The Lodi News-Sentinel discusses some of the harsh realities of economic development in the San Joaquin Valley.

Nearly every morning, Chip Herman hoses off pools of urine and human feces from the side of his auto detailing shop on South Cherokee Lane.

No matter how hard he tries, however, the longtime Lodi businessman can’t rinse away the root cause of his frustrations: the widespread access to alcohol on the Eastside corridor.

There are roughly 30 places you can buy a drink on Cherokee Lane, from the restaurants and bars to the liquor, grocery and convenience stores.

As the article mentions later, Lodi is part of San Joaquin Valley’s new Enterprise Zone application which includes the City of Stockton as well.

City leaders, including new Mayor JoAnne Mounce, and those who work or live near Cherokee Lane do want changes. They want closer scrutiny of liquor license applications, and a spruced up avenue that serves as a gateway to the city.

The corridor, now a busy but hardly picturesque collection of motels, gas stations and retail shops, is the first place many see when entering Lodi.

“People get a bad impression — they think the whole town is like that,” said Sunil Yadav, owner of the Modern Motor Lodge on South Cherokee, and a member of the Lodi Improvement Committee.

…

Upcoming plans would also allow for taller hotels and offices on the strip. (The city limit would jump from two stories to four). City leaders also want to include Cherokee Lane in the county’s Enterprise Zone, which would make businesses eligible for numerous low-cost loans and tax rebates.

It’s quite an extensive article and worth reading for those interested in what is at stake for California communities waiting to hear about the fate of their Enterprise Zone applications.

The Siskiyou Daily News reports on a recent meeting of the Upstate California Economic Development Council:

[Tonya] Dowse said that economic development in Siskiyou County is ‘light years’ ahead of many other rural counties. The recently created Siskiyou County Industrial Lands Inventory makes it possible for businesses to see online what is available for development, and gives the county a head-start in finding sites to begin preparing. According to Dowse, the Enterprise Zone application process itself ‘created alliances and prioritized economic development among our political leadership county-wide.’

‘We’ve been investing in the tools and the strategy. Once we have our new Enterprise Zone designation, we’ll be able to implement the marketing phase,’ Dowse said.

Ms. Dowse also informed me that the Washington Post recently called Mount Shasta “The best ski resort you’ve never heard of.”

Sources at HCD tell me that they received 13 applications by the deadline last Friday for the 8 available Enterprise Zone openings.

If you have been thinking about applying for one of the eight available Enterprise Zone designations, now would be a good time to for some decisive action — the deadline for applications is today.

The eight expiring zones are:

1. Kings County
2. Los Angeles - East Side
3. Oakland
4. Pittsburg
5.  Santa Ana
6. Siskiyou County
7. Stockton
8. West Sacramento

According to the schedule laid out in HCD’s Application Guidebook, the announcement of the winners will be on January 2, 2008.

There are a pair of stories out today about new communities’ interest in applying for an Enterprise Zone designation. The Desert Sun reports that the Riverside County Board of Supervisors has approved an application that would include the Western Coachella Valley:

“We really need all the help we can to get some economic action out there,” said county Supervisor Marion Ashley, who represents the city. “And particularly Desert Hot Springs needs it.”

The Coachella Valley already has an enterprise zone that has created 12,000 new jobs since 2000 from parts of Coachella into Indio and Thousand Palms. The proposed western Coachella Valley enterprise zone would include parts of Cathedral City and Desert Hot Springs.

“There is no guarantee that every single application will be granted,” said Tom Freeman, spokesman for the county’s economic development department. “We will not be the sole applicant for the new designation.”

The Chico Enterprise-Record, however, describes a much more nuanced issue involving a proposed Regional Enterprise Zone application for the counties of Glenn and Colusa. The Glenn County Board of Supervisors is struggling with the need for an economic development program such as the Enterprise Zone on the one hand, but their inability to come up with the liquid cash resources needed to operate a zone:

WILLOWS — It was one of those good news-bad news scenarios: an idea that could boost Glenn County’s economy, but faced the age-old question, “where’s the money to pay?”

The Board of Supervisors Tuesday heard a proposal to join Colusa County and the cities of Colusa and Williams to apply for a regional enterprise zone designation.

The idea hatched publicly Oct. 25 at a joint-governments meeting between Glenn county and city officials.

County Administrative Officer David Shoemaker Tuesday asked the supervisors to designate a county representative and identify funding solutions; authorize the board chairman to write a letter committing to the county’s participation, if approved; and refer the proposal to the block-grant reuse committee for action.

But while the supervisors agreed the county needs to improve its economy, the main obstacle the proposal faced was the county’s current financial status.

As Supervisor Keith Hansen put it, “we’re saying there is no General Fund money.”

Under the proposal, the costs of hiring a professional to complete the zone application would be split six ways between the two counties and four cities, assuming Orland and Willows are willing to participate. Shoemaker estimated the county share at between $22,000 and $44,000 for that cost.

But the county would also have to come up with $32,000 to $49,000 each year for operation and maintenance of the zone, again depending on the cities’ participation.

The county would also have to enter into a contract with Colusa County and the cities to protect its interest in the zone.

Shoemaker said the county could possibly apply for a community development block grant for the cost of applying for the zone, a possibility later confirmed by Planning Director Dan Obermeyer.

It’s the long-term obligation that is a problem. Not only doesn’t the county have money, but the governor is talking about state budget reductions, and both factors weighed heavily on the supervisors.

Supervisor John Amaro said he didn’t see how the county can go forward and wouldn’t enter into any kind of commitment without first knowing there would be funding.

Supervisor Tracey Quarne said he didn’t want to move ahead until the cities have indicated a solid interest.

“We don’t have any money,” Quarne said. “I can’t see committing to a collaboration if we don’t know if Willows and Orland are on board.”

“The General Fund is fragile,” said Supervisor Mike Murray, a self-described fiscal conservative. “I would not support anything from the General Fund … it’s a math problem.”

But Supervisor Tom McGowan asked, “How do you harvest if you don’t plant seeds?”

McGowan said the county hasn’t done anything “proactive” on economic development. He is the one who initially advocated for the proposal at the joint meeting, and urged the county and cities then to commit to the idea.

“Momentum is growing a little bit … we do have a good chance of being awarded one of these enterprise zones,” McGowan said.

Amaro disagreed that the county isn’t doing anything to improve economically, and reiterated his position that the county can’t commit at this time.

“I think it’s a great project …” Amaro said. “We can’t afford it.”

As discussion wound to an end, Finance Director Don Santoro reminded the board the governor has ordered a 10-percent spending reduction by all state agencies that could affect county programs in the future — a possibility he cautioned the board to think about when looking at ongoing projects.

No decisions were made, although Shoemaker was directed to find out more about the cities’ interest. The board may revisit the proposal at the first meeting in December.

If they are serious, they’ll have to make a decision before December - the applications are due November 16th.

A very successful CAEZ conference has just wrapped up in Modesto, CA.  I would like to personally express my gratitude to all of those responsible for organizing and executing a great conference, and to all of the presenters who provided practical, relevant and timely information.  Thank you.

I will post a series of entries on the main items covered at the conference, beginning with some updates from HCD:

1. The new vouchering form, which was supplied in a draft form, will be released for use on 11/1/07.  The new form will not be required until 1/1/08, but everyone is encouraged to implement it as soon as possible.
2. The applications for the eight new Enterprise Zones are due on 11/16/07.  While there was initially an expectation that there may be as many as two applications for every opening, HCD now feels that there will almost certainly be nine applications and likely a small number more than that.
3. Regarding the regulation that makes it sound as if there is a limit to how far back a zone can issue vouchers in an expired EZ, HCD was very clear that this was never the intention of the regulation.  They committed to issuing a memo that would clearly state that HCD’s interpretation of the statute and regulation is that there is no limit to ability of a taxpayer to request a voucher retroactively.
4. The question of acceptable TEA documentation has become a serious issue.  There are concerns with the continued use of I-9 forms in this capacity and HCD is working toward offering alternatives.  It is clear that they are very open to well-reasoned suggestions.
5. The prevailing nervousness of vouchering agents to issue vouchers continues to be problem.  HCD is working toward publishing, as soon as possible, the results of voucher appeals that they have decided on.  This, as well as their future audits of the local vouchering procedures, will hopefully enable the vouchering agents to understand the level of flexibility they can apply.  For example, it was clear from the discussion, that it is inappropriate for a voucher to be rejected if the hire date on the supporting document is simply several days different than the date on the application.

To be continued…

Frank Luera of HCD has issued an email explaining the impact of SB 341 on the new zone application process:

The Governor has signed new legislation that affects the applications requirements for enterprise zone designation. The legislation, Senate Bill 341, modified Section 7075 of the Government Code, which requires that applicants for designation comply with the California Environmental Quality Act (CEQA).

Under the new legislation, applicants for designation may submit only an initial study with their application if their initial study shows that a full environmental impact report (EIR) is not required. Later, if the applicant becomes conditionally designated, it may submit either a negative declaration or mitigated negative declaration instead of the EIR previously required of all newly-designated enterprise zones.

Because SB 341 was an urgency statute, it will apply to all applicants for the current designation round, which ends November 16, 2007. The legislation does not change the CEQA requirements for any of the enterprise zones that are currently conditionally designated.

Prior Requirements

Before SB 341, Section 7075 of the Government Code required all applicants interested in an enterprise zone to provide an initial study and a notice of preparation to the Department as part of their application for designation. Later, if the Department selected the applicant as a conditional enterprise zone, the applicant had to complete and certify an environmental impact report (EIR) and submit it to the Department to obtain its final designation.

New Requirements

Under the new legislation, cities and counties that apply for enterprise zone designation after October 1, 2007, must include an initial study with their application. If the jurisdictions determine, based on the initial study, that they should prepare an environmental impact report, they must also include a notice of preparation with the application. On the other hand, if the initial study indicates that a negative declaration is appropriate, the jurisdictions are not required to submit a notice of preparation with the application. In this case, the jurisdictions must only submit the initial study. Previously, applicants were required to submit both an initial study and the notice of preparation, regardless of the results of the initial study.

If the Department later selects an applicant as a conditional enterprise zone, the applicant must prepare and submit to the Department a draft environmental impact report, a negative declaration, or a mitigated negative declaration. Prior to final designation, the applicant shall approve the final EIR, or approve the negative declaration or mitigated declaration. Previously, the Government Code required all conditional enterprise zones to submit a draft EIR. Under the new legislation, conditional enterprise zones may submit a negative declaration or mitigated declaration instead of the full EIR.

The changes to Section 7075 of the Government Code are effective immediately. As a result, we will incorporate the changes into the 2007/2008 guidebook for the Application for Designation, which is currently available on the Department’s website at www.hcd.ca.gov.

Frank Luera, Chief
State Enterprise & Economic Development Section

According to this press release issued October 13, the Governor has signed SB 341 thus greatly simplifying and expediting the application process for future Enterprise Zones - including the eight slots for which applications are due November 16.

In one of the most detailed articles about the issues related to the process of applying for a new Enterprise Zone designation, The Record describes some of what is at stake for Stockton and San Joaquin County:

STOCKTON - County and municipal policymakers are attempting to expand by 22 times a designated area that grants businesses inside it potentially millions of dollars worth of tax credits and incentives to hire local workers.

Businesses in the proposed 638-square-mile San Joaquin County enterprise zone - which would cover about 45 percent of the county - would be eligible for tax credits of $35,000 a year for five years for each worker hired who lives in the area, as well as tax breaks that could shave about $1.5 million off of $20 million worth of equipment purchases.

The current enterprise zone covers about 29 square miles of central and south Stockton. Enterprise zones, because of their tax benefits, are designated and regulated by the state. There are only 42 such zones in California.

Stockton’s 15-year-old zone, which expires next year, has led to the employment of 18,000 workers from economically depressed neighborhoods in Stockton and unincorporated areas of the county, according to Fran Aguilera, director of the county’s Economic Development Department.

The looming expiration deadline raises worries that firms which relocated or stayed here to collect the zone’s incentives might bail and economic progress could stall or backslide if Stockton’s renewal attempts are turned down. Add to that what is expected to be fierce competition among cities and counties vying for eight designations that come available in 2008.

“Without the enterprise zone, I think we’re going to face a real different environment. It is going to be a daunting task to do what we’ve done here over the last 15 years,” said Steve Carrigan, economic development director for the city of Stockton, a partner with the county in the current enterprise zone.

HCD has posted a new document to their (new and improved) website: a FAQ with 14 questions and answers regarding the Enterprise Zone application.

The deadline for submission is fast approaching - November 16th.