EZ Policy Blog

Congratulations to the City of Delano for receiving final designation on their new Enterprise Zone.

The designation was received on October 14, 2009, retroactive to December 17, 2006. The City was also awarded a new TEA to the Delano Enterprise Zone. For more information, contact Angelica Castro, Economic Development Specialist, City of Delano, (661) 721-9985, acastro@cityofdelano.org.

It was back on November 3, 2006 that HCD announced the list of 23 Enterprise Zones to win designation in the first process of its kind since the program’s inception.   First on that list was the City of Arvin.

Since there had never been a zone in Arvin, they did not benefit from the special legislation in AB 1550 to allow the zone to function while in its conditional status.  Instead, for nearly three years, the State has had only 41 active zones instead of the 42 allowed by statute.

The wait is finally over, and, pending the Mayor’s signature on one final document, the Arvin Enterprise Zone will go into effect with a start date of 9/30/2009.

Now that we have seen the results of the 2009 application round, it is time to announce a major development from the 2006 application round: the Merced County EZ has received its final designation. Congratulations. Time to get that website updated!

After talking about the new 2009 zone designation round, let’s go back to the 2006 round: San Bernardino has just secured their final designation.  Here is the press release issued by the City:

SAN BERNARDINO, Calif. (March 16, 2009) ­–The San Bernardino Valley Enterprise Zone (SBVEZ) announced this week that the California Department of Housing and Community Development granted final designation to the zone for a 15-year period. A special ribbon-cutting ceremony will be held next month to honor the designation.

Businesses located in the SBVEZ may be eligible to reduce their costs through state and local tax incentives designed to help companies maintain and expand their operations. For example, a business filing for hiring tax credits can receive up to $36,000 per qualified employee during a five-year period, which can make a significant impact to their bottom line.

“In this economy, cost reductions are extremely important. Business owners cannot afford to leave money on the table,” said Wendy Clements, zone manager for the San Bernardino Valley Enterprise Zone. “These tax incentives help businesses free up extra capital, and are very easy to file for.”

The SBVEZ is one of 42 Enterprise Zones in the state. It exists to encourage job creation and economic development in the distressed areas of Colton, San Bernardino and unincorporated portions of San Bernardino County.

SBVEZ has operated using a conditional designation since October 15, 2006. It is now scheduled to remain an Enterprise Zone until October 14, 2021.

“This Enterprise Zone is critical to revitalizing a significant portion of the county. At a time when budgets are tight, businesses are choosing the most cost-effective locations for operation,” added Clements.

The four tax incentives offered by SBVEZ are:

· Hiring tax credit: Employers may claim a percentage of each qualified employee’s wages for five years.

· Sales or use tax credit: Businesses may claim an annual sales or use tax credit on qualified property purchased and used in the zone.

· Business expense deductions: Businesses may claim 40 percent of the eligible cost of qualified property as a business expense the first year it is in service.

· Lender’s credit: Lenders may deduct the amount of net interest produced from a loan made to a SBVEZ business.

”The Enterprise Zone program represents an important partnership between businesses and the communities they serve in our state,” said Craig Johnson, president of the California Association of Enterprise Zones (CAEZ). “Enterprise Zones help the people and the regions that are hardest hit in an economic downturn. The program provides the tools needed to stimulate economic growth in order to create jobs and keep people employed.”

Research has shown that poverty decreased 7.35 percent more in Enterprise Zones than in the rest of California, while unemployment rates fell by 1.2 percent more and household incomes grew 7.1 percent faster in zones as compared to the rest of the state.

About the San Bernardino Valley Enterprise Zone

The San Bernardino Valley Enterprise Zone is an Enterprise Zone established by the California Department of Housing and Community Development to encourage investment, growth, development and job creation in economically distressed areas of the county. The zone covers approximately 42 square miles and includes areas of Colton, San Bernardino and unincorporated portions of San Bernardino County. The Enterprise Zone is a joint effort between the Inland Valley Development Agency, City of Colton, City of San Bernardino, and the County of San Bernardino. For more information, visit www.SBVEZ.com, or email info@SBVEZ.com.

Back in June I asked, “What ever happened to Arvin?“  While there had been some expressions of concern about ever seeing an Arvin Enterprise Zone, representatives from the City assured me that they were working diligently toward completion.

Today I spoke with Mike Kunz who heads up the Enterprise Zone effort for Arvin’s Economic Development Department.  He told me that since June the City has had their EIR (Environmental Impact Report) certified and submitted to HCD, completed their draft MOU for the zone, and gotten their TEA application done.  He is now working on the MOU Suppliment which will define more specific metrics for the success of the zone.  Kunz thinks that should be the last hurdle and he estimated completion and zone designation within 6-8 weeks.

While I do get a lot of email from blog readers, not too many post their responses on the blog for others to read. Jay Salyer, the Enterprise Zone manager of the Kings County EZ posted an important response to my post about the Merced County Board of Supervisors meeting:

As Enterprise Zone Manager of the Kings County Enterprise Zone and Economic Development Manager of Kings EDC, I can state categorically that the old Wal-Mart and the new Super Wal-Mart in Hanford are in and will continue to be in the same Kings County Enterprise Zone. There was no tax advantage to the corporation by moving incumbent employees from one store to the other. The clock which starts on the date of the original hire continues ticking, whether they are in the old or new store, whether or not they were laid off and rehired.

It is important to listen to the

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made regarding Wal-Mart to fully understand the credibility of the charge.

The Merced County Board of Supervisors met yesterday to consider the approval of the Environmental Impact Report required to obtain final Enterprise Zone designation. I have clipped the relevant discussion from the video (the original can be found here):

Merced County BOS Meeting 9/2/2008 from Max Shenker on Vimeo.

What is fascinating about the video are the various folks who took the time to come out and oppose the creation of the zone on various grounds. A couple of the speakers were quite exercised about the potential environmental disaster that the Enterprise Zone poses. However, I found the comments of one speaker most fascinating:

You know, I went down to Hanford and talked to some people there. And there’s a Wal-Mart and they made a Super Wal-Mart, and, um, I was told that they closed it for one hour and then rehired everybody, and then, because of the Enterprise Zone — or is that a Free Trade Zone? — anyway I’m not sure about the definition, but they were able to rehire them at a lower rate because of the tax benefits and the tax benefits are paid by taxpayers. So I have a concern about big projects like that, if they are using that, so I don’t know if you can explain that or not.

Here’s the audio just of that comment if you don’t want to watch the whole BOS meeting:

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In contrast to the progress being made in San Joaquin County, Merced County’s new zone does not have the benefit of SB 341. The need for an Environmental Impact Report has caused considerable delay and consternation for the new zones. Merced County is asking for supporters of the new EZ to make their support known:

Currently we are working on meeting the conditions set by the Department of Housing & Community Development. One of the major obstacles we have to overcome is an Program Environmental Impact Report. The report is complete and will be presented to the Merced County Board of Supervisors on Tuesday, September 2, 2008 at 10 am at the Board Chambers located at 2222 M Street, Floor 3 in Merced.

Like most recent Environmental Impact Reports brought before the County this report maybe subject to objection from various local groups. The success of this report is crucial in our steps to obtain final designation for the Enterprise Zone.

This is your opportunity to show the Board of Supervisors how businesses you represent utilize this program and how their business would be impacted if the Enterprise Zone is not given final designation.

Please pass this information on to your customers and let them know this maybe their only chance to speak publically about the Enterprise Zone and how it benefits them doing business in Merced County. If they not able to attend the Board of Supervisor’s meeting, they could send a representative along with a letter of support.

It’s hard to believe, but is has been over 19 months since 23 new Enterprise Zones received conditional designations back in November 2006. All but four of the new zones were able to enjoy immediate implementation because of AB 1550. Santa Clarita, Fresno County, and Compton were all brand new to the EZ program and have all since received their final designations and are now fully functioning zones. Arvin, however remains in a state of limbo.

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.

The City of Fresno issued a press release today stating that HCD will announce the final designation of the new Fresno City Enterprise Zone at an event in Fresno today.

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.

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.

Pasadena has become the fifth of the 23 Enterprise Zones conditionally designated in 2007 to receive its final designation.  They have also received approval for their new TEA, both the zone and the TEA have an effective date of 4/10/2007.

In a letter dated December 7, 2007, HCD has granted the new Oroville Enterprise Zone its final designation. The designation date is November 6, 2006 as the previous Oroville zone expired November 5.

The City of Compton learned last week that their final Enterprise Zone designation has been approved effective August 1, 2007.  Make sure to take a look at their vastly improved website.

Vince Vasquez, Senior Policy Analyst with the San Diego Institute for Policy Research has published a highly favorable Op-Ed about the San Diego Enterprise Zone in particular, and the Enterprise Zone program as a whole. The article appears on the San Diego Institute’s website here, and was also printed in the August 16, 2007 edition of The San Diego Daily Transcript. With the author’s permission, here is the Op-Ed in its entirety:

As the downturn in the housing market has begun to ripple through the economy, more and more observers, including SDI’s own Kelly Cunningham, are starting to talk about the risk of recession. One exciting development that has the potential to mitigate the impacts of this downturn is the effort by local leaders to expand a successful pro-growth program known as enterprise zones (EZs).

Enterprise zones are special packages of tax breaks and other incentives designed to increase jobs and investment opportunities within a limited, economically-distressed area. Invented in Great Britain in the 1970s, and popularized in the United States under the leadership of President Ronald Reagan, EZs have become a major component of urban renewal strategies across the nation. More than 40 states have established EZ programs tailored to their own unique needs and goals, including the Golden State.

California’s EZ program encompasses 42 zones and offers four key benefits that increase job opportunities and encouraging private-sector market forces to improve local economies. They are: 1) credits for sales tax paid on certain commercial equipment purchases; 2) a maximum five-year tax credit for hiring disadvantaged employees; 3) lender interest deductions; and 4) an extended carryover of corporate net operating losses. Qualifying employees can also receive a tax credit for working within an EZ, and local EZ administrators often cut red tape and provide additional assistance to EZ participants. These incentives have helped retain businesses in some of the state’s most down-trodden areas through two recessions, spurring greater capital expenditures, and improving the economic prospects of more than 190,000 Californians in just the last five years.

San Diego has had two Enterprise Zones, the “Metro Zone” that encompasses Barrio Logan, the Imperial Avenue Corridor and several other commercial areas in Southeastern San Diego and the “South Bay Zone” which includes Otay Mesa and some areas in Western Chula Vista. These two zones have been an economic development success story. Between 1990-2000, the Metro EZ and South Bay EZ saw significant drops in their poverty rates (52% to 39%, and 22% to 16%, respectively), compared to the City’s overall rate, which increased between that time (13% to 15%). Unemployment also dropped in both zones, as thousands of jobs were created that targeted residents within these low income neighborhoods as well as those who faced barriers to employment, such as ex-offenders and disabled veterans. In all, more than $1.5 billion worth of corporate investment and 20,000 jobs have been created within San Diego’s Enterprise Zones.

Building on that success, San Diego civic leaders recently applied for approval of a new “Regional Enterprise Zone” (REZ) that extends beyond the geographic limits of the Metro and South Bay EZs. Stretching across 36,000 acres, the REZ includes more of the communities in the City that need additional investments and job opportunities: the inner-city core, border neighborhoods and major portions of National City and Chula Vista. This expansion reflects the ground-level reality of two starkly different Cities of San Diego. According to the most recent figures from the U.S. Census, 63% of all unemployed City residents and 72% of all San Diegans living in poverty reside south of Interstate 8. Working households reporting income from government sources (Supplemental Security Income or other public assistance) are nearly three times more likely to be living in the southern half of the City than North of I-8. The REZ designation will encourage new capital investments and complement private efforts, such as the dynamic community renewal initiatives undertaken by Price Charities in City Heights and the Jacobs Family Foundation in the Diamond area.

The REZ application is still waiting for the final green light from state officials. SDI urges our state officials to approve the zone now. While pending, EZ administrators can sign up qualifying businesses for zone benefits under a current provisional status.

Like many socio-economic programs, EZs are only useful if they have a high participation rate from those who qualify. They also need to be publicized and promoted. Capital investors need to know that the tax benefits can provide them with the opportunity to achieve sufficient returns on investment. That is why it is critical that the Mayor’s Office and the San Diego City Council should use the bully pulpit to raise awareness of REZ program benefits, and ensure that local EZ coordinators have all the support and resources they need to reach their program goals.

Enterprise zones aren’t a panacea to what ails urban America, but they are an important partner in turning around blighted communities. If local leaders want to prepare all residents for the challenges of tomorrow’s economy, they should consider doing more to bridge the two San Diegos with one common destiny today.

While there is no memo yet from HCD, The Santa Clarita Valley Signal reports an item within its local news that the new Enterprise Zone is being given an official start date of July 1.

From the HCD press release:

SACRAMENTO— California’s Department of Housing and Community Development announced today that the Fresno County Regional Enterprise Zone is the first enterprise zone among the 23 newly-awarded enterprise zones to receive final designation to complete the necessary steps to move from conditional to final designation. Governor Arnold Schwarzenegger announced the conditional designations for the 23 Enterprise Zones last November.

“With today’s designation, the Fresno County Regional Enterprise Zone offers the businesses located within its newly established enterprise zone the multiple opportunities and benefits of the program,” said Housing and Community Development Director Lynn L. Jacobs. “They join the other 41 zones that together with the state work to promote job opportunities and business investments in California.”

Out of the 23 new conditional designations granted last November, Fresno County in one of four zones that does not overlap any part of a previous zone. Therefore AB 1550’s gap language was not applicable and no benefits have been able to begin until this final designation.

Here is the story from the Fresno Bee, and there is also a new website: http://www.fresnocountyez.com/

At the end of a story about eminent domain in the Santa Clarita Valley Signal, there is this brief nugget of information:

The council is also expected to approve entering into a memorandum of understanding with the State of California Housing and Community Development Department to administer the enterprise zone that would enable some city businesses to receive state tax incentive and credits.

That should be the last step in the process to receive a final designation for the new zone. I previously mentioned that the City was aiming to have an official start date of July 1, but that it was dependent upon HCD to review its EIR and complete this MOU.

In other local news, there will be a press conference and workshop related to the new Fresno County Regional Enterprise Zone tomorrow.

Apparently the fight for the Northeast Valley Enterprise Zone that I wrote about earlier worked out pretty well.

From the San Fernando Business Journal:

The Pacoima area has been included in the expanded boundaries of the Los Angeles Central/Hollywood enterprise zone, the governors office announced Monday.The move preserves an area of the San Fernando Valley in which businesses located within the boundaries receive tax incentives for hiring local residents.

Gov. Arnold Schwarzenegger credited working with the city and Mayor Antonio Villaraigosa and his staff for reconfiguring the enterprise zone to include Pacoima.

The addition of the Pacoima area strengthens the regions economic development activities and allows incentives to remain in place to promote business expansion and job growth, Schwarzenegger said in a prepared statement.

The Los Angeles Business Journal also has a piece, and here is the official press release from the Governor’s Office.

Update 12/19/2006

A more detailed article appears today in the San Gabriel Valley Tribune. I’m curious about the following quotation:

State officials acknowledged Monday that even though Pacoima no longer meets the technical requirements for a zone, it still needs help.Janet Huston, a spokeswoman for the state Housing and Community Development Department, said the state had received far more applications for enterprise zones than it had available slots. But revoking Pacoima’s designation seemed inappropriate, she said.

“There are businesses currently in the Pacoima area that would have lost their benefits, and that’s not in anyone’s best interest. The result would have been a loss of jobs,” she said.

First, if the area does not meet the “technical” (statutory?) requirements of a zone, how can they make it a zone? Second, since with the addition of the Pacoima area 100% of the applications submitted were selected as zones, what does it mean that there were “far more” applications than slots?

Apparently, some Los Angeles politicians are not going to take the loss of the Northeast Valley Enterprise Zone lying down. As the Los Angeles Daily News points out, this was the only zone that applied for a new designation that did not receive one. This is particularly ironic given that special consideration was made for the area earlier this year to change a rule that would have blocked the Valley’s ability to apply:

The move stunned local officials, who just three months ago persuaded Gov. Arnold Schwarzenegger to change state regulations in an effort to retain the Northeast Valley Enterprise Zone, which gives tax breaks to companies that create jobs.

In general it is interesting to hear the level of surprise:

Roberto Barragan, head of the Valley Economic Development Corp. that works with the program, said he was stunned.”We thought everything had been taken care of and this would be a routine approval,” Barragan said. “Today, Pacoima and the East Valley lost big-time. I’m not sure how we can recover from this type of setback.

“We thought we were fine, that everything was hunky-dory. Then the news came and I haven’t been able to catch my breath. What we have to do is take a look at this and see what we can do to make sure we don’t lose what we have and bring in more business to the San Fernando Valley.”

In any case, it looks like there is going to be some fighting coming up:

Mayor Antonio Villaraigosa said he will get involved.”This is a setback but I think there is opportunity over the next several weeks to correct this and make sure we continue to invest in the East San Fernando Valley,” Villaraigosa said in a statement.

“What’s important now is that we are not losing the tax credits for existing jobs and we will work to correct this.”

Councilman Alex Padilla, who also represents a portion of the area and is expected to be elected to the state Senate next week, said he is willing to introduce legislation next year to restore the enterprise zone status, if necessary.

“It’s a huge mistake on behalf of the state,” he said Friday afternoon. “The Governor’s Office couldn’t answer what, in their eyes, made this application not as competitive as the 23 areas of California that were selected.

“I’m not going to let the state off the hook.”