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Contra Costa Times Op-Ed Opposed to Enterprise Zones

Jason A. Bezis, a Lafayette attorney who formerly consulted with cities and counties on their Enterprise Zone program applications has the this Op-Ed in the Conta Costa Times. He makes some pretty extreme claims of fraud and illegal behavior. Based on my extensive knowledge, these claims seem exaggerated or misinterpreted. For example, if the law allows a behavior that you don’t like, that doesn’t make the behavior fraud.

GOV. JERRY BROWN has called for elimination of the $500 million enterprise zone (EZ) program, a significant part of the state’s $87 billion budget. Businesses within the 42 enterprise zones, including San Francisco, San Jose, Oakland, Richmond and Pittsburg, are eligible for special tax incentives, especially $37,440 per qualified employee hired.

As a consultant to public entities, I helped to create many EZs and have concluded that they are squandering taxpayer dollars. In this era of fiscal austerity, the EZ program must be revamped completely, if not abolished.

First, the EZ program is failing as an effective economic development tool, which theoretically should be “timely, targeted and temporary.”

The EZ program offers retroactive tax “incentives” for decisions made up to five years earlier. This defies common sense and is an invitation to fraud.

EZ advocates contend that EZs employ “disadvantaged” workers (welfare recipients, ex-offenders, disabled), but more than 90 percent of hiring credits are issued for “targeted employment area” (TEA) residents. Any TEA resident, including a white-collar professional, qualifies an EZ business for the $37,440 credit. TEAs are not limited to slums; part of San Francisco’s Nob Hill is within a TEA.

EZ defenders claim that EZs attract high-paying manufacturing jobs to California, but the criteria are so loose that existing positions in all industries are equally eligible. Why subsidize a McDonald’s or beautician, neither of which will move to Nevada or China?

EZs are not compact areas near “disadvantaged” workers. Many sprawl over hundreds of square miles, including thousands of businesses that do not need incentives. In the San Joaquin Valley, for example, most businesses are within EZs. Santa Clarita (home of Magic Mountain) used a small pocket of poverty to create an 8,700 acre EZ.

Why locate your business in Watts or East Oakland when you can obtain the same benefits in a pristine suburban locale?
Although EZs have 15-year life spans, the same territory may be included in a renewed EZ. Most of downtown San Francisco, for example, has been in an EZ since 1986.

Second, the EZ program has no performance measures, despite legislators’ perennial call for “performance-based budgeting.” Many EZs fail to track the various tax incentives by category. Without such data, no one can objectively gauge the program’s effectiveness. EZ program managers who attempted to impose modest benchmarks and other safeguards a few years ago encountered fierce resistance and left their positions.

Third, major aspects of the EZ program are operated illegally. In blatant defiance of the EZ statute, the Schwarzenegger administration decreed Hollywood mansions in an “eligible area.”

A feedlot owned by a major political donor was deemed “industrial” land to bring it within an EZ. The poor are used to establish EZs, but the wealthy (especially the cottage industry of “EZ tax consultants”) derive most of the benefits.

Fourth, no one is held accountable for EZ fraud. For purposes of California’s criminal law, tax credits are not “public money” that can be misappropriated.

When schools are being closed and vital public services cut back, we cannot afford a half-billion dollar program that cannot demonstrate results.

The Legislature should support Gov. Brown in overhauling the EZ program.

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