The Center of the California Enterprise Zone Information Universe


Dealing With Conflicting Studies

The following article is from USC Annenberg School “Neon Tommy” News site. Interesting insights from State Sen. Rod Wright, local businesses, and some new comments from PPIC’s Dr. Kolko:

Following Gov. Jerry Brown’s call to cut enterprise zones, a surge of opposition has swelled around the controversial budget move.

While opponents point to data that suggests the zones have “been ineffective overall in creating jobs or businesses,” California State Sen. Roderick Wright asserts that half of the companies in the Southern California enterprise zones would move out if the zones were to be eliminated. Wright represents the 25th district, which includes Compton, Long Beach and Inglewood, in addition to other Southern California communities — many in need of economic assistance.

OPPONENTS: JOBS WILL BE LOST

However, conflicting data leaves up in the air the true effectiveness of the zones, which provide tax relief to companies meeting a set criteria in economically depressed areas.

“If they do away with this program, you might as well put up a fence at the border to say ‘Business not welcome here,’” said Blake Christian, a certified public accountant and former chairman of the Long Beach Area Chamber of Commerce.

Christian co-founded the National Tax Credit Group along with University of Southern California professor Charles Swenson.

Swenson’s research-paper on enterprise zones, one cited by proponents of the zones across the state, concludes that they “significantly improve local labor markets.”

“I think it would hit us very hard,” said Christian. “Both Compton and Long Beach have higher-than-average unemployment rates within California.”

Long Beach sits at about 14 percent and Compton at 21 percent while California’s average is 12 percent.

Of Wright’s bold statement that half the companies would leave, made at a Jan. 13 Senate Budget and Fiscal Review committee meeting: “I think over time, you are definitely going to see some percent of companies leave. And they’re not going to move to another area of California, they’re going to move out of state.”

City officials and governors across the state agree. Los Angeles Mayor Antonio Villaraigosa and eight other governors of the state’s largest cities met with Gov. Brown on Wednesday, hoping to make their case for cuts to be made elsewhere. In the prior week, more than 100 city officials and governors threatened a lawsuit against the state.

At the same time, Gov. Brown must contend with serious budget shortfalls. The state estimates it gives away $500 million annually through the tax incentives.

“These cuts are serious. They’re a retrenchment in what California was attempting to do in recent years, but they’re necessary because we just don’t have the money,” Brown said Wednesday to officials.

EARLY PUBLIC SUPPORT FOR BROWN’S PLAN

According to a Public Policy Institute poll, 66 percent of California want redevelopment agencies and enterprise zones abolished.

A 2009 study of enterprise zones figured heavily in Brown’s proposal. That study, also by the Public Policy Institute of California stated, “The enterprise zone program, the state’s largest economic development effort, has failed to achieve its key goal: increasing jobs.”

“We found on average no faster employment growth,” said Jed Kolko, who co-authored the report.

However, “Some zones showed faster employment growth,” he added. The research could not pinpoint those exact zones.

The study compared employment growth within enterprise zones with growth in similar comparison areas.

Some opponents of the study criticize the survey methods employed by Dun & Bradstreet — a company that provides information on businesses.

“There are holes in the data they used,” said Yolanda Benson, a consultant for the California Association of Enterprise Zones.

According to Benson, when a business marked the appropriate box to signify its amount of employees, “the range was too big.”

“You can’t say they didn’t create a job if you didn’t look at one job creation. You were checking a box,” she said.

In response, Kolko defended the survey. “When employment is reported as a range, it means that sometimes businesses might grow and stay within the same range and sometimes they might go to the next range, which means on average because we are looking across all businesses in the enterprise zones, on average we will get the correct level of growth,” he said.

Included in the study were 124,000 businesses in enterprise zones.

“Even when you average a small number of businesses, the problem goes away,” Kolko said.

CALIFORNIA: UNFRIENDLY TO BUSINESS?

There are currently 42 other states with the equivalent of enterprise zones, and California has among the highest income and sales taxes in the nation.

“They’ll move their whole operation to Kansas, because Kansas is offering a lot of incentives,” said Christian, who says he’s had an influx of calls from worried clients since the announcement.

The effects in Long Beach, would be “pretty devastating,” he added. “Long Beach issues 7,800 vouchers, meaning 7,800 different employees met the criteria for their employers to get tax credits. If they terminate the program, there will be less hiring.”

Christian cites a number of clients whose businesses have been vastly impacted by the zones.

“We moved to Long Beach solely for the enterprise zone program,” said Charles Paul, president of Worldwise Education.

“The enterprise zone program was critically important in allowing our licensed, stand-along restaurant to stay open during some very challenging economic times,” said John Sangmeister, owner of Gladstone’s Long Beach.

“Without the enterprise zone program, it would have been much tougher for us to take on the complete burden of a new employee’s payroll without the tax credits,” said Trent Bryson, CEO of Bryson Financial Group.

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