The following is a summary prepared by the Committee of reforms now included in the bill:
Summary of Issues Addressed in AB 231 – The Enterprise Zone Reform Package
This summary has been prepared to assist in the review of the proposed changes in the enterprise zone reform package. Due to the substance of the reforms, the program will be renamed the “California Economic and Community Development Zone Act. Items marked with ** at the end of the description are amendments to the original bills.
Reforms to Reduce the Cost and Size of the Program
1) Limit Use of Credits and Deductions: Prohibit tax payers from applying credits to more than 50% of their tax liability in the 2011 and 2012 tax years. In the case of the net interest deduction, the amendments limit the deduction to only 50% of the interest earned. **
2) Limit Retro-vouchering: Prohibits a business from applying for certification of an employee hired on or after January 1, 2011 if the employee was first hired more than 36 months prior to the submittal. Existing law has no time limit on employee certification, except those that apply generally to tax payers and amended returns. Employee eligibility, however, is limited to those workers who have worked at least 300 days of which at least 90% of their time was in the zone. This means eligibility cannot be established until the end of the tax year, at which time the employer starts the documentation process. **
3) Shorten Term of Hiring Credit and Incentivize Longevity and Higher Wages: Reduce the five-year credit to three years, reverse the percentage of wages used in calculating the value of the credit from 50/40/30 to 30/40/50, add 30 days to the minimum number of days an employee must be employed in order to claim the credit, and increase the maximum wage base used to calculate the value of the credit from 150% of state minimum wage to 202% for manufacturing jobs and 180% for all other businesses. Currently the Boeing manufacturing facility has authority for a 202% calculation. **
4) Limit Hiring Credits for Relocating Businesses: Limit credits to only net new jobs in cases where a business relocates from another area of the state into a zone. Jobs excluded from this requirement would be jobs that are substantially different than those at the prior location, as determined by EDD. An exemption, for example, would be when a company closes its manufacturing facility and opens a call center. Other exemptions to the net new job rule would include businesses that have received a personal written offer of assistance from another state, there is a need to expand and adjacent land is not available at the prior site, or the relocation is the result of a natural disaster or eminent domain. **
5) Scale-Back Targeted Employment Area: Limit TEA to census block groups with 51% low income residents and exclude from the TEA eligibility category highest wage workers (above moderate-income for the county). Current law defines a TEA as having 51% of low and moderate-income residents within a census tract and has no restriction on wage rates. **
6) Limit Carry Forward: Place a 15-year limit on enterprise zone tax incentives earned after January 1, 2011. Existing law has no limitation, which has led to businesses holding nearly $1 billion in carry forward credits. **
7) Limit New Zones to Low Income Areas: Require new enterprise zone designations to only include low income census tracts. Existing law allows applicants to choose several different economic distress factors, including low income households. Communities can still choose among criteria, but one criterion must be low household income. The reforms also modify the application bonus point system to better target lowest income neighborhoods. **
8 ) Limit Merging of Zones: Prohibit a jurisdiction which applies for an enterprise zone designation that includes one or more census tracts from a previously designated zone from receiving a new zone designation that has a geographic area more than 115% of the size of the previous zone.
Reform to Increase Program Accountability
1) De-Designate Poor Performing Zones: Link each zone’s required biennial progress report to the HCD audit and zone de-designation process. Currently, there are no specified penalties for a zone’s poor performance in meeting its goals and objectives outlined in its memorandum of understanding with the state. By linking poor performance with the existing HCD audit procedures, a process is established to identify and de-designate poor performing zones.
2) Track and Report Local Resources Dedicated to Zone Activities: Require local governments to identify in its application the types of local resources they are committing to use in implementing its economic development strategy and then have each zone document in its biennial progress report the actual amount of local resources (including incentives) that were dedicated to zone activities.
3) Prohibit Bad Actors from Accessing Credit: Prohibit a business from earning a hiring credit that has been deemed by the Department of Industrial Relations to be a serious, repeated, and willful employment law violator, including failing to abate identified issues. **
4) Penalize Zones that Fail to Update TEA Boundaries: Prohibit, for two years, the use of the TEA hiring credit eligibility category within zones that fail to update TEA boundaries in a timely fashion. Businesses in a zone that had previously certified one or more employees would not be affected by the invalidation. Further, zones would be required to update boundaries every five years instead of every 10 years.
5) Mandate Registration for Zone Businesses: Require a business to complete an on-line registration form as a pre-condition to claiming the hiring credit, the sales and use credit, and the Net Interest Deduction. **
6) Leverage EZ Program to Better Serve Workforce Development: Require state agencies and departments, when developing workforce development and training programs and services to consider how the enterprise zone program could be integrated in better serving their target client including Career One-Stop Offices, CalWORKS and Department of Education. Examples of assistance could include pre-certification of potential job applicants, targeted job placement within zone businesses, and offering training programs consistent with the dominant and emerging industry sections.
7) Expand State-Level Reporting: Require a more comprehensive review of the program based on information from the zones, registered zone businesses, and affiliated state agencies. Important new areas of information would include type of businesses being served in zones, the amount of capital investments being made by zone businesses, and wage rates of employees on which hiring credits are claimed.