The Center of the California Enterprise Zone Information Universe


Fuzzy Math

It doesn’t take long to find distorting manipulations of numbers in the new California Budget Project report, “California’’s Enterprise Zones Miss the Mark.” The first point contained in the Executive Summary is:

The cost of the Enterprise Zone Program has increased substantially. The state’’s annual revenue loss due to the program grew nineteen-fold between 1993 and 2003, from $15.6 million to $299.3 million.

Firstly, a certain amount of growth ought to be expected after the creation of a new economic development program. Indeed, if there had been no growth in program participation that would indicate perhaps a larger failure of the State to implement an economic program. Perhaps the increase should be viewed as a measure of success. Apparently, however, the CBP finds a 19-fold increase over 10 years to be excessive. What would be the appropriate or acceptable rate of growth?

Secondly, the CBP omits a key statistic in discussing the increase in Enterprise Zone credit usage. We went from $15.6 million in 1993 to $299.3 million in 2003, but out of what? I was able to locate the 1993 Franchise Tax Board Annual Report and found (on page 6) that there was $22,464.7 million collected in personal and corporate income taxes. In 2003 there was $40,840.8 million (FTB 2004 annual report, page 12). The 1993 amount of EZ credit claimed was therefore 0.069% of the total tax collected (15.6/22464.7) and the 2003 EZ credit claimed was 0.732% of the total tax (299.3/40840.8).

Therefore it would be far more accurate to claim that there was 10-fold increase in the amount of EZ credits used (0.732%/0.069% = 10.55) rather than a 19-fold increase.

Thirdly, even though the CBP dismisses out of hand academic studies that have shown a net increase in revenue to the state as a result of the Enterprise Zones, the increased use of the program has been shown to correspond to an increase in benefit to the State. A 2003 study (commissioned by the CAEZ) by Applied Development Economics called Cost Benefit Analysis of California’s Enterprise Zone Program, found that for 2002 when the cost of the program was $173 million that:

The annual personal income tax, sales tax and corporate income tax attributable to enterprise zones, estimated to be $249 million in 2002. The numbers subtract out natural growth and do not include Unemployment Insurance or property tax receipts. If the economic multiplier effect is added, the income numbers are double those shown, indicating an even more positive return on investment.

Did anyone find this analysis in the San Francisco Chronicle or the Contra Costa Times?

A special thanks to Professor Joel Best of the University of Delaware, author of Damned Lies and Statistics: Untangling Numbers from the Media, Politicians, and Activists, for his insights on this post.

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