The Center of the California Enterprise Zone Information Universe

Legislators Explain AB 93 Vote

Senator Anthony Cannella (R – 12 SD) and Assemblyman Adam Gray (D – AD 21) have published a joint Op-Ed in the Merced Sun-Star explaining the process that lead to their support of AB 93 and the elimination of the Enterprise Zone program.

The article serves primarily to justify their decisions, but it also provides a glimpse into the pressure tactics employed by the Administration to achieve its objective. The legislators describe how the Governor threatened them with unilateral administrative elimination of the program if legislation were not passed:

The dirty little secret that no one really brought up in the debate over the future of the program was that as chief of the executive branch, the governor could have easily eliminated them through the Department of Housing and Community Development regulation. In the past month, the zones in Fresno, Arvin and Barstow failed their audits. They were given six months to achieve the unachievable and would have been dissolved. We spoke to the enterprise zones in our region, and they knew that they will not be able to stand up to new audit regulations that the governor could put in place unilaterally.

Because the resignation of two Democrat legislators would have compromised the party’s legislative supermajority, the Administration accelerated AB 93 at an irresponsible pace. Had these legislators had the time to investigate the Governor’s threat, they would have understood that the process was not so simple, not so fast, and not completely devastating to the businesses who relied on California’s now broken promises.

The Government Code Section 7076.1 describes a lengthy process by which zones may be dedesignated for failure to meet their objectives. The audit failures mentioned in the article represent only the first step in an iterative process.

Sources within the Housing and Community Development Department told me that six audits were completed and besides the three publicized failures, the other three zones passed thereby making them immune from additional audit for another five years. The Department expected the majority of zones would pass their audits.

Furthermore, even if the Administration were successful in dedesignating some of the zones, Government Code Section 7076.1(c)(3)(B)(ii) states:

Any business, located within any jurisdiction that comprises a G-TEDA that has been dedesignated, that has elected to avail itself of any state tax incentive specifically applicable to a G-TEDA for any taxable or income year beginning prior to the dedesignation of the G-TEDA may, to the extent the business is otherwise still eligible for those incentives, continue to avail itself of those incentives for a period equal to the remaining life of the G-TEDA. However, any business, located within any jurisdiction that comprises a G-TEDA that has been dedesignated, that has not availed itself of any state tax incentive in the manner described in the preceding sentence may not, after dedesignation of the G-TEDA, avail itself of any state incentive specifically applicable to a G-TEDA.

In other words, every business currently utilizing the Enterprise Zone program could have continued to use the program for the full 15-year designation period even if the Governor succeeded in his threat to unilaterally dedesignate the zones.

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