By Miriam Raftery
July 18, 2013 (San Diego) – Governor Jerry Brown has signed legislation into law that overhauls the state’s enterprise zone program of tax credits for employers hiring in designated areas. The old Enterprise Zone system had been criticized as wasteful and ineffective at creating jobs.
The reforms were backed by labor and manufacturing interests, though some business representatives have raised concerns over elimination of the old enterprise zone program.
The new measures, including Senate Bill 90 and Assembly Bill 93, were signed into law in San Diego on July 11 at Takeda, a local biotech firm.
The reforms will make a “big difference in how we do business,” said Takeda California President Keith Wilson. “By roviding this tax credit and a state tax exemption on innovative research tools, the new law is going to allow Takeda California to pursue staffing levels and collaborations with local universities that we would not have been able to afford otherwise.”
“This legislation will help grow our economy and create good manufacturing jobs,” said Brown in a prepared statement. “Through our great university system and through the companies we have, California can build on the strength of intellectual capacity."
The nonpartisan Legislative Analyst’s Office found a lack of evidence that the old enterprise zone system produced new jobs.
“The enterprise zone program represented some of the worst abuses of taxpayer money this state has seen,” said California Labor Federation Executive Secretary Art Pulaski, who supports the reforms. “Instead of using taxpayer funds to create jobs, the broken enterprise zone program subsidized strip clubs, card rooms and big corporations like Walmart…The program actually provided a perverse incentive for companies to fire workers and destroy good jobs to move to other areas of the state and hire at minimum wage.”
The California Manufacturing and Technology Association supported the bill, as did many other groups.
But the California Foundation for Commerce and Education, a think tank funded by the California Chamber of Commerce, has raised concerns. The gorup’s president, Loren Kaye, has said that “the tax incentive is pretty small. I’m not sure it would act as much of an incentive. This change may not give businesses the long term assurance existing tax incentives do to overcome costs.”
Craig Johnson, president of the California Association of Enterprise Zones, defended the enterprise zones as “effective” and stated that 94% of Enterprise Zone program users were companies worth $5 million or less, the Long Beach Business Journal Reported. The new program would have less benefit to small and mid-sized companies and will no longer apply to restaurants, bars, temporary hiring agencies and certain other businesses, he stated. Nor are there incentives for hiring disadvantaged employees, he added.
The new legislation does offer hiring credits for companies that hire workers in areas with high unemployment. It also gives sales tax exemptions to manufacturers for tools and to biotech firms for research and development equipment. In addition, the reform package provides tax incentives for companies that create jobs and pay high wages.
A company could receive tax credits of up to $56,000 for the first five years that it employs a worker making at least $12 an hour. Companies can also negotiate to gain tax credits based on creating jobs and investing in California.
“This state is going to thrive not by the lowest-paid jobs, but by those that require a lot of intellectual addition, content, skill,” the Governor observed. Brown also leveled a barb at Texas Governor Rick Perry, who recently visited California to try and lure local companies to his state.
“Those fellas in Texas, watch out,” Brown concluded. “California has some new tools.”