LONG BEACH BUSINESS JOURNAL: STATE LEGISLATURE PASSES AB 93, EFFECTIVELY TERMINATING CALIFORNIA ENTERPRISE ZONES BY 2014 By Tiffany L. Rider | July 2, 2013 lbbusinessjournal/long-beach-business-journal-newswatch/1642-activity-along-downtown-long-beachs-main-thoroughfare-points-to-pine-avenue-revival.html July 2nd, 2013 – After years of attempting to do away with the California Enterprise Zone program, Gov. Jerry Brown is finally able to eliminate it under the guise of a new program established with Assembly Bill 93. Many public and private sector officials considered Enterprise Zones to be one of the state’s last remaining economic development tools. The state legislature approved AB 93 on June 27, a law that repeals provisions allowing for Enterprise Zones, manufacturing enhancement areas, targeted tax areas and local military base recovery areas on January 1, 2014. The program for hiring tax credits and sales/use tax credits associated with Enterprise Zones becomes inoperative for taxable years on or after January 1, 2014. AB 93 limits application for both of those tax credits to taxes paid on purchases and/or hires made prior to January 1, 2014, with carryover limited to 10 succeeding years. In a statement, Governor Brown said, “This is a big, bipartisan win for California businesses and working people. AB 93 will help grow our economy and create good manufacturing jobs.” Assemblymember Bonnie Lowenthal, a Democrat who represents the portion of Long Beach in the 70th Assembly District, said in an e-mailed statement to the Business Journal that she recognizes how Enterprise Zones have been good for Long Beach but sees AB 93 as a means of revamping and strengthening the program’s shortcomings. “AB 93 strikes the right balance by allowing our existing zones to continue, while investing in manufacturing and biotechnology, middle-class jobs, and better transparency,” Lowenthal said. “By revamping the enterprise zone program, we can eliminate the weaknesses that led to cronyism and questionable investments in some areas of the state. With AB 93, California will have a program that invests in a 21st Century economy with credits for manufacturing and biotechnology, and solid, stable jobs that strengthen our middle class.” At the same time this bill was making its way through the legislature, the California Department of Housing and Community Development (HCD) was working on proposed policy changes to the Enterprise Zone program. Eric Johnson, spokesperson for HCD, told the Business Journal the department will cease this work and wait for direction from the governor on how to move forward with replacing the Enterprise Program with AB 93 regulations. “We are looking forward to seeing how this new program plays out and what our role in it might be,” Johnson said. Loren Kaye, president of the California Foundation for Commerce and Education, a think tank of the California Chamber of Commerce, told the Business Journal prior to the passage of AB 93 that, with California facing a lot of competition from other states due to its challenging business climate, the Enterprise Zone is one of the few tools local governments have to maintain and create jobs. Kaye said users of the Enterprise Zone program are all over the map, from retailers to manufacturers to logistics services. Commenting on AB 93, Kaye said, “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. They do something, but it doesn’t outweigh the cost of getting rid of the Enterprise Zone.” Blake Christian, certified public accountant and partner of Holthouse Carlin & Van Trigt, has helped clients for years get tax credits through the Enterprise Zone program. Christian’s response to the approval of AB 93 was nothing short of disappointment. “The governor is a master politician,” Christian told the Business Journal. “He is very effective in getting legislation through.” He recalled promises made by legislators in face-to-face conversations not to rid the state of the Enterprise Zone program and said, “It’s disingenuous to say that he and the legislators have retained the Enterprise Zone. He’s put it on life support, with Kevorkian, if he were alive, administering the death elixir.” According to Christian, the tax scoring under AB 93 effectively reduces the maximum amount of credits to be issued in a given year from about half a billion dollars down to $7 million in 2014. The program does increase to $34 million in 2015; still significantly lower than what the Enterprise Zone program offers. “He’s completely emasculated the program,” he said. “There is no truth in saying they have retained the Enterprise Zone program.” Since 2009, there have been talks every year in Sacramento to reform the 30-year-old EZ program, to enhance it and make it a better program within the existing program, according to Craig Johnson, president of the California Association for Enterprise Zones (CAEZ). Johnson (no relation to Eric Johnson) said the CAEZ has always been up front acknowledging that there may be problems, difficulties and some concerns with the program. “Some would have been worthy of investigating and making changes to,” he told the Business Journal. “Others had been unfounded. We were disappointed to see this outcome because it eliminates what had been a very effective program despite what opponents of the program have said.” Ninety-four percent of Enterprise Zone program users are companies that are valued at $5 million or less, he said. The new program established by AB 93 has minimal benefit to small to mid-sized companies and no longer applies to restaurants, bars, temporary hiring agencies and other businesses, he said. “The Enterprise Zone program has benefitted those who are the most difficult to employ,” Johnson said. “That was the beauty of this.” Prior to the bill’s passage, Long Beach Mayor Bob Foster wrote a letter to the legislature in opposition to AB 93. (View the letter here.) “The Administration’s proposal appears to focus on providing benefits for net new jobs only and does not incent employers to hire disadvantaged employees for existing positions,” he wrote. “While this approach sounds appealing, it is a distinctly different policy from the current EZ and will result in thousands of lost opportunities to hire disadvantaged workers.” He goes on to cite 4,296 hiring credit vouchers that were issued to about 550 businesses in Long Beach last year, noting that 3,763 of those vouchers are for what are considered retained jobs. Under AB 93, those 3,763 jobs are no longer eligible for hiring credits. “Over 70 percent of our city was in an Enterprise Zone,” Tom Modica, director of government affairs for the City of Long Beach told the Business Journal. “There have been some amendments to the proposal that will sort of blunt some of the impact, but it is still going to be a loss. There were amendments taken in the senate to help protect businesses that had invested and had credits. It went from five years of protection to 10 years of protection. If you look at our letter, one of the points that we made is there are a number of populations that aren’t included under the governor’s proposal.” Modica said, although the program is a loss to Long Beach, the city will plan how to most effectively use the limited economic development tools under AB 93. “What government does is adapt to different circumstances,” he said. “This is going to be the program that moves forward and we are going to do our best to take advantage of the program that is there.”
Posted on: Wed, 03 Jul 2013 16:55:11 +0000
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