BILL ANALYSIS                                                                                                                                                                                                    




                                                                  SB 341
                                                                  Page A
          Date of Hearing:   July 3, 2007

          ASSEMBLY COMMITTEE ON JOBS, ECONOMIC DEVELOPMENT AND THE ECONOMY
                                Juan Arambula, Chair
                   SB 341 (Lowenthal) - As Amended:  April 11, 2007

           SENATE VOTE  :  39-0

           NATURAL RESOURCES   9-0         
                                           
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          |Ayes:|Aghazarian, Brownley,     |     |                          |
          |     |Fuentes, Fuller, Hancock, |     |                          |
          |     |Keene, Laird, Salda?a,    |     |                          |
          |     |Wolk                      |     |                          |
          |     |                          |     |                          |
          |-----+--------------------------+-----+--------------------------|
          |     |                          |     |                          |
          |     |                          |     |                          |
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           SUBJECT  :   Geographically-Targeted Economic Development Areas  
          (G-TEDA) and the California Environmental Quality Act (CEQA)

           SUMMARY  :   Expands the ways in which a local government applying  
          for an enterprise zone (EZ) designation may meet the  
          requirements of CEQA, while eliminating the ability of these  
          jurisdictions to limit subsequent environmental reviews based on  
          the contents of the initial CEQA documents.  Specifically,  this  
          bill  :   

          1)Expands the options a finalist for an EZ designation may use  
            to address potential environmental impacts of the proposed EZ  
            to include a negative declaration and a mitigated negative  
            declaration, in addition to the full environmental impact  
            report (EIR), which is provided for in existing law.

          2)Deletes the CEQA exemption authority on future projects within  
            an EZ, if the effects of the projects were identified in the  
            EIR prepared as part of the final application procedure, as  
            specified.

           EXISTING LAW  : 

          1)Provides for the establishment of G-TEDA programs to stimulate  
            business and create jobs in depressed areas of the state  









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            including authorization for:  

             a)   A maximum of 42 EZs, each designated for an initial  
               15-year period by the Department of Housing and Community  
               Development (HCD).  
              
              b)   A maximum of eight Local Area Military Base Recovery  
               Areas (LAMBRAs), each designated for an eight-year period  
               by HCD.   

             c)   A maximum of two Manufactured Enhancement Areas (MEAs)  
               designated for a 14-year period by HCD.  Limits MEA  
               designation to impoverished areas along the  
               California-Mexico border.

             d)   One Targeted Tax Area (TTA) within the County of Tulare  
               for a 15-year period.

          2)Requires the lead agency in an EZ application, to file an  
            initial study with HCD, the Governor's Office of Planning and  
            Research, and all responsible agencies at the time that the EZ  
            application is submitted to HCD.

          3)Requires local governments that receive preliminary EZ  
            designations to prepare an EIR prior to final enterprise zone  
            designation.

          4)Provides that no additional EIRs be required for projects  
            within an EZ, if the effects of the project were:

             a)   Mitigated or avoided as a result of the EIR prepared for  
               the area;

             b)   Examined in sufficient detail in the EIR to enable those  
               effects to be mitigated or avoided by specific site  
               revisions, the imposition of conditions, or other means in  
               connection with the designation of the area; or,

             c)   Identified in the final EIR, and the lead agency made  
               written findings that specific economic, social, or other  
               considerations made the mitigation measures or project  
               alternatives identified in the EIR unfeasible.

           FISCAL EFFECT  :  Implementation of this bill has no significant  
          state costs or financial impact.  SB 341 was referred from the  









                                                                  SB 341
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          Senate Appropriations Committee under Senate Rule 28.8, based on  
          the Chair's determination that the bill does not have any  
          significant costs nor will it cause a serious reduction in  
          revenues.

           COMMENTS  :

           1)Purpose of the bill  :  EZs play a key role in developing  
            communities, while CEQA plays a key role in protecting the  
            environment. This bill is important because it creates  
            efficiency in the EZ designation process and upholds CEQA  
            standards. 
           
             According to the California Association of Enterprise Zones,  
            an EZ designation related EIR can cost a community upwards of  
            $100,000 and does not necessarily provide any additional  
            environmental protection to the area.  

           2)California's G-TEDA programs  :  The four G-TEDA programs (EZ,  
            LAMBRA, MEA, and TTA) comprise the second largest state  
            investment in economic development.  The G-TEDA programs are  
            based on the economic principle that targeting significant  
            incentives to lower income communities allows these  
            communities to more effectively compete for new businesses and  
            retain existing businesses, which results in increased tax  
            revenues, less reliance on social services, and lower public  
            safety costs.  Residents and businesses also directly benefit  
            from these more sustainable economic conditions through  
            improved neighborhoods, business expansion, and job creation. 

            Under the G-TEDA programs, businesses and other entities  
            located within the area are eligible for a variety of local  
            and state incentives.  Local government incentives can include  
            writing down the costs of development, funding related  
            infrastructure improvements, providing job training to  
            prospective employees, or establishing streamlined processes  
            for obtaining permits.  The state also offers a number of  
            incentives, including: tax credits, special tax provisions,  
            priority notification in the sale of state surplus lands,  
            access to certain Brownfield clean-up programs, and  
            preferential treatment for state contracts.  

            Below is a chart comparing the state tax incentives offered to  
            businesses located in a G-TEDA.










                                                                 SB 341
                                                                  Page D

                ------------------------------------------------------------ 
               |  Comparison of State Tax Benefits by Targeted Area (2005)  |
                ------------------------------------------------------------ 
               |---------+--------+---------+---------+----------+----------|
               |         | Hiring | Longer  |  Sales  |Accelerate|  Lender  |
               |         | Credit | NOL<1>  | and Use |    d     | Interest |
               |         |        | Carry-  |   Tax   |Depreciati|Deduction |
               |         |        | Forward | Credit  |    on    |          |
               |         |        | Period  |         |          |          |
               |---------+--------+---------+---------+----------+----------|
               |Enterpris|   X    |    X    |    X    |    X     |    X     |
               | e Zone  |        |         |         |          |          |
               |---------+--------+---------+---------+----------+----------|
               |Manufactu|   X    |         |         |          |          |
               |  ring   |        |         |         |          |          |
               |Enhanceme|        |         |         |          |          |
               | nt Zone |        |         |         |          |          |
               |---------+--------+---------+---------+----------+----------|
               |Targeted |   X    |    X    |    X    |    X     |          |
               |Tax Area |        |         |         |          |          |
               |---------+--------+---------+---------+----------+----------|
               |  Local  |   X    |    X    |    X    |    X     |          |
               | Agency  |        |         |         |          |          |
               |Military |        |         |         |          |          |
               |  Base   |        |         |         |          |          |
               |Recovery |        |         |         |          |          |
               |  Area   |        |         |         |          |          |
                ------------------------------------------------------------ 
                ------------------------------------------------------------ 
               |Source:  Legislative Analyst's Office                       |
                ------------------------------------------------------------ 

            By far, the largest G-TEDA business incentive is the income  
            tax credit given for hiring certain targeted employment  
            populations.  According to the California Budget Project  
            (CBP), in 2003, businesses located within an EZ claimed $299.3  
            million in hiring, and sales and use credits.  Approximately  
            $1.5 billion in tax credits and deductions have been claimed  
            since 1986.  CBP estimates that claims of G-TEDA related  
            credits grew 19-fold between 1993 and 2003.  

            According to the Legislative Analyst's Office, approximately  
            60% of the hiring credits are filed by small and medium-sized  



            --------------------------
          <1> NOL= Net Operating Loss








                                                                  SB 341
                                                                  Page E
            businesses - businesses with assets  under $5 million  .   
            However, approximately 65% of the total value of the credits  
            claimed are from businesses with  assets over $1 billion  .   
            Similarly, approximately 50% of the total value of the credits  
            claimed went to companies with  receipts of over $1 billion  .   

           3)CEQA and EZ designation  :  Applying for an EZ designation is  
            considered a discretionary act under CEQA.  As such,  
            applicants are required to evaluate the potential  
            environmental impacts of the action prior to engaging in the  
            actual activity.

            Under CEQA, the lead agency is responsible for undertaking an  
            initial study to determine whether a project, (i.e.  
            designation as an EZ), would have a significant adverse effect  
            on the environment.  If during the initial review, the lead  
            agency determines a project will result in a significant  
            adverse impact on the environment, an EIR must be prepared.   
            In general, an EIR describes the proposed project, identifies  
            and analyzes each significant environmental impact resulting  
            from the project, and identifies possible mitigation measures  
            to reduce the potential environmental adverse impacts.

            Sometimes, however, the initial study identifies no adverse  
            effects of the project, and under general CEQA law in the  
            Public Resources Code, the lead agency may adopt a Negative  
            Declaration.  CEQA law also authorizes the adoption of a  
            Mitigated Negative Declaration when the initial study  
            determines that the potential effect of the project could be  
            significant, but the impacts can be reduced to a level that is  
            less than significant through project revisions.   

            Contrary to CEQA law in the Public Resources Code, the EZ  
            Program requires the preparation of an EIR, regardless of  
            whether the designation of the EZ would result in a negative  
            environmental impact, or whether those impacts could be  
            appropriately mitigated.  

            It is not entirely clear on how this contrary application of  
            CEQA was established.  One theory is that the mandatory EIR  
            was a public policy accommodation for allowing local  
            jurisdictions to comply with CEQA in two phases:  submittal of  
            an initial study with the initial application and the EIR at  
            the time of the final application.  As the EZ designation  
            process was designed to be very competitive, it is conceivable  









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            that the compromise would save unsuccessful applicants from  
            meeting the full requirements of CEQA review.  

            Another theory is that the EZ Program's environmental review  
            requirements were an early version of the 1994 policy  
            innovation of the Master EIR authority under CEQA, which  
            provides detailed environmental review of plans upon which the  
            analysis of subsequent related development projects could be  
            based.  To the greatest extent feasible, the Master EIR  
            evaluates the cumulative impacts, growth inducing impacts, and  
            irreversible effects of subsequent projects.  In theory,  
            future projects can move forward more quickly thereby saving  
            time and money during the implementation stage of a project.

            While the origins of the EZ Program requirements for an EIR  
            are unclear, it is clear that EZ administrators, consultants,  
            and businesses are very interested meeting the general  
            requirements of CEQA rather than the alternative process.  The  
            language in this bill was carefully developed in consultation  
            with senior policy staff in the Senate with responsibility for  
            CEQA related legislation.  There is no known opposition to  
            this bill.
               
           4)G-TEDA Reforms  :  In the winter of 2005, the Assembly  
            Committees on Revenue and Taxation, and Jobs, Economic  
            Development, and the Economy (JEDE) held a series of hearings  
            on the G-TEDA programs.  A summary of these hearings,  
            including background materials, are available on the JEDE  
            Committee website at  www.assembly.ca.gov  

            During the course of these hearings, the Committees reviewed  
            current and best practices related to designation, management  
            and monitoring, and use of business incentives available  
            through the G-TEDA programs.  As a result of these hearings,  
            JEDE developed a list of 47 recommendations on how to improve  
            the overall G-TEDA programs.  SB 341 addresses concerns raised  
            during the hearings and puts forward an innovative solution to  
            the recommendations on modifying the environmental review  
            process.

           5)EIRs and Other G-TEDAs  :  In developing a package of 2006  
            reforms, JEDE recommended that differences between the  
            operation and management of the different G-TEDA programs be  
            eliminated, unless the programmatic difference was necessary  
            to accomplish a specific public purpose.  This bill proposes  









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            to make important changes to the EZ CEQA compliance portions  
            of the G-TEDA programs, but is silent on its application to  
            the MEA, TTA, and LAMBRA programs.

           6)Proposed amendments  :  Staff understands that the author will  
            request amendments in Committee to add an urgency clause and  
            specify that the provisions in this bill apply to EZ  
            applications submitted on or after October 1, 2007.

           REGISTERED SUPPORT / OPPOSITION  :

           Support 
           
          California Building Industry Association
          California Business Properties Association
          California Chamber of Commerce
          California Retailers Association
          City of Santa Ana
          City of Live Oak
          City of Marysville
          City of Yuba City
          Long Beach Chamber of Commerce
          Siskiyou County
          Santa Ana Enterprise Zone
          Stanislaus County
            Wine Institute
          Yuba-Sutter Enterprise Zone
          1 Individual

           Opposition 
           
          None known


           Analysis Prepared by  :    Toni Symonds / J., E.D. & E. / (916)  
          319-2090