BILL ANALYSIS Ó
SENATE TRANSPORTATION & HOUSING COMMITTEE BILL NO: AB 484
SENATOR MARK DESAULNIER, CHAIRMAN AUTHOR: Alejo
VERSION: 6/6/12
Analysis by: Mark Stivers FISCAL: yes
Hearing date: June 12, 2012
SUBJECT:
Expiring enterprise zones
DESCRIPTION:
This bill allows an enterprise zone that expired in 2012 to
remain in effect until December 31, 2014, or until the
Department of Housing and Community Development conditionally
designates the maximum number of enterprise zones, whichever
comes first, if the jurisdiction has sent a letter expressing
its intent to reapply for a new enterprise zone designation.
ANALYSIS:
Under existing law, the Department of Housing and Community
Development (HCD) can designate up to 42 enterprise zones, which
are intended to stimulate business and industrial growth in
depressed areas of the state and to incentivize the hiring of
disadvantaged individuals. Within an enterprise zone, cities
and counties can relax regulatory controls such as permits and
development fees, provide tax incentives, expand infrastructure,
and target federal grants for education, health and welfare,
economic development, vocational education, transportation, and
housing. The state provides a number of tax credits and
deductions for businesses in the zone, including credits for
sales and use tax paid on manufacturing equipment purchased,
hiring credits for qualified employees, 100% net operating loss
carryover for losses associated with operations within the
enterprise zone, deduction of interest earned by lenders who
loan money to enterprise zone businesses, and election to
expense rather than amortize equipment used within the
enterprise zone.
An enterprise zone designation lasts for 15 years. In the past,
when one or more enterprise zones have approached their
expiration date, HCD has issued a Request for Proposals (RFP) to
solicit applications for new zone designations. Applicants have
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included both the expiring zones themselves and new applicants.
HCD selects enterprise zones through a competitive process based
on the appropriateness of the applicant's proposed economic
development strategy and implementation plan.
In October 2011, HCD issued a management memorandum stating its
intent to study and propose reforms to the enterprise program
and, in the meantime, to hold off on issuing an RFP for the two
slots that are now open as a result of the 2012 expirations of
the Watsonville and Antelope Valley enterprise zones. To date,
HCD has held various listening sessions across the state but has
not yet proposed any administrative or legislative reforms.
This bill allows an enterprise zone that expired in 2012 to remain
in effect until December 31, 2014, or until HCD conditionally
designates the maximum number of enterprise zones, whichever comes
first, if the jurisdiction has sent a letter to HCD expressing its
intent to reapply for a new enterprise zone designation. The bill
further requires HCD to notify the Franchise Tax Board (FTB) within
60 days of any such enterprise zone extension and to notify FTB
again and any affected taxpayer at least 60 days prior to the
expiration of the temporary extension.
COMMENTS:
1.Purpose of the bill . According to the author, Watsonville,
one of the two communities whose enterprise zone is set to
expire, is one of the most depressed areas of the state with
an unemployment rate of 21.4 percent, 10.2 percentage points
above the statewide average. The enterprise zone is a key
business attraction tool for Watsonville. It is not often the
only reason a business chooses to locate in Watsonville, but
it is almost always in the top five reasons. Watsonville has
334 companies participating in the program that have created
or retained over 10,000 jobs, at least 10% of those being
union jobs. The enterprise zone has helped at least 2,000
employees move off of public assistance, including 150
veterans and 300 ex-offenders. At least four major companies
have indicated that they would be forced to reconsider
manufacturing in Watsonville if they were to lose the hiring
tax credit and sales and use tax credits. Any further loss of
jobs will devastate the city. The Antelope Valley enterprise
zone is concerned about losing the Joint Strike Fighter
Program, which supports thousands of jobs in the community.
Watsonville and the Antelope Valley had planned to apply for a
AB 484 (ALEJO) Page 3
new enterprise zone designation before the current designation
expired. Due to HCD's hold on issuing an RFP for the new
zones, however, neither has had that opportunity. The intent
of this bill is offer the two expiring zones a solution to the
closure of the RFP process by allowing businesses within the
expired enterprise zones to continue receiving uninterrupted
benefits until such time that HCD finalizes its regulation
changes and policy reforms and designates new zones.
2.No competition . This bill allows an automatic extension of an
expiring zone, in essence designating a short-term enterprise
zone without any kind of competition. This committee has
historically insisted on a competitive process for any
enterprise zone designation.
3.Opportunity cost . According to the FTB, businesses in
enterprise zones claimed $600 million in tax credits during
fiscal year 2011/12, for an average of $14.3 million per zone.
The value of tax credits claimed in the two enterprise zones
currently facing expiration is not readily available, but
based on the average it is likely that extending the two zones
currently facing expiration will reduce General Fund revenues
by more than $28 million per year until HCD designates two new
zones.
Sponsors argue, however, that these costs are offset in part,
if not in whole, by the fact that some percentage of hired
employees would otherwise remain on public assistance and not
pay taxes on earned wages. The City of Watsonville reports
anecdotal evidence suggesting that 80% of employees in its
zone for which the employer claims an enterprise zone hiring
credit were unemployed and eligible for either unemployment or
welfare benefits at the time of hire. The Antelope Valley
enterprise zone states that 45% of vouchers issued in 2011
were for individuals receiving government assistance.
4.Arguments in opposition . Opponents support HCD's position not
to designate or extend new zones until the enterprise zone
program is sufficiently reformed to strengthen its
effectiveness to incentivize job creation. Opponents further
believe that it is unconscionable to allow even a small piece
of this program to continue until aggressive reforms are in
place. They argue that studies have shown enterprise zones to
be costly and ineffective and that "every day that an
enterprise zone is allowed to operate past its expiration
wastes taxpayer dollars that could be used to bridge the
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growing budget shortfall."
5.Technical amendments .
On page 3, line 7 strike "redesignated" and insert
"extended"
On page 3, line 11 strike "redesignation" and insert
"extension"
On page 3, lines 13-14 strike "completes any regulatory
or administrative review, issues a request for proposal,
and"
On page 3, line 17 strike "enterprise zone benefits" and
insert "an enterprise zone designation"
On page 3, strike lines 18-22 and insert "this section.
The department shall notify the Franchise Tax Board within
60 days of the expiration of any enterprise zone pursuant
to this section."
1.Double-referral . The Rules Committee has referred this bill
to both this committee and the Governance and Finance
Committee.
Assembly Votes:
Previous votes not relevant.
POSITIONS: (Communicated to the committee before noon on
Wednesday, June 6,
2012)
SUPPORT: Aaron's
Aerowire Technical Services
American Council of Engineering Companies
Antelope Valley Black Chamber of Commerce
Antelope Valley Board of Trade
Antelope Valley Chamber of Commerce
Antelope Valley Harley-Davidson
Antelope Valley Mall
Building Industry Association of Southern
California
Burkey Cox Evans & Bradford, Accountancy
Corporation
California Aerospace and Technology Association
California Asian Pacific Chamber of Commerce
California Association for Local Economic
Development
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California Association of Enterprise Zones
California Bankers Association
California Business Properties Association
California Chamber of Commerce
California Employment Opportunity Network
California Grocers Association
California Independent Bankers Association
California Manufacturing and Technology
Association
California Retailers Association
Camacho Auto Sales
City of Colton
City of Hesperia
City of Kingsburg
City of Lancaster
City of Mendota
City of Palmdale
City of Salinas
City of Selma
City of Watsonville
Coalition of Small and Disabled Veterans
Businesses
Del Mar Food Products Corporation
Douglas B. Weber Dentistry
Elyxir Distributing, LLC
Goodwill Southern California
Granite Construction
Greater Antelope Valley Association of Realtors
Greater Antelope Valley Economic Alliance
HL Performance Converters
Lancaster Chamber of Commerce
Lance Camper
League of California Cities
League of Cities, Los Angeles Division
Lockheed Martin
Long Beach Area Chamber of Commerce
Los Angeles Area Chamber of Commerce
Los Angeles County Economic Development
Corporation
Mayor Pro Tempore Richard Constantine, City or
Morgan Hill
MB-Technology
Museum of Art & History
National City Chamber of Commerce
Nordic's Naturals
Palmdale Chamber of Commerce
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Santa Cruz Chamber of Commerce
SSA Marine
Stanislaus Economic Development & Workforce
Alliance
Town of Apple Valley
UAW, Local 887
United Parcel Service
Vice Mayor Madison Nguyen, City of San Jose
OPPOSED: California Labor Federation