BILL ANALYSIS Ó
AB 1278
Page A
Date of Hearing: August 23, 2011
ASSEMBLY COMMITTEE ON JOBS, ECONOMIC DEVELOPMENT AND THE ECONOMY
V. Manuel Pérez, Chair
AB 1278 (Hill) - As Amended: August 15, 2011
SUBJECT : G-TEDA Hiring Credits
SUMMARY : Limits the application of the new hire credit in
instances where the tax payer has relocated from one area of
California to a geographically targeted economic development
area (G-TEDA) on or after January 1, 2011. Under this
circumstance, a G-TEDA hire credit is only allowed for qualified
employees who represent a net increase to the total number of
California workers employed by the tax payer over the previous
tax year. Further, the tax payer is required to have also made
a bona fide offer of employment at the new work location to each
employee at the old location that was displaced by the move.
EXISTING LAW :
1)Establishes the California Enterprise Zone Program,
administered by California Department of Housing and Community
Development (HCD), to stimulate business and industrial growth
in depressed areas of the state. Legislative intent states
that it is in the economic interest of the state to have one
strong, combined, and business-friendly incentive program to
help attract business and industry to the state, help retain
and expand existing state business, and industry, and create
increased job opportunities for all Californians.
2)Authorizes designation of up to 42 enterprise zones at any one
time, each with a term of 15 years. Designations are required
to be awarded through a competitive application process,
whereby local governments compete for enterprise zone
designation based on certain economic distress factors, the
level of local financial and nonfinancial incentives committed
to the proposed zone, and the appropriateness of the proposed
economic development strategy in addressing the needs of the
local community.
3)Authorizes three other geographically targeted economic
development areas (G-TEDAs) in addition to the enterprise
zones:
AB 1278
Page B
a) The Local Agency Military Base Recovery Areas (LAMBRA)
with a maximum of eight LAMBRAs, each designated for a term
of eight years.
b) The Manufacturing Enhancement Areas (MEAs) with a
maximum of two MEAs, each designated for a term of 14
years.
c) The Targeted Tax Area (TTA), only one location,
designated for a term of 15 years.
4)Authorizes an income tax credit for businesses in a G-TEDA
that hire certain "qualified employees." Among other
qualifying criteria, which are described in (5) and (6) below,
the qualified employee must be certified by the local G-TEDA
that he or she meets meet one of nearly a dozen categories of
eligible individuals.
5)Limits the hiring credit to be awarded to only those employees
that meet the following requirements:
a) The employee provides service to an employer where at
least 90% of those services within a taxable year are
directly related to the conduct of a taxpayer's business or
trade located in a G-TEDA;
b) The employee performs at least 50% of his/her service
for the taxpayer during the taxable year in a G-TEDA;
c) The employee is hired after the date of the G-TEDA
designation; and
d) The employer has received a voucher for the employee
that certifies that the employee, immediately preceding
employment with this employer, meets one of 12 eligibility
categories. The employee was or is:
i) A resident of a Targeted Employment Area, as
specified;
ii) Eligible for services under the federal Job Training
Partnership Act, or its successor;
iii) Eligible to be a voluntary or mandatory registrant
under Greater Avenues for Independence Act of 1985, or
its successor;
AB 1278
Page C
iv) An economically disadvantaged individual 14 years or
older;
v) A dislocated worker, as specified;
vi) A disabled individual who is eligible for, enrolled
in, or has completed a state rehabilitation plan;
vii) A service-connected disabled veteran, veteran of
Vietnam, or veteran who has been recently separated from
military service;
viii) An ex-offender, as specified;
ix) Eligible to receive specified social services
benefits, including Federal Supplemental Security Income
benefits, Aid to Families with Dependent Children, food
stamps, or state and local general assistance;
x) A member of a federally recognized Indian tribe,
band, or other group of Native American descent; or
xi) A member of a targeted group, as defined by the
Internal Revenue Service for the purposes of the Work
Opportunity Tax Credit (WOTC), which includes a qualified
IV-A recipient, a qualified veteran, a qualified
ex-felon, a high-risk youth, a vocational rehabilitation
referral, a qualified summer youth employee, a qualified
food stamp recipient, a qualified Supplemental Security
Income recipient, or a long-term family assistance
recipient.
6)Specifies the following additional hiring credit requirements:
a) The "qualified employee" is required to be employed by
the business for a minimum of 270 days (approximately 9
months) in order to qualify for hiring credit
certification.
b) The value of the hiring credit incentive totals 50% of
the employee's wages in the first year, 40% in the second,
30% in the third, 20% in the fourth, and 10% in the fifth
year. Although employees can be paid more, the maximum
wage rate used to calculate the credit is 150% of minimum
wage. Aircraft manufacturers in Long Beach may calculate
AB 1278
Page D
the credit based on 202% of minimum wage.
c) Application of the hiring credit is limited to only
those tax liabilities attributable to activities located
within the G-TEDA where the employee is primarily working.
While not every employer is able to fully utilize the
maximum value of the credit, it could be as high as $37,700
over five years.
FISCAL EFFECT : Unknown
COMMENTS :
1)Purpose : According to the author, "AB 1278 ensures that
taxpayer subsidies to companies are going to job creation in
the state instead of job transferring. Under current law an
employer can fire an employee in one part of the state and get
a $37,000 tax credit for replacing that employee in another
part of the state. State government should instead focus its
resources on true job creation. AB 1278 clarifies that prior
to receiving a tax credit, the company has to show that it
achieved a net increase in jobs in California. The bill also
establishes a reasonable requirement that the company offer
employees at the previous location a written bona fide offer
of employment at the new location prior to receiving the tax
credit.
California's 53 tax break zones cost California taxpayers
roughly $500 million a year. According to the Franchise Tax
Board, only 15% of tax credits are filed by small businesses -
businesses with gross receipts under $10 million. Businesses
with gross receipts over $1 billion claimed approximately 57%
of the total value of the credits. The biggest single benefit
for businesses within the zones is a tax credit for hiring
workers, worth $37,000 per worker. In 2008, businesses
claimed credits for hiring 104,000 workers. It's unknown how
many of these workers were truly new hires or simply
replacements for companies transferring to a new location. "
2)Policy Questions : This measure raises several potentially
conflicting economic and workforce development policy issues:
a) Business Retention Incentives: To the extent that a
business has decided to vacate its existing location, is it
in the state's interest to prohibit lower income
AB 1278
Page E
communities from trying to attract and retain the business
within the state?
b) Worker Protection Incentives: To the extent that a
business lays off employees at one of its facilities and
hires another employee at a new location at a potentially
lower wage rate, is it in the state's interest to provide
that company with a tax credit?
c) Target Population Incentives: To the extent that a
business hires an individual from a targeted population or
who lives in an economically challenged census tract, is it
in the state's interest to limit the business' access to
state incentives?
3)Implementation issues : AB 1278 limits new hire tax credits to
only those instances where the total number of workers
employed by the business (from all areas of the state) have
increased from the previous year. While the measure provides
a definition of how to calculate whether the employer has met
the net increase in jobs requirement, there are some
implementation issues about how the definition would be
applied.
As an example, the bill requires the employer to identify the
total number of employees in the preceding year relative to
the tax year. If the employer had two employees working
part-time in the previous year and one employee in the tax
year, the bill would prohibit the earning of a tax credit even
though a full-time employee may be eligible for benefits and
is more likely earning an annual wage that could support a
family.
In another instance, the measure is not clear which employees
would count toward the hiring credit. If the calculation
results in a net increase in the total number of employees,
does the employer choose which of the qualified employees'
(described under existing law) wages will be used to calculate
the value of the credit? Moreover, existing law authorizes an
employer to earn a credit for up to five years on a single
qualified employee. The measure is unclear as to whether the
employer would have to have a net increase in the total number
of employees in each year that a credit is allowed for the
same employee.
AB 1278
Page F
There are also documentation considerations. Current law
requires employers to obtain certification by the local G-TEDA
as to the eligibility of the worker. This is done, in part,
to ensure ongoing oversight of the program requirements rather
than simply relying on the possibility of a tax audit to serve
as a meaningful determent. Would this measure expand the
local certification requirements to include both net increase
in jobs and that every prior employee received bona fide
offers or does the tax payer self-certify on the tax return?
The committee may wish to address some of these implementation
issues.
4)The relocation of VWR : VWR International, LLC, (VWR)
headquartered in Radnor, Pennsylvania, is a global laboratory
supply and distribution company with worldwide sales in excess
of $3.6 billion in 2010. In August of 2010, the company
announced it was relocating its distribution center from the
City of Brisbane (San Mateo County) to a new facility it will
build in Tulare County.
VWR has been at its leased industrial space in Brisbane for
nearly 50 years, employing 183 staff at the facility,
including warehouse workers, office staff, management and
on-site delivery and trucking staff. According to a U.C.
Berkeley Center on Labor Research and Education (CLRE) report
on the economic impact of the VWR relocation, the closure of
the warehouse will result in the loss of 266 jobs (direct and
indirect) in San Mateo County, with an accompanying loss of
$60.1 million in lost economic output.
The direct economic impact on the City of Brisbane is a loss
of $2.1 million in tax revenues, representing 18.5% of its
General Fund. If the economic impact analysis is expanded
beyond Brisbane and San Mateo County to include San Francisco,
related jobs losses are estimated at an additional 65 jobs
with $12 million in economic output.
The CLRE report raises several concerns with the relocation,
including, but not limited to, the use of public subsidies to
entice VWR to the County of Tulare, an area of the state
designated as a TTA under the G-TEDA programs. Among other
incentives, businesses located in a TTA may receive tax
credits for new hires that meet certain social and demographic
criteria, as described under existing law. Examples of
qualifying employee categories include workers who were
AB 1278
Page G
previously unemployed for an extended period of time, live in
a certain geographic area or who were previously receiving
benefits under CalWorks.
Because VWR is closing its facility in Brisbane and opening
what is legally considered a new facility in Tulare County,
conceptually, the company could receive a tax credit for every
worker hired at the new facility even though there are
potentially 330 unemployed workers left behind in the Bay
Area.
VWR is reported as saying it is not moving to Tulare County
because of the tax benefits, but rather because the location
is better suited for serving its clients in Northern and
Southern California and that there is an opportunity to
expand, which is not available in its current location. The
company is also reported as saying it has given employees two
years notice of the closure and relocation of its facility.
There are, however, conflicting reports on whether employees
have been offered positions at the new facility. Given the
state's historically high unemployment, finding new jobs with
similar benefits is perhaps unlikely for many of the 183
current workers at the Brisbane facility. AB 1278 would
require, as a condition of receiving a hire tax credit, all
employees at a closed facility be given a bona fide offer of
work at the new facility.
5)Seeking an approach to addressing relocating businesses : VWR
is not unusual, however, in choosing to move from a
higher-cost urban coastal area to a more moderately priced
area in California's more rural central and eastern border
regions. Many of these latter regions are in serious need of
new economic development activity, with unemployment rates
running consistently above the statewide average, high numbers
of students qualifying for free public lunch programs, and
large sectors of the community living in poverty that has only
deepened in the last few decades. Tulare County, as an
example, has been designated as one of the poorest regions in
the country by the U.S. Congressional Research Service, as
well as being described as being located in the "New
Appalachia."
As noted in an earlier comment, AB 1278 tries to address three
important but sometimes conflicting policies. Where is the
line drawn where one poor region's business attraction tool
AB 1278
Page H
becomes unfair competition to another community and its
workers? And, what is the state's responsibility to mediate
these types of potential conflicts. AB 1278 proposes one
policy solution; there are, however, several others worth
reviewing.
In looking at what other states have done, there is at least
one state of the 37 states that have a G-TEDA type program
that completely prohibits benefits for any relocating
business. A majority of the other state G-TEDA programs are
silent on relocations. Relative to California, the issue of
business relocations has been on the reform agenda since 2009.
Here are two examples: the first approach comes out of a
work group discussion and the other approach appears in AB 231
(V. Manuel Pérez and Alejo).
Prohibiting zone benefits to businesses that relocate
within 50 mile radius. This approach presumes that
businesses relocating from another area of the same town
into the zone for the tax benefits is a bad public policy.
While some may agree, economic developers often encourage
local relocation into a zone as a means for keeping a
business in town when it has decided to move out of state
due to their concern that California has a relatively
higher cost of doing business than a nearby state such as
Nevada or Arizona.
Limiting the new hire credit to a relocating businesses
based on net new jobs per type of work being performed.
Under this proposal, if the relocating business is doing
the same work as that performed at the prior location there
would be a net increase requirement, but if the new
location conducts a different type of work, like a call
center or a distribution facility, there would be no
limitation on accessing the new hire credit. In addition,
a relocating business would be exempted from the limitation
if the relocation is triggered by a need for more space or
as a result of a natural disasters and or eminent domain
proceeding.
Evaluating business retention tools and determining the
appropriate balance between competing communities may not be
able to be fully undertaken in the absence of a larger
discussion on the G-TEDA programs.
AB 1278
Page I
1)The California Enterprise Zone Program : Existing law
authorizes the creation of up to 42 enterprise zones based on
a statutory list of criteria related to poverty and economic
dislocation. The California Enterprise Zone program is 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, resulting in increased tax
revenues, decreased 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.
Enterprise zones are located in portions of 54 Assembly
Districts and 35 Senate Districts. Enterprise zones range in
size from one square mile to 70 square miles and in geographic
locations ranging from Eureka and Shasta Valley near the
Oregon border to San Diego and Calexico along the Mexican
border.
Under the program, businesses and other entities located
within the area are eligible for a variety of local and state
incentives. In its application, a prospective enterprise zone
is required to identify specific local government incentives
that will be made available to businesses located in the
proposed zone. The local incentives can, among other things,
include writing down the costs of development, funding related
infrastructure improvements, providing job training to
prospective employees, and/or establishing streamlined
processes for obtaining permits.
The state additionally 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. In addition to enterprise
zones, the state is also authorized to administer several
other G-TEDAs including a TTA, MEA and LAMBRA. Below is a
chart comparing the state tax incentives offered to businesses
located in a G-TEDA.
AB 1278
Page J
----------------------------------------------------------
| Comparison of State Tax Benefits by Targeted Area |
----------------------------------------------------------
|-----------+------+---------+---------+----------+---------|
| |Hiring|Longer |Sales |Accelerate|Lender |
| | |NOL<1> |and Use |d |Interest |
| |Credit|Carry- |Tax |Depreciati|Deduction|
| | |Forward |Credit |on | |
| | |Period | | | |
|-----------+------+---------+---------+----------+---------|
|Enterprise | X | X | X | X | X |
|Zone | | | | | |
|-----------+------+---------+---------+----------+---------|
|Manufacturi| X | | | | |
|ng | | | | | |
|Enhancement| | | | | |
| Zone | | | | | |
|-----------+------+---------+---------+----------+---------|
|Targeted | X | X | X | X | |
|Tax Area | | | | | |
|-----------+------+---------+---------+----------+---------|
|Local | X | X | X | X | |
|Agency | | | | | |
|Military | | | | | |
|Base | | | | | |
|Recovery | | | | | |
|Area | | | | | |
-----------------------------------------------------------
----------------------------------------------------------
|Source: Legislative Analyst's Office |
----------------------------------------------------------
The Franchise Tax Board (FTB) reported that in 2008 - the most
current comprehensive data available - $483.5 million in
business incentives were claimed through corporate and
personal income tax (PIT) returns. Additionally, FTB reported
hundreds of millions in carryover credits have been earned by
businesses located in G-TEDAs, but have not been claimed.
Below is a chart that displays the dollar amount of G-TEDA
incentives claimed through each of the tax incentives.
--------------------------------------------------------------
---------------------------
<1> NOL= Net Operating Loss
AB 1278
Page K
| | 2004 | 2005 | 2006 | 2007 | 2008 | 2009 |
| | | | | | | |
|---------+--------+--------+--------+--------+--------+-------|
|Hiring |$349,127|$362,620|$385,677|$430,934|$462,682|$461,72|
|and | | | | | | 5 |
|Sales | | | | | | |
|Tax | | | | | | |
|Credit | | | | | | |
|---------+--------+--------+--------+--------+--------+-------|
|NOL |$72,326 |$74,024 |$126,106|$207,993|$50,418 | -- |
|Deduction| | | | | | |
|s | | | | | | |
|---------+--------+--------+--------+--------+--------+-------|
|Tax |$5,171 |$5,966 |$11,351 |$15,807 | 3,433 | -- |
|Impact | | | | | | |
|---------+--------+--------+--------+--------+--------+-------|
|Net |$432,867|$490,129|$517,310|$520,372|$264,547| -- |
|Interest | | | | | | |
|Deduction| | | | | | |
|s | | | | | | |
|---------+--------+--------+--------+--------+--------+-------|
|Tax |$29,103 |$32,395 |$34,156 |$34,438 |$17,282 | -- |
|Impact | | | | | | |
|---------+--------+--------+--------+--------+--------+-------|
|Business |$4,387 |$4,770 |$4,463 |$5,136 | $5,637 | -- |
|Expense | | | | | | |
|Deduction| | | | | | |
|s | | | | | | |
|---------+--------+--------+--------+--------+--------+-------|
|Tax |$222 |$200 |$188 |$197 | $199 | -- |
|Impact | | | | | | |
|---------+--------+--------+--------+--------+--------+-------|
|Total |$383,624|$401,181|$431,371|$481,376|$483,596| -- |
|Tax | | | | | | |
|Impact | | | | | | |
--------------------------------------------------------------
------------------------------------------------------------
| |
|------------------------------------------------------------|
|Data Provided by the Franchise Tax Board |
|7/2011 |
| |
------------------------------------------------------------
Across the U.S., 37 other states have G-TEDA type programs.
AB 1278
Page L
Economic developers have testified that the G-TEDA programs
are among the state's last remaining marketing tools for
attracting new businesses and investment to California.
Others, however, remain unconvinced and have suggested that
this level of tax expenditure could be better spent elsewhere.
7)Assessments of the California Enterprise Zone Program :
Measuring the success and failure of the enterprise zone and
the other G-TEDA programs has been central to the debate on
whether to expand or limit, as in the case of this measure,
the G-TEDA programs. Complicating the matter is that much of
the discussion around the relative success or failure of the
G-TEDA programs is anecdotal. The academic attempts to assess
the state's G-TEDA programs have produced mixed results. Some
of the variance among study findings can be attributed to the
limited access to good data sets. Research generally requires
development of a set of assumptions to undertake a study. The
assumptions made in the case of the G-TEDAs have, however,
left most, if not all, of the methodological approaches open
to debate. Moreover, the problems in assessing the G-TEDA
programs have been further complicated by a lack of consensus
on why the programs were established and what objectives they
were designed to achieve.
Responding to the differing reports, HCD commissioned its own
study in 2006, which looked at the impact of the enterprise
zone program on neighborhood poverty, income, rents, and
vacancy rates. The report showed that, on average, within
enterprise zones between 1990 and 2000:
a) Poverty rates declined 7.35% more than the rest of the
state;
b) Unemployment rates declined 1.2% more than the rest of the
state;
c) Household incomes increased 7.1% more than the rest of the
state; and
d) Wage and salary income increased 3.5% more than the rest
of the state.
Since HCD's 2006 report, two additional reports have been
released. One report found favorable impacts of the
enterprise zone program and another found the program lacking
AB 1278
Page M
in its ability to stimulate jobs. In November 2008 and later
revised and re-released in March 2009, economists from the
University of Southern California (USC) found that federal
empowerment zones, federal enterprise communities, and state
enterprise zones have "positive, statistically significant
impacts on local labor markets in terms of the unemployment
rate, the poverty rate, the fraction with wage and salary
income, and employment."
The Public Policy Institute of California (PPIC) released its
study of the enterprise zone program in June 2009, examining
whether the program had been successful in creating more jobs
than would have otherwise been established without the
enterprise zone. The main finding of this report was that,
"enterprise zones have no statistically significant effect on
either business creation or employment growth rates."
The PPIC report also noted that the effects of the program
differed among enterprise zones, appearing to have a greater
effect on job creation in zones with lesser amounts of
manufacturing and those where the administrators spent a
greater amount of time on marketing and outreach activities.
The report further stated that PPIC encouraged a more critical
evaluation of the program overall and on individual zones
using both employment and other metrics such as poverty,
unemployment, and property values.
It is important to note, however, that while the USC and PPIC
reports discussed above were released in 2008 and 2009, the
business development data used to form the statistical
analyses were from 2004 and earlier. This date is
significant, as both HCD and the Legislature approved
significant reforms to the program in 2006 (discussed below),
and only two of the 42 current zones were subject to the
study, raising the question as to whether either of the
studies accurately reflect the impact of the enterprise zone
program today.
8)The pursuit of comprehensive reforms (list of bills is under
comment 7) : While the G-TEDA programs have been around for
decades, it was not until the winter of 2005 that the first
comprehensive legislative oversight hearings were held. The
impetus for these hearings, jointly held by Assembly Committee
on Jobs, Economic Development and the Economy (JEDE) and the
Assembly Committee on Revenue and Taxation (R&T), was the
AB 1278
Page N
introduction of several comprehensive and controversial reform
efforts in 2004. During the course of these first oversight
hearings, the committees struggled to develop a framework for
evaluating the state's return on investment.
Due to the lack of clear data and the state's poor
administration of the program when it was overseen by the now
defunct Technology, Trade and Commerce Agency, JEDE's focus
shifted to improving the transparency and accountability of
the G-TEDA programs as a first step toward broader reform
efforts. Following the three hearings, publication of a final
report, and extended work group meetings led by JEDE,
legislation was negotiated and approved by the Senate and
Assembly floors on 40-0 and 77-0 votes ÝAB 1550 (Arambula and
Karnette), Chapter 718, Statutes of 2006].
The requirements of the 2006 reforms were just coming into
effect when there were new calls for further G-TEDA reforms in
2009. In preparing to vote on another set of comprehensive
reforms, JEDE initiated a second round of hearings, which
included an examination of how the prior reforms were
progressing and what additional areas were in need of
improvement. During the course of its 2009 review, JEDE held
three public hearings, met with a variety of stakeholder
groups, and produced an updated report that detailed the
structure and activities of the G-TEDA program. In addition
to the authors of the USC and PPIC reports, speakers included
economic development practioners, researchers, nonprofit
organizations, local governments, labor, and business leaders.
A final summary report of the proceedings was released by JEDE
in January 2010; it included a comparative review of how
California's program stacked up against other state's
enterprise zone programs, summaries of each hearing and a list
of 100 reform recommendations. The JEDE report made five key
findings, including the need for more structure and
accountability mechanisms within the tax incentives and the
need to better link workforce development into the overall
G-TEDA framework.
In March 2010 Speaker John A. Pérez asked JEDE Chairman V.
Manuel Pérez to convene a working group to review the final
report recommendations and develop a comprehensive set of
reforms to the G-TEDA programs. The work group, comprised of
AB 1278
Page O
representatives from local governments, labor and the business
community, met extensively through the spring and summer of
2010 on the premise that they would put forward a
concensus-based set of reforms. Key program revisions under
discussion included:
a) Increasing accountability of the program;
b) Tighter targeting of tax incentives to low and moderate
income households;
c) Reforms to structure of the hiring credit; and
d) Increased integration of the enterprise zone program
with other state and local community development programs,
including public programs that support workforce
development and job placement.
Ultimately, one of the primary stakeholder groups withdrew
from the negotiations based on their position that the overall
reform package must result in a substantially smaller program
and perhaps be only limited to the state's rural areas.
9)2011 enterprise zone actions : In January 2011, Governor Brown
released, as part of his 2011-12 proposed budget, a proposal
to eliminate the G-TEDA programs, including any previously
earned credits that had not yet been applied toward tax
liability. His proposal was met with both support from the
critics of the program, including labor, and opposition from
supporters of the program, including local government and
business representatives.
Responding the Governor's proposal, Assemblyman V. Manuel
Pérez, the JEDE Chairman, and Assemblyman Alejo jointly
introduced a comprehensive reform bill, AB 231, which
addressed many of the reform recommendations from the 2009
hearings and working group meetings, including proposals for
reducing the overall cost of the program and increasing
transparency and accountability. The bill remains with JEDE
in anticipation of broader reform discussions through the fall
of 2011. In the Governor's May 2011 budget report, his G-TEDA
proposal was modified from eliminating all the G-TEDA programs
to eliminating the requirement to target hire credits toward
underserved populations, limiting the hire credit to only net
new hires (similar to the provisions in AB 1278), and reducing
the value of the individual hiring credit from $37, 400 over
five years to a one-time credit of $5,000. The Legislature
did not take action on the Governor's May revision proposal as
AB 1278
Page P
part of the 2011-12 Budget actions.
In addition to the Governor's proposal, AB 1278, and AB 231, a
narrowly focused reform measure was advanced through the
Senate, SB 301 (DeSaulnier), which limits the size of new
enterprise zones in instances where the new zone would include
areas that were previously included within a zone. In July
2011, the provisions of SB 301 were amended into AB 1411 (V.
Manuel Pérez and Alejo) which is a second, although less
comprehensive, reform measure sponsored by JEDE. Last week
(8/15/11), AB 1411 was sidelined by the authors for the
purpose of pursuing a broader G-TEDA reform measure in
January.
10)Related legislation : The following is a list of related
legislation.
a) AB 231 (V. Manuel Pérez and Alejo) - Enterprise Zone
Reforms : This bill makes a number of changes to the
California Enterprise Zone Program including the following:
i) Reforms to reduce the cost and size of the program
including, but not limited to: limiting the use of the
tax credits and deductions to 50% of tax liability for
the 2011 and 2012 tax years, requiring vouchering of
qualified employees within 36 months of employment,
reducing the five-year credit to three years, limiting
the hiring credit for relocating businesses, scaling
back the size of the targeted tax area, limiting the
carry forward of credits to 15 years, requiring new zones
to exclusively designated based on lower income
households, and limiting the merging of zones.
ii) Reforms to increase program accountability
including, but not limited to, de-designation of poor
performing zones, prohibiting "bad actor" businesses
from accessing tax incentives, tracking local resources
dedicated to zone activities, and expanding state-level
reporting.
Status: The bill is pending in JEDE.
b) AB 1139 (John A. Pérez) - Enterprise Zone Hiring Credit :
This bill proposed to make four changes to the G-TEDA
programs:
AB 1278
Page Q
i) Establishing a two-tier hiring credit - one funding
level for jobs with health care and another for those
without;
ii) Requiring applications for hiring credit
certification to be submitted to the certifying agency
within 21 days of the commencement of employment;
iii) Removing from the hiring credit qualified employee
list, employees who reside within a targeted employment
area; and
iv) Requiring annual reporting from tax payers who have
certified an employee under the hiring credit.
Status: Held in JEDE in December 2010.
c) AB 1159 (V. Manuel Pérez) - Enhancement of Sales and Use
Credit for Cleantech Projects : This bill would have
established the California Cleantech Advantage Act of 2008
providing a targeted incentive to strengthen California's
competitive edge in the leading emerging clean
technologies. Status: Held in Assembly Appropriations in
May 2010.
d) AB 1411 (V. Manuel Pérez and Alejo) - Accountability
Reforms : This bill makes a number of changes to the
enterprise zone program related to accountability and
transparency including, but not limited to, limiting new
zone designations to lower income census tracts, increasing
reporting of the programs impact, and de-designating poor
performing zones. Status: The bill is pending in Senate
Appropriations Committee.
e) AB 1550 (Arambula) - Final Enterprise Zone Reform Act
from 2005-06 Session : This bill made a number of
significant changes to the management and oversight of the
G-TEDA programs. The bill was the result of extensive
oversight hearings held by JEDE and R&T, as well as
extended discussions with stakeholder groups. Status: The
bill was signed by the Governor, Chapter 718, Statutes of
2006.
f) AB 2589 (Runner) - Aggregate Credits to Offset Tax
AB 1278
Page R
Liability within Zones : This bill would have authorized a
business to use credits generated in an enterprise zone to
offset taxes attributable to the business from any
enterprise zone. Status: The bill was held in the R&T
during the 2005-06 Session.
g) AB 2476 (V. Manuel Pérez) - Reform of TEA : This bill
would have tightened the criteria for designating a TEA for
the purposes of establishing one of the thirteen worker
eligibility criteria under the enterprise zone hiring tax
credit requirements. Status: The bill was held in the
Assembly Committee on Appropriations in May 2010.
h) AB 301 (DeSaulnier) - Size of Zones : This bill
prohibits a jurisdiction which applies for an enterprise
zone designation, on or after January 1, 2012, that
includes area that was once within a previously designated
zone from receiving a new zone designation that has a
geographic area of more than 115% of the size of the
previous zone. The bill also limits new zone designations
in cases where the proposed zone area had been within one
or more previously designated zones to 115% of the largest
of those zones. Status: The bill is pending in JEDE.
i) SB 974 (Steinberg) - Career Pathways Credit and Hiring
Credit Swap : This bill proposed to establishes a new
Career Pathways Investment Credit for qualifying business
entities that partner with local education agency programs
to develop and support career pathway programs, as
specified. Funding for the credit would be provided by
limiting the eligibility criteria on the existing
enterprise zone hiring credit. Status: The bill was held
in JEDE in July 2010.
j) SB 1008 (Ducheny) - Initial Enterprise Reform Act from
2005-06 Session : This bill would have made a number of
significant changes to the G-TEDA programs including
streamlining the selection criteria, authorizing
noncontiguous zones, extending certain zone designations,
and tightening up of the TEA. Status: The bill was held
in JEDE during the 2005-06 Session.
11)Double Referral : The Assembly Committee on Rules referred
this measure to JEDE and the Assembly Committee on Revenue and
Taxation (R&T). Should SB 1278 pass JEDE, it will be referred
AB 1278
Page S
to R&T for further consideration.
REGISTERED SUPPORT / OPPOSITION :
Support
California Conference Board of the Amalgamated Transit Union
California Conference of Machinists
California Labor Federation
California Nurses Association
California Professional Firefighters
California Teamsters Public Affairs Council
Engineers and Scientists of California
International Longshore and Warehouse Union
Northern California District Council - International Longshore
and Warehouse Union
Professional & Technical Engineers, Local 21
UNITE HERE!
United Food and Commercial Workers Union, Western States Council
Utility Workers Union of America, Local 132
Opposition
California Association on Enterprise Zones
California Chamber of Commerce
County of Imperial
Analysis Prepared by : Toni Symonds / J., E.D. & E. / (916)
319-2090