BILL ANALYSIS �
AB 146
Page 1
Date of Hearing: May 1, 2013
ASSEMBLY COMMITTEE ON LOCAL GOVERNMENT
K.H. "Katcho" Achadjian, Chair
AB 146 (Gorell) - As Amended: March 19, 2013
SUBJECT : Economic development: enterprise zones: joint
application.
SUMMARY : Allows the City of Oxnard, the City of Port Hueneme,
and the Oxnard Harbor District to jointly submit an application
to the Department of Housing and Community Development for
designation as an enterprise zone. Specifically, this bill :
1)Finds and declares that the partnerships established between
the City of Oxnard, the City of Port Hueneme, and the Oxnard
Harbor District (District) reflect the local community's
shared goal of alleviating their higher-than-average
unemployment and poverty, and the establishment of an
enterprise zone (EZ) will create new opportunities for local
workers and jump-start economic growth by promoting new
business and jobs. Further finds and declares that with an EZ
designation, the partnership between these entities will allow
greater resources and marketing potential to drive local
economic activity.
2)Allows the City of Oxnard, the City of Port Hueneme, and the
District to jointly submit an application to the Department of
Housing and Community Development (HCD) for designation as an
EZ.
3)Provides that, unless otherwise agreed to by the applicants
and HCD, the Oxnard City Council shall serve as the governing
body for the EZ designated pursuant to this section.
4)Finds and declares that a special law is necessary and that a
general law cannot be made applicable within the meaning of
Section 16 of Article IV of the California Constitution
because of the unique collaborative economic relationship
between the City of Oxnard, the City of Port Hueneme and the
Oxnard Harbor District.
EXISTING LAW :
1)Provides for the establishment of geographically-targeted
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economic development area programs, including the EZ program,
to stimulate business and industrial growth and create jobs in
economically distressed areas of the state.
2)Allows cities and counties to apply for designation as an EZ
in a competitive bid process and allows HCD to designate a
maximum of 42 EZs, each designated for an initial 15-year
period.
3)Provides for the creation of special districts, which are
formed to provide focused services within defined boundaries
and are generally funded through user fees, property taxes,
parcel taxes, benefit assessments, service charges and a
variety of bonds.
FISCAL EFFECT : None
COMMENTS :
1)This bill allows the City of Oxnard, the City of Port Hueneme,
and the District to jointly submit an application to HCD for
designation as an EZ and designates the Oxnard City Council as
the governing body for the EZ. This bill is sponsored by the
author.
2)According to the author's office, "State and local officials
joined with community and business leaders to work in unison
to help form an enterprise zone that will encompass portions
of three jurisdictions: City of Oxnard, the City of Port
Hueneme, and the Harbor District in the Port of Hueneme. The
local partnership amongst the entities announced an effort to
seek recognition as an enterprise zone through both
administrative and legislative routes. AB 146 will allow the
Harbor District to be a co-applicant with the other cities to
apply for an enterprise zone designation. Current law only
allows cities and counties to be applicants. This partnership
will help drive more resources to help spur economic growth in
the struggling region."
3)The author's office indicates that the City of Oxnard applied
for an EZ designation three years ago, which was turned down
because HCD determined that the city did not have enough local
partners to be successful. According to HCD, the City of
Oxnard was one of 15 applicants for five designations that
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were available at the time in its open, competitive process.
The City of Oxnard ranked 10th and, as such, did not receive a
designation.
4)Under existing law, HCD can designate up to 42 EZs, which are
intended to stimulate business and industrial growth in
economically depressed areas of the state and to provide
incentives for hiring disadvantaged individuals. Within an
EZ, 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 allows a
number of tax credits and deductions for businesses in the EZ,
including credits for sales and use tax paid on manufacturing
equipment purchases, hiring credits for qualified employees,
100% net operating loss carryover for losses associated with
operations within the EZ, deduction of interest earned by
lenders who loan money to EZ businesses, and election to
expense rather than amortize equipment used within the EZ. An
EZ designation lasts for 15 years.
Cities and counties apply to HCD to designate geographic areas
in their jurisdictions as EZs. Geographic areas are eligible
based on unemployment rates, free lunch program participation,
median income, plant closures, or history of gang-related
activity. HCD selects EZs through a competitive process based
on the appropriateness of the applicant's proposed economic
development strategy and implementation plan. There are 40
EZs located throughout the state, from Siskiyou County to
Calexico, with eight located in Los Angeles County and three
in Kern County. Ventura County has no EZs in its boundaries.
EZs range in size from one square mile to 70 square miles.
Two EZ designations became available in 2012.
The Franchise Tax Board (FTB) reported that $721.5 million in
EZ business incentives were claimed through corporate and
personal income tax returns in 2010. Additionally, FTB
reported hundreds of millions in carryover credits have been
earned by businesses, but have not been claimed.
5)The EZ program has been the subject of much debate,
litigation, and two legislative oversight hearings in recent
years. Program supporters contend that EZs are an effective
tool for economic development, citing accounts from taxpayers
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who state that they locate in California largely because of EZ
program incentives. Supporters state that the incentives draw
investment into economically distressed communities and
provide avenues for hard-to-hire individuals to find
employment. Critics argue that the program offers a poor
return on the state's investment, and question specific
components of the program.
In his 2011-12 Budget, Governor Brown proposed repealing all
EZ tax credits, citing the Legislative Analyst's long-standing
recommendation to reform or repeal the program and a Public
Policy Institute of California study that came to similar
conclusions. The proposal would have increased the state's
revenues by $343 million in FY 2010-11 and by $583 million in
FY 2011-12, according to the Department of Finance. Under the
proposal, EZs would have continued to provide local
incentives, but EZ taxpayers could no longer receive state tax
benefits. The Legislature did not act on the Governor's
proposal.
In 2011, HCD initiated a regulatory reform process for the EZ
program, and released proposed changes to the regulations
guiding the program on January 11, 2013. Hearings have been
held in Oakland, Los Angeles, San Diego and Sacramento. HCD
has ceased issuing RFPs for the two slots that are now open,
and reports that it will not issue requests for proposals for
those designations until the regulatory reform process is
complete. The timeline is not known, but HCD anticipates the
process to be complete by the end of this year. Business
interests and local governments have voiced opposition to the
proposed regulations, while labor groups support reforms to
the program. The proposed regulations are projected to
increase the state's general fund revenue by $10 million this
fiscal year and by $50 million in the 2013-14 fiscal year.
Governor Brown in his State of the State address in January
discussed changes to the program, which are included in his
2013-14 budget proposal.
6)The District is a political subdivision of the state operating
as an independent special district. The District owns and
manages the commercial Port of Hueneme (Port) and is governed
by a five-member Board of Harbor Commissioners elected at
large to four-year terms from the District's service area.
The District's boundaries are comprised of the City of Oxnard,
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the City of Port Hueneme, and some unincorporated areas within
Ventura County.
The Port is empowered to acquire, construct, own, operate,
control or develop any and all harbor works or facilities
necessary to the efficient undertaking of its mission. The
Port prepares and controls its own budget, administers and
controls its fiscal activities, and is responsible for all
Port construction and operations. The Port does not assess
taxes for operations or capital expansion. Its operating
expenses are funded by the revenues generated by tariff
charges, leases and other contract revenues assessed upon Port
users. The Port's commercial facilities are primarily located
within the City of Port Hueneme, with one facility located in
the City of Oxnard.
According to the Port of Hueneme/Oxnard Harbor District's
Comprehensive Annual Financial Report for the Fiscal Years
Ended June 30, 2012 and 2011, "The Port of Hueneme, an
official U.S. Port of Entry located within Ventura County, is
one of the eleven California deep water seaports vital to the
statewide economy. Serving as a priority hub in the state's
intermodal transportation network, the Port provides the
County with competitive advantages to attract business
investment and create jobs. Over $7 billion in cargo moves
through the Port generating a $200 million economic impact and
putting over 1,500 County citizens to work."
"The Port realized significant recovery in fiscal year 2012,
realizing its 4th best year in volume and highest year in
revenue since inception in 1937. The growth stems from
economic rebound as the country climbs out of the recession
coupled with diversification of cargo. Many Port customers
via innovative and creative strategies increased their cargo
activity."
The report states that the Port increased its revenue by 14.9%
between FY 2011 and FY 2012, from approximately $10.5 million
in FY 2011 to just over $12 million in FY 2012.
7)The District is the Grantee for United States (U.S.)
Foreign-Trade Zone (FTZ) #205. An FTZ is a designated
location in the U.S. where companies can use special
procedures that help encourage U.S. activity and value added -
in competition with foreign alternatives - by allowing delayed
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or reduced duty payments on foreign merchandise, as well as
other savings. FTZ users can enjoy a number of benefits,
including duty exemption or deferral, inverted tariff's (where
zone production results in a finished product that has a lower
duty rate than the rates on foreign inputs), and logistical
benefits. Companies using FTZ procedures may have access to
streamlined customs procedures.
Foreign goods and domestic goods held for export in an FTZ are
exempt from state and local inventory taxes. FTZ status may
also make a site eligible for state or local benefits that are
unrelated to the FTZ Act.
8)Current law allows only cities and counties to apply for
designation as an EZ. This bill would allow a special
district to be a joint applicant for EZ designation. While
this bill is limited to one special district only, expanding
the types of entities that can apply for EZ designation to
include special districts would be a significant change in the
EZ program. The Committee may wish to consider the possible
implications of this type of expansion for the EZ program.
The author and sponsor indicate that the City of Oxnard did
not partner with Ventura County in the city's bid for an EZ
three years ago, and are unaware if this option has been
considered for any future applications. The Committee may
wish to ask the author if a partnership with Ventura County is
a possible, and perhaps a more practical, approach to
preparing a more competitive EZ bid than this bill provides.
Given HCD's regulatory reform process and its publicly-stated
policy to cease the designation of new EZs until major reforms
are implemented, the Committee may wish to consider whether
this bill is timely and whether it will help the proponents
achieve their objectives of promoting economic growth and
alleviating unemployment.
The District is designated as a FTZ by the federal government.
It is unclear how or whether this designation would affect
any future EZ designation, and vice versa.
9)Support arguments : Supporter state that this bill will assist
the City of Oxnard move the city's EZ process forward.
Opposition arguments : Given the possible reforms to, or
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elimination of, the EZ program, it is not clear that this bill
will assist the bill's supporters in meeting their goals.
REGISTERED SUPPORT / OPPOSITION :
Support
City of Oxnard
The Honorable Sylvia Mu�oz Schnopp, Council Member, City of Port
Heuneme
Opposition
None on file
Analysis Prepared by : Angela Mapp / L. GOV. / (916) 319-3958