BILL ANALYSIS �
AB 146
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ASSEMBLY THIRD READING
AB 146 (Gorell)
As Amended March 19, 2013
Majority vote
LOCAL GOVERNMENT 7-0
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|Ayes:|Achadjian, Levine, | | |
| |Bradford, Gordon, | | |
| |Melendez, Mullin, Rendon | | |
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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 :
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1)Provides for the establishment of geographically-targeted 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 : 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.
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."
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 were available at the time in
its open, competitive process. The City of Oxnard ranked 10th and,
as such, did not receive a designation.
Under existing law, HCD can designate up to 42 EZs, which are
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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.
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 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.
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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 fiscal year (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 requests for proposals (RFPs) for the two slots that are now
open, and reports that it will not issue RFPs 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 FY 2013-14.
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.
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, 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
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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.
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 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.
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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 Legislature 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 Legislature 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 Legislature 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.
Support arguments: Supporter state that this bill will assist the
City of Oxnard move the city's EZ process forward.
Opposition arguments: Opponents could argue that, given the
possible reforms to, or elimination of, the EZ program, it is not
clear that this bill will assist the bill's supporters in meeting
their goals.
Analysis Prepared by : Angela Mapp / L. GOV. / (916) 319-3958
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