BILL ANALYSIS                                                                                                                                                                                                    

          SENATOR MARK DESAULNIER, CHAIRMAN              AUTHOR:  DeSaulnier
                                                         VERSION: 1/28/13
          Analysis by:  Alison Dinmore                   FISCAL:  no
          Hearing date:  April 2, 2013

          Enterprise Zone Act:  limiting enterprise zone expansions at  


          This bill applies to enterprise zone applications submitted on  
          or after January 1, 2014 and prohibits the expansion or  
          aggregation of two existing enterprise zones by more than 15  

          The legislature created the enterprise zone program three  
          decades ago to help grow jobs and businesses in the most  
          economically distressed areas of the state.  The program intends  
          to help disadvantaged groups, such as veterans and public  
          benefit recipients, receive those jobs.  The Department of  
          Housing and Community Development (HCD) designates geographic  
          areas as enterprise.  HCD may designate up to 42 zones and each  
          zone is designated for 15 years.

          Geographic areas are eligible based on factors such as  
          unemployment rates, free-lunch program participation, median  
          income, plant closures, or history of gang-related activity.   
          HCD selects enterprise zones through a competitive process based  
          on the appropriateness of the applicant's proposed economic  
          development strategy and implementation plan.  Additionally, HCD  
          awards bonus points for the most economically challenged areas. 

          Within an enterprise zone, cities, and counties can relax  
          government controls such as permit 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,  
          including credits for sales and use tax paid on manufacturing  


          SB 133 (DESAULNIER)                                    Page 2


          equipment purchased, hiring credits for qualified employees,  
          100% net operating loss carryover for losses associated with  
          operations within the enterprise zone businesses, and election  
          to expense rather than amortize equipment used within the  
          enterprise zone.  

          The most significant of these tax credits is the hiring credit.   
          Employers within an enterprise zone may claim a credit of 50% of  
          the wages paid to a qualified employee in the first year, 40% in  
          the second year, 30% in the third year, 20% in the fourth year,  
          and 10% in the fifth year.  In order to claim a hiring credit, a  
          business must obtain a voucher from the enterprise zone. 

          Current law places a restriction on the expansion of an existing  
          enterprise zone during its 15 year term.  An enterprise zone may  
          not expand more than 15% in size from its size on the date of  
          original designation, unless the zone is no greater than 13  
          square miles.  In the latter case, the zone may increase no more  
          than 20% in size from its size on the date of original  
          designation. There is no limit on expansion when a zone applies  
          for redesignation at the end of its 15-year term. 
           This bill  , for applications submitted on or after January 1,  
          2014, limits the ability to expand enterprise zones at  
          reapplication.  The bill states that if any portion of the  
          proposed zone is within, or previously was within, the  
          boundaries of a previously-designated enterprise zone, then the  
          aggregate size of the proposed zone cannot exceed the size of  
          the previously-designated zone by 15%.  This bill also states  
          that if any portions of the proposed zones are within, or  
          previously were within, the boundaries of two or more  
          previously-designated zones, the aggregate size of the proposed  
          zone cannot exceed the size of the largest single  
          previously-designated zone by more than 15%.

           1.Purpose of the bill  .  The author states that these changes  
            seek to ensure that the goals of the Enterprise Zone Act are  
            realized by targeting the most economically distressed areas  
            of California.  When zones combine, the zone area increases.   
            This makes the zone less valuable and runs counter to the  
            intent of the program to serve distinct communities.  Placing  
            limits on increases in zone growth helps to secure scarce  
            state funding for targeted areas to create jobs for  


          SB 133 (DESAULNIER)                                    Page 3


            disadvantaged groups and grow businesses. 
          2.Increasing zone sizes  .  Data on enterprise zone re-approval  
            has shown that, as of June 1, 2010, HCD reapproved 28  
            enterprise zones for 15 years.  Of those, 12 zones have grown  
            by more than 15%. Over the last decade, the average size of an  
            enterprise zone has increased almost 500%. Most of the  
            increase is driven by the expansion or combination of zones  
            when they apply for re-designation at the end of their  
            original 15-year lifespan. 

            For example, the San Joaquin County zone has grown to 19 times  
            its original size.  Additionally, San Diego, Los Angeles, and  
            Sacramento have increased in area by 11, 12, and 22 times,  
            respectively because in the reapplication, these cities  
            aggregated previously designated zones. Los Angeles decreased  
            from five to two zones, Sacramento decreased from three to one  
            zone, and San Diego decreased from two to one zone.   
            Aggregating zones allows for the increase in the cap on the  
            number of zones without legislative authorization. 
          POSITIONS:  (Communicated to the committee before noon on  
                     March 27, 2013.)

               SUPPORT:  City of Pittsburg

               OPPOSED:  None received.