BILL ANALYSIS �
SENATE TRANSPORTATION & HOUSING COMMITTEE BILL NO: SB 133
SENATOR MARK DESAULNIER, CHAIRMAN AUTHOR: DeSaulnier
VERSION: 1/28/13
Analysis by: Alison Dinmore FISCAL: no
Hearing date: April 2, 2013
SUBJECT:
Enterprise Zone Act: limiting enterprise zone expansions at
reapplication
DESCRIPTION:
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
percent.
ANALYSIS:
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%.
COMMENTS:
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
Wednesday,
March 27, 2013.)
SUPPORT: City of Pittsburg
OPPOSED: None received.