BILL ANALYSIS                                                                                                                                                                                                    



                                                                            



           ----------------------------------------------------------------- 
          |SENATE RULES COMMITTEE            |                        SB 133|
          |Office of Senate Floor Analyses   |                              |
          |1020 N Street, Suite 524          |                              |
          |(916) 651-1520         Fax: (916) |                              |
          |327-4478                          |                              |
           ----------------------------------------------------------------- 
           
                                           
                                       CONSENT


          Bill No:  SB 133
          Author:   DeSaulnier (D)
          Amended:  As introduced
          Vote:     21

           
           SENATE TRANSPORTATION & HOUSING COMMITTEE  :  11-0, 4/2/13
          AYES:  DeSaulnier, Gaines, Beall, Cannella, Galgiani, Hueso,  
            Lara, Liu, Pavley, Roth, Wyland


           SUBJECT  :    Enterprise Zone Act:  applications

           SOURCE  :     Author


           DIGEST  :    This bill prohibits enterprise zone applications  
          submitted on or after January 1, 2014, from expanding or  
          aggregating of two existing enterprise zones by more than 15%.

           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  
                                                                CONTINUED





                                                                     SB 133
                                                                     Page  
          2

          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  
          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. 

          Existing 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: 

           1. Limits the ability to expand enterprise zones at  
             reapplication.  

           2. 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%.  

                                                                CONTINUED





                                                                     SB 133
                                                                     Page  
          3


           3. 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
           
           Purpose of this bill  .  The author's office 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 disadvantaged groups and  
          grow businesses. 

           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.

           FISCAL EFFECT  :    Appropriation:  No   Fiscal Com.:  No   Local:  
           No

           SUPPORT  :   (Verified  4/2/13)

          City of Pittsburg


                                                                CONTINUED





                                                                     SB 133
                                                                     Page  
          4



          JA:k  4/3/13   Senate Floor Analyses 

                           SUPPORT/OPPOSITION:  SEE ABOVE

                                   ****  END  ****






































                                                                CONTINUED