BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | AB 1411|
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THIRD READING
Bill No: AB 1411
Author: V. Manuel Pérez (D), et al.
Amended: 8/21/12 in Senate
Vote: 21
SENATE TRANSPORTATION & HOUSING COMM. : 9-0, 7/5/11
AYES: DeSaulnier, Gaines, Harman, Huff, Kehoe, Lowenthal,
Pavley, Rubio, Simitian
SENATE APPROPRIATIONS COMMITTEE : 7-0, 8/6/12
AYES: Kehoe, Walters, Alquist, Dutton, Lieu, Price,
Steinberg
ASSEMBLY FLOOR : Not relevant
SUBJECT : Economic development: enterprise zones
SOURCE : Author
DIGEST : This bill makes various changes to the zone
selection and administrative provisions of the enterprise
zone program.
ANALYSIS : Under existing law, the Department of Housing
and Community Development (HCD) can designate up to 42
enterprise zones. Each designation lasts for 15 years.
Within an enterprise zone, 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
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development, vocational education, transportation, and
housing. The state provides a number of tax credits and
deductions for businesses in the zone, 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, deduction of
interest earned by lenders who loan money to enterprise
zone businesses, and election to expense rather than
amortize equipment used within the enterprise zone. In
order to claim a hiring credit, a business must obtain a
voucher from the enterprise zone.
To be eligible for designation, a proposed enterprise zone
area must meet either of the following:
1.Fulfill at least one of the following criteria:
Meet the criteria for the now-defunct Urban
Development Action Grant (UDAG) program of the United
States Department of Housing and Urban Development.
Meet criteria of economic distress related to those
used in determining eligibility under the UDAG
program.
Have experienced plant closures within the past two
years affecting more than 100 workers.
Have a history of gang-related activity, whether or
not crimes of violence have been committed.
1.Fulfill at least two of the following criteria:
Have an unemployment rate not less than three
percentage points above the statewide average.
Be in a county where more than 70 percent of the
children participate in the federal free lunch
program.
Be a low-income area.
HCD selects enterprise zones through a competitive process
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based on the appropriateness of the applicant's proposed
economic development strategy and implementation plan. HCD
awards bonus points to proposed zones that meet at least
two of the following criteria:
Have at least 17.5 percent of households below the
poverty level.
Have an average unemployment rate that is not less
than five percentage points above the statewide
average.
Have a unique distress factor affecting long-term
economic development, such as resource depletion,
plant closure, industry recession, natural disaster,
or military base closure.
After receiving a designation, an enterprise zone
biennially must report to HCD on the zone's progress
relative to its goals, objectives, and commitments set
forth in its memorandum of understanding with HCD. In
addition, HCD may audit a zone at any time and must audit
each zone at least once every five years. If a zone
receives a failing grade, it must enter into a written
agreement to remedy the deficiencies. Ultimately, if a
zone fails to remedy the deficiencies, HCD must
de-designate the zone.
HCD is required to report to the Legislature every five
years evaluating the effect of the program on employment,
investment, incomes, and state and local tax revenues in
enterprise zones. The report must also review the progress
and effectiveness of each zone.
This bill:
1. Revises eligibility criteria for proposed zones to
require the zone to be located solely in low-income
census tracts and meet specified criteria.
2. Allows an applicant's economic development strategy
and implementation plan to identify specified local
resources that will be used to implement the plan and
explain how these resources will leverage available
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state resources.
3. Limits the size of proposed zones that are within the
boundaries of one or more previously designated zones
to nor more than 15% larger than the previous zone.
4. Requires HCD to post specified information on
administrative memoranda, and enterprise zone and
targeted employment area boundaries, on its website.
5. Revises the information that geographically targeted
economic development areas (G-TEDAs) report biennially
to HCD.
6. Requires HCD to review biennial progress reports to
determine whether an audit is warranted and require HCD
to audit a G-TEDA that fails to submit timely reports.
7. Requires HCD to provide technical assistance and
training during the audit process to help G-TEDAs
address identified deficiencies.
8. Revises the criteria HCD uses to judge whether a
G-TEDA audit determination is superior, passing, or
failing.
9. Requires state entities to consider how G-TEDA
programs could be integrated to maximize benefits to
workers and businesses when developing specified
workforce development and training plans and
strategies.
10. Increases the fee HCD is allowed to charge on each
enterprise zone, local agency military base recovery
area, and manufacturing enhancement area from $15 to an
amount not to exceed $20. If the fee is more than what
HCD charges as of January 1, 2013, this bill requires
HCD to adopt the fee increase by regulation.
11. Requires local education entities that administer
student work permits to consider how hiring credits
could be used to benefit lower-income applicants for
permits.
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12. Revises FTB's annual reporting requirement to include
additional information on G-TEDA tax credits and other
incentives, to the extent available, and require FTB to
review both personal income tax and corporate tax
returns when collecting information.
13. Revises, adds, and deletes other criteria, and
reconstitute some existing provisions.
Comments
According to the author's office, one of the most important
things state government can do during difficult economic
times is to help keep people employed. When Californians
have jobs, local and state governments have the necessary
resources to fund local priorities such as education,
public safety, and community services. At the same time,
it is essential that scarce state resources are put to good
use for economic recovery. The enterprise zone program is
an economic development program that encourages businesses,
through tax and other incentives, to locate and create jobs
in targeted, economically distressed communities.
Beginning in 2009, the Assembly Jobs, Economic Development,
and the Economy Committee initiated a series of oversight
hearings on the enterprise zone program to ensure that it
has been meeting its economic development goals. The
reforms in this bill are based on this examination, which
spanned two years of oversight hearings, working group
meetings, stakeholder engagement, and a comparative review
of other states' programs. While more comprehensive
reforms have been proposed this session in AB 231 (V.M.
Pérez), this bill advances only those recommendations that
relate to increased accountability and program
transparency.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
According to the Senate Appropriations Committee:
Minor costs to HCD to revise and update regulations to
reflect changes to audit provisions and zone eligibility
and selection criteria.
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HCD administrative costs of up to $275,000 (Enterprise
Zone Fund) related to expanded auditing activities and
providing additional technical assistance and training.
These costs may not be fully covered by voucher fees paid
by G-TEDAs.
Franchise Tax Board (FTB) administrative costs of up to
$133,000 in 2012-13, with ongoing costs of $128,000
(General Fund) related to expanded reporting
requirements, assuming FTB is expected to provide G-TEDA
tax credit and incentive data on personal income tax
returns as it currently provides on corporate tax filers.
Potential increase in General Fund costs, to the extent
that the requirement that EDD provide voucher eligibility
certification to specified persons results in an increase
in the number of hiring credit vouchers. Each voucher
costs the General Fund an average of $37,000 in General
Fund losses.
SUPPORT : (Verified 8/20/12)
California Association of Enterprise Zones
SS Marine, Inc.
JJA:n 8/21/12 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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