Opposition to SB 1008

On March 21 The California Taxpayers' Association; California Chamber of Commerce; California Restaurant Association; California Bankers Association; California Retailers Association; California Manufacturers & Technology Association; California Aerospace Technology Association and the Wine Institute issued a memo opposing SB 1008:

On behalf of the above coalition of California businesses, we must oppose your SB 1008, which would seriously undermine the enterprise zone program. Moreover, this bill should be keyed a 2/3's vote tax increase because it restricts taxpayers from obtaining the promised benefits of the enterprise zone program.

While the bill would allow designated enterprise zones to apply for up to two five-year extensions, it would also substantially reduce the benefits of the existing program. Enterprise Zones target economically distressed areas through the use of special state and local tax and economic incentives that encourage business investment and promote the creation of new jobs. The maintenance and enhancement of the Enterprise Zone and the state's other job generating tax incentive programs (LAMBRA, MEA and TTA) are vital to the state's economic recovery. Instead, this bill would reduce the distressed areas of the state that can qualify for EZ benefits.

Our analysis of this proposed legislation is that it would effectively gut the eligibility criteria for qualified employees, eliminating the most important criteria, thereby reducing the number of disadvantaged individuals being eligible for the hiring tax credit. The bill would also substantially restrict other eligibility criteria to limit employees from qualifying for the hiring tax credit.

The bill would substantially restrict eligibility criteria for qualified employees, excluding those who might be receiving public assistance due to having been laid off. Also excluded would be those eligible for or having already exhausted unemployment benefits, had barriers to employment due to age, education or criminal history, or seasonal or migrant workers.
It is unclear if the elimination of criteria would make previously eligible employees ineligible upon the effective date of this legislation. That means the measures could have retroactive effect. The bill would eliminate cross-jurisdictional vouchering, which is a method by which taxpayers have been able to obtain vouchers which were otherwise improperly denied by other jurisdictions.

This measure forces lenders to "verify and document" the manner in which loan funds are spent in order to qualify for a tax deduction. This language fails to specify how such information is to be verified or documented, who will have access to such information, or how long this information must be retained. As one of the most regulated industries, lenders are not in a position to have new parties reviewing confidential consumer documents. No information has been produced by the proponents, or shared with lenders, identifying the need for this change or whether this approach is the appropriate one. As a result of this language, lending within enterprise zones that desperately need capital infusions may in fact be reduced as the restrictions on lenders become more onerous.

Finally, this bill does not address any of the abuses by EZ Administrators, including creating rules without statutory authority that limit the ability of employers to obtain the promised benefits of the EZ Program. For instance, some Zone administrators refuse to issue vouchers for qualified employees who live in a Targeted Employment Area, unless the taxpayer proves that no other eligibility criteria exists. Other Zone administrators preclude taxpayers from obtaining vouchers under an arbitrary time limit. Those problems should be addressed by legislation.

We believe these "reforms" would undermine the stated purpose of the Enterprise Zone Program to provide incentives for investment and job creation and retention in economically distressed areas of the state. Unfortunately, this proposed legislation would limit the benefits of the EZ program to a small sector of qualified employees (essentially only those receiving public assistance), and place inappropriate restrictions on taxpayers' ability to claim the state tax credits provided for their investment in Enterprise Zones.

For these reasons, we oppose SB 1008 and urge its rejection.