Dicon Fiberoptics v. FTB Update 2

The time-line in the Dicon Fiberoptics v. FTB case so far has been:

3/13/2007: Case filed by Dicon against FTB in Los Angeles Superior Court
(The first EZ Policy Blog post was on 5/9/2007)
5/21/2007: FTB requests demurrer (in essence that the case be dismissed)
(The second EZ Policy Blog post was on 6/11/2007)
6/18/2007: Dicon filed their opposition to demurrer
7/12/2007: FTB filed their response to that opposition

No trial date has been set, but the Court has imposed deadlines of 11/30/2007 for written discovery and 1/31/2008 for depositions.

In its July 12, 2007 "Reply to Opposition to Demurrer," the Attorney General's Office of California argues on behalf of the FTB. Regarding Dicon's assertion that "the statute does not permit the FTB to substitute its judgment for that of an agency expressly authorized to determine employee qualification," they write:

Plaintiff also argues that the legislative purpose behind the Enterprise Zone Act was "to encourage areas through economic and regulatory incentives." (Opposition 3:23-26.) But at best, the legislative intent was frustrated. As the Assembly Committee on Revenue and Taxation said in August 1995: "However, the EZ and PA programs appear ineffective at improving employment opportunities within their respective locales." (Plaintiff RJN, Exhibit A, attachment 4 page 6 of 7).
. . .
Whatever the reason the Legislature had for enacting the Enterprise Zone credits those reasons fail in light of reality. In fact, these credits did not have anything to do with Plaintiff's business decisions, rather they were simply after the fact attempts to years later lower their tax liability to the state.

Here we have an arm of the State Government, speaking on behalf of the Franchise Tax Board itself, making the statement that the Enterprise Zone program is an abject failure.

I think there are a few problems with the methodology used to reach this assertion:

1. The A.G. quotes a Committee Bill Analysis (for SB 1770, Alquist, 93-94 session) and states that it is a conclusion of the Assembly Committee itself. But Bill Analysis only represents the research and opinion of a Committee staff person and is a tool used by legislators to inform their vote. It is not a conclusive statement of the Committee.
   
2. The A.G. relies on a study referenced in that Bill Analysis that is over a decade old, that was written before significant legislative changes were subsequently made to the program, and that has been contradicted by multiple, subsequent academic studies.
3. [Oddly, the A.G.'s "Reply to Opposition to Demurrer" states that this was a statement of the Assembly Committee in August 1995, whereas their own "Request for Judicial Notice" document which contains the copy of the Bill Analysis shows that the document is dated August 15, 1994.]
4. The A.G.'s assertion that the Enterprise Zone program "did not have anything to do with [Dicon's] business decisions," seems extraordinary. How can they purport to know the motivations and intentions of individual business decisions? This criticism seems to be based on the fact that Dicon made its claim for tax credits after the qualified activity occurred: "In fact, Defendant, Dicon Fiberoptics, Inc. ("Dicon") did not originally claim Enterprise Zone hiring credits. The claim was made in Dicon's November, 2003 amended tax return over two tax years after the qualified individuals had been hired." This is hardly enough evidence upon which to impugn Dicon's intentions. (See also the explanation I wrote at the end of this post why it is normal to expect a delay in the claiming of the tax credits.) Furthermore, since a qualified employee can generate credits for five years of employment, why is activity two years after the hire date indicative of anything?
   

I had initially felt that the arguments the Attorney General's Office made in its motion for demurrer were very compelling. In response, Dicon raised some valid concerns, but, in my lay opinion, did not fully counter the A.G.'s arguments. However, in this response it seems that the A.G. has crossed a line.

Enterprise Zone Underutilized?

A recent article in the Imperial Valley Business Journal claims that the relatively new Enterprise Zone there is not being fully utilized. The article goes so far as to even express concern that the zone could be undesignated due to its lack of activity:

Eligible Brawley businesses are failing to take advantage of tax breaks intended to boost employment and attract businesses to the area. In the years to come, that could mean this city will lose its designation as an enterprise zone and that could ultimately affect the city’s ability to attract new businesses given the cost of doing business in California is well above the national average.

And

[Alison] Ricker said she thinks state officials, expected to conduct an audit, may place the zone on probation for having such low numbers. Although the state could take away the zone’s designation at any time, Ricker said she does not think that will happen anytime soon.

I think it’s pretty clear that a suspension of the zone is not in the offing, but the concern certainly raises some interesting issues. The 42 Enterprise Zones are extremely diverse and it would be unreasonable to compare the performance of a zone in rural Imperial County to zones in the urban centers of Los Angeles or San Francisco.

The article theorizes about the causes of the lack of participation. The primary culprits seem to be apathy or lack of interest:

“Brawley businesses aren’t truly sold on this,” said Richard Preciado, managing partner for Hutchinson and Bloodgood, an accounting firm…. eligible companies just aren’t interested, he said, comparing the situation to avoiding exercise. “We know it’s good for us but we just don’t it,” he said.

And

During the March 24 Annual Taste of Culture event in Brawley, only two to three business owners visited the information booth IVEZ maintained at the event, Ricker said.

However, I think a more fundamental reason is hinted at within the anecdote the article cites:

Although Brawley-based Fiesta American Foods is within the zone, it’s been breaking even for the past four or five years and so it cannot apply for the tax credits. Companies must be making a profit and paying taxes in order to be eligible. “It doesn’t do me any good. What I need is more financing,” said Raymond Armenta, the company’s president.

In other words, it costs time, money and resources for a company to administer and participate in the Enterprise Zone program. If a company is not profitable, and many are not for a variety of reasons, then they cannot make use of a tax credit since they are not making the profit to create a tax liability in the first place. A business owner in such a position will generally be working hard to make the business profitable. Spending that limited time and resources on securing a tax credit for theoretical potential future use simply doesn’t make good business sense. It is highly likely that a large portion of the businesses in the Imperial Valley EZ fall into this category.

The Legislature seems to have had difficulty grasping this concept as well. Over the years there has often been a hew and cry over businesses seeking refunds for tax credits calculated retroactively. But in light of the above scenario, this kind of business behavior makes a lot of sense and should be an indicator of economic growth in the Enterprise Zone.

Siskiyou County in 2008

This article from Mt. Shasta News sheds some interesting light on the local issues and concerns in Siskiyou County as they gear up for their 2008 Enterprise Zone application:

The pros and cons of an Enterprise Zone will be discussed during a town hall meeting scheduled for Wednesday, Aug. 8 at 7 p.m. at the Dunsmuir Community Building.

The meeting will provide an opportunity for residents to express their opinions on Dunsmuir's economic revitalization and development.

City staff, along with Siskiyou County Economic Development Council's Tanya Dowse and Stephanie Bailey will provide an overview of the Enterprise Zone and answer questions.
...
At the close of the Aug. 8 meeting, an informal vote with raised hands will be conducted to determine the willingness of Dunsmuir residents and businesses to undertake the commitment of an Enterprise Zone.

SB 341 Progress

SB 341 has passed through the Assembly J., E.D. & E. Committee and now goes to the Appropriations Committee. Here is the bill analysis by Toni Symonds.

Santa Clarita Receives Final EZ Designation

While there is no memo yet from HCD, The Santa Clarita Valley Signal reports an item within its local news that the new Enterprise Zone is being given an official start date of July 1.

Cyntron v. HCD Update: No Injunction Against Voucher Regulations

On June 12 the judge in Cyntron v. HCD denied Cyntron's motion for preliminary injunction against the voucher regulations. The seven page document provides a point-by-point argument against virtually all of the positions Cyntron made in its complaint (which originally appeared in EZ Policy Blog back in February). Here is an example of how the judge responded:

Plaintiff identifies various inconsistencies in the second through the twelfth causes of action in the complaint. The Court has reviewed plaintiff's claims with respect to each regulation and finds no direct conflict with section 22622.7. To the extent that a regulation appears inconsistent, defendant has provided a reasoned explanation. For example, plaintiff contends that a qualified employee under section 222622.7 [sic.] includes eligibility for the Federal Job Training Partnership ("JTPA") Act or its successor, but that category of eligibility is deleted in regulation 8450.5. However, defendant explains that the JTPA was repealed in 1998, effective July 1, 2000. Thus the regulation focuses on its successor program, the WIA. Plaintiff's further contention that the regulation unlawfully restricts eligibility to certain categories of WIA services also has a reasonable explanation. Under the WIA, a broader class of employees are eligible to receive services. The WIA categories targeted in the vouchering regulations are limited so as to be consistent with the categories of employees previously eligible under the JTPA.

In sum, plaintiff has not shown a probability that it will succeed in showing that the regulations are so inconsistent and contradictory to the legislative mandate that they must be struck down as invalid.

Plaintiff's showing of irreparable harm is similarly weak. As the Court understands plaintiff's argument, plaintiff believes it may not be able to obtain the necessary documentation to support the issuance of a voucher for an employee who would not qualify under the regulations as they now exist but who would qualify if the regulations are held to be invalid. To the extent that plaintiff believes a certain limitation on qualified employees is invalid, plaintiff is free to obtain documentation of the eligibility category that plaintiff believes should be included in the regulation while it maintains its challenge to that regulation....The remaining issues identified by plaintiff, e.g. that it will be required to invade an employee's privacy rights to obtain the necessary documentation of eligibility, are not persuasive.

Of course, there is a simple response to the JTPA issue raised, which is that Cyntron wants to be able to retroactively voucher employees hired before July 1, 2000. Nevertheless, this seems to be a significant setback for Cyntron's case.

There was a hearing scheduled for June 28, but that was later postponed until October 15.

The 2008 Race For 8

My prediction is that there is going to be a much higher degree of competition for the 8 Enterprise Zone slots that are available for designation in 2008 than there was for the 23 slots in 2006. Even if there are only two applications for each slot, that is still an entirely different dynamic than was faced by applicants in the last round. Attendance at the upcoming HCD workshops will be an interesting indicator of how large the pool might be, but other indicators are already starting to appear. For example this article from The Salinas Californian in which the Enterprise Zone program is describes as a major policy initiative in the Mayor's State of the City address:

Besides touting his ongoing "Peace, Prosperity, Image" campaign, the mayor reiterated plans to work with other municipalities in the Salinas Valley as well as cities on the broader Central Coast.

That includes a plan to coordinate with Gonzales, Greenfield, King City and Soledad and apply to become a state enterprise zone. The designation provides tax credits and other financial incentives that can stimulate investment in economically underserved areas.

The state will only make eight such designations this year, down from more than 20 in 2006. California now has 42 enterprise zones.

"The economic interests of Salinas spread throughout the Salinas Valley," Donohue said. "It only makes sense for the five cities to work together."

I first reported on Mayor Donohue's interest in the Enterprise Zone back in March.

Fresno County Receives Final EZ Designation

From the HCD press release:

SACRAMENTO— California’s Department of Housing and Community Development announced today that the Fresno County Regional Enterprise Zone is the first enterprise zone among the 23 newly-awarded enterprise zones to receive final designation to complete the necessary steps to move from conditional to final designation. Governor Arnold Schwarzenegger announced the conditional designations for the 23 Enterprise Zones last November.

“With today’s designation, the Fresno County Regional Enterprise Zone offers the businesses located within its newly established enterprise zone the multiple opportunities and benefits of the program,” said Housing and Community Development Director Lynn L. Jacobs. “They join the other 41 zones that together with the state work to promote job opportunities and business investments in California.”

Out of the 23 new conditional designations granted last November, Fresno County in one of four zones that does not overlap any part of a previous zone. Therefore AB 1550's gap language was not applicable and no benefits have been able to begin until this final designation.

Here is the story from the Fresno Bee, and there is also a new website: http://www.fresnocountyez.com/

SB 341 Update

SB 341 (Lowenthal) passed the Assembly Natural Resources Committee on Monday and now heads to Assemblyman Arambula's Jobs, Economic Development & the Economy Committee on July 3.

This is the bill that will ease some of the onerous environmental impact report requirements that new Enterprise Zone applicants face.

Santa Clarita Final Designation Coming?

At the end of a story about eminent domain in the Santa Clarita Valley Signal, there is this brief nugget of information:

The council is also expected to approve entering into a memorandum of understanding with the State of California Housing and Community Development Department to administer the enterprise zone that would enable some city businesses to receive state tax incentive and credits.

That should be the last step in the process to receive a final designation for the new zone. I previously mentioned that the City was aiming to have an official start date of July 1, but that it was dependent upon HCD to review its EIR and complete this MOU.

In other local news, there will be a press conference and workshop related to the new Fresno County Regional Enterprise Zone tomorrow.

Good News For Long Beach Enterprise Zone

From the Los Angeles Times:

Southern California's last major airplane factory got a reprieve Tuesday as Boeing Co. announced it would keep open its Long Beach production line for the C-17 Air Force transport for at least six more months.

With no new orders, the sprawling plant next to Long Beach Airport had been scheduled for closure by mid-2009 with the rollout of the last C-17. It would have dealt a major economic blow to the region.

But Boeing told its Long Beach workers Tuesday morning that the company would invest its own money to keep the line going until at least 2010, with the hope of securing more orders from the Air Force and foreign nations.

New EZ Application Released

HCD has released the new application for Enterprise Zone designation. I received mine via email, and I do not see it posted to their website yet. They have, however, created a web page detailing two workshops they will be holding to discuss the application process. There will be one workshop in Sacramento on July 9 and another in Los Angeles on July 16.

IRS Publishes New Instructions for WOTC

The IRS has just published to its website the new form 8850 along with a new instructions publication detailing all of the changes made to WOTC by the Small Business and Work Opportunity Act of 2007 enacted on May 25.

NPR Report On LAMBRAs

Here is an interesting audio report from NPR about McClellan Air Force Base in Sacramento (a LAMBRA). While the report does not specifically reference the LAMBRA program, it does highlight some of the special challenges the program faces. At McClellan there in an innovative endeavor underway to privatize the environmental clean-up so as to accelerate the process of ultimately developing the property.

HCD Update From Santa Clarita

I was just in Santa Clarita for an Enterprise Zone workshop featuring presentations by Jason Crawford of the City, Frank Luera of HCD and Marcia Richards of FTB. It was very well organized and had a nice turnout. Lots of PowerPoint.

It is very clear that there is a great deal of enthusiasm in the City for the new zone designation which they hope to have in place by July 1. Jason Crawford reported that the City Council had approved their EIR the night before and that it was being submitted to HCD today. Frank didn't offer his opinion about the July 1 designation date.

Frank did provide the following general updates:

1. The new voucher form is going to be delayed past the anticipated July 1 date. There has been some interest at the Legislature to have some questions added to the form in order to collect data for future study.
2. Procedures for designating new TEAs are expected to be available within the next two weeks.
3. The new Enterprise Zone application for the eight spots becoming available in 2008 is expected to be available early next week.
   

Of course, I'll have these updates available here as soon as they are released.

Dicon Fiberoptics v. FTB Update

Last month I reported on a new Enterprise Zone related lawsuit being brought in Superior Court, Dicon Foberoptics, Inc. v. Franchise Tax Board of the State of California. Here is the crux of Dicon's complaint that I quoted last time:

Does the California Franchise Tax Board have unfettered authority to retroactively interpret and act upon a construction of the Revenue and Taxation Code that ignores express language concerning the requirements that a taxpayer must meet to receive available tax credits or refunds? Second, does the California Franchise Tax Board deprive a taxpayer of notice and procedural protections when its statutory interpretation creates additional administrative hurdles for taxpayers otherwise eligible to receive credits or refunds? And third, should the law permit the California Franchise Tax Board to deny taxpayers their credit or refunds, in some cases years after approval by an authorized administrative agency specifically tasked to review and certify eligibility for such benefits?

Within the last few weeks, the State has filed a demurrer with the court. Not being a lawyer, I had to look up demurrer. According to the Law.com dictionary, this means:

A written response to a complaint filed in a lawsuit which, in effect, pleads for dismissal on the point that even if the facts alleged in the complaint were true, there is no legal basis for a lawsuit.

Indeed, the Attorney General's office filed a lengthy "Memorandum of Points and Authorities in Support of Demurrer to First-Amended Complaint for Refund of Amounts Paid." This Memorandum is an elaborate argument for the FTB's authority to examine enterprise zone voucher supporting documentation. While it cites the Deluxe case, in my opinion, this argument is even more comprehensive then the one offered there. The State argues that Dicon's position is so unfounded that they are suggesting the whole thing be dismissed, in other words demurred.

Here are the five headlines for the arguments made to dismiss the case:

1. Overview of tax refund litigation shows that Dicon has not stated a cause of action.
2. The Board [FTB] has authority to demand documentation to administer and enforce the Revenue and Taxation Code and Dicon's failure to allege that it provided the documents is fatal to its action.
3. Section 23622.7 Subdivision (c), does not limit the authority of the Board to demand substantiation of enterprise zone hiring credits.
4. Section 23622.7 Subdivision (c), does not grant exclusive authority to the agencies designated to review eligibility for enterprise zone hiring credits.
5. Dicon cannot estop or otherwise rely on third party's determination that it owes no tax.
   

I'm pretty certain that if this case were offered on pay-per-view there would be some serious interest. Email me if you would like a copy of the complete court document.

It appears that the time-line for the continuation of the case will be as follows: Dicon's opposition brief is due by 6/18/07, FTB's reply to that brief is due 7/5/07, and there will be a hearing on the demurrer on 7/12/07.

Major New Development In Los Angeles Enterprise Zone

The Los Angeles Times reports today on the launch of a huge new development next to the Los Angeles Convention Center and Staples Center:

At a ceremony today, AEG plans to announce that Wachovia Corp. and investment firm MacFarlane Partners have signed on to help finance the 54-story, $900-million hotel and condominium complex — the cornerstone of the $2.5-billion L.A. Live entertainment center.

"This is the most important thing we have ever done as a company," said AEG President Tim Leiweke, whose company owns Staples Center and the Los Angeles Kings NHL hockey team, among other teams and arenas. "It will change the economy of not just downtown but of Los Angeles."

Civic leaders see the hotel project as crucial to attracting the kinds of big-league, national conventions that now go to places such as Anaheim, San Diego and San Francisco.

JW Marriott and upscale Ritz-Carlton will operate separate hotels in the building on Olympic Boulevard. Combined, there will be 1,001 guest rooms when the hotels open in 2010. The Marriott will also operate one of the largest ballrooms in Los Angeles, with a seating capacity of 3,000. The top 26 floors will house 224 luxury condos attended to by the Ritz-Carlton staff.

The story includes the fact that special incentives were offered by the City Council in order to secure the deal:

The deal approved by the City Council calls for AEG to receive a rebate of at least $246 million in the hotel bed taxes it is expected to generate during the first 25 years of operation. In addition, the project is being given a $5-million grant from the city redevelopment agency and a rebate of $4 million in building permit fees.

Those concessions from the city were essential to getting the hotel started, Leiweke said.

What the story does not mention is that this part of downtown Los Angeles is included in the newly designated Enterprise Zone that replaces the expired Los Angeles Central City zone.

CalGRIP

The biggest news story in a long time to feature the Enterprise Zone is the Governor's new anti-gang proposal, CalGRIP - California Gang Reduction, Intervention and Prevention Program. In the official Gubernatorial press release this bullet point explains how the Enterprise Zone plays its part:

Gives a tax break to employers that provide jobs. CalGRIP adds “former gang member” to list of criteria allowing companies in Enterprise Zones to receive tax credits of up to $29,234 per employee. Status of “former gang member” verified by completion of a program recognized by the gang coordinator.

See also these mentions in the Alameda Times-Star, and the Contra Costa Times.

HCD Launches New Website

Over the weekend, HCD quietly launched a new and improved gateway into the Enterprise Zone website: http://www.hcd.ca.gov/fa/cdbg/ez/. Some of the new features that have been talked about over the past months are starting to appear and it looks like there is a lot of potential. The most significant improvement they can make is to have the ability to make frequent updates, and it looks like they may have that now.

New Economic Plan For The Valley

From the Los Angeles Daily News:

After decades of neglect, the northeast San Fernando Valley will become the focus of a multimillion-dollar revitalization effort designed to lure jobs and spur development in the blighted communities.

Councilman Richard Alarcon won approval Wednesday for the Community Redevelopment Agency to develop what he calls a vision statement for the 2,900-acre area in the Northeast Valley, where more than $62million is available for improvements.

"The time has come for the northeast San Fernando Valley to have a coherent and community-driven plan for its future," Alarcon said. "Pacoima, Sun Valley, Sylmar and Panorama City are some of the most underplanned areas in the city.

"Now is the time to create something out there that deals with the problems we face."

Reviewing the region over the next month, the CRA will look for opportunities to spur industry, create jobs and integrate mixed-use development with pedestrian-friendly commercial zones.

In planning the improvements, officials hope to take advantage of the transportation corridors - Victory Boulevard and the San Diego and Foothill freeways - that border the area.

"This is an area where everyone is anxious to see some good development," said Bob Scott, chairman of the Valley Industry and Commerce Association. "It is an area that is vastly underused now and is ripe for the right kind of development.

"We think it is an area that can become a major jobs-creation area by learning the lessons of Santa Clarita and Burbank in developing a business-park concept."

The Pacoima and Panorama City areas have more than 118,000 residents living in 27,620 households, according to information provided by the CRA, which based its estimates on 2005 Census Bureau figures. About 25 percent of the households in the predominantly Latino communities live below the federal poverty level.

The communities are also home to more than 2,800 businesses that employ nearly 29,000 workers.

But business leaders say boosting employment is key to the success of the program, with upgrades to the area sidewalks and surface streets critical to luring new businesses to the area.

"The one concern we would have would be the loss of any more industrial land," Scott said. "We recognize people need a place to live, but they also need a place to work."

Roberto Barragan of the Valley Economic Development Corp. echoed Scott's views.

"We all know about the housing problems of the city, but we need the industrial space if we are going to create the jobs we need for this area and for the city," Barragan said.

"It is a tough balancing act, but I think it can be done. We have a vibrant business community now. Pacoima alone has 2,000 businesses. What we have to do is develop on top of what we have now."

Alarcon said he shares those concerns and will be working with the various business organizations to develop the plans, but he said he also recognizes the need to address the city's shortage of affordable housing.

He also said he already has begun discussions with major companies - including Magic Johnson Theaters, Lowe's and Home Depot - about ways to draw them into the area.

"What we want to do is have a master plan so investors know they are not just investing in one property, but an entire area," Alarcon said.

It's strange that the Enterprise Zone is not mentioned here, especially after all the trouble they went through to get the area designated.

WOTC Extension Passes Congress

Through an interesting series of events, a significant extension and expansion of the Work Opportunity Tax Credit is about to become law. As The New York Times reports, President Bush has won his standoff with Congress to receive a war funding bill that does not include any timetable for withdrawal. The bill includes billions of dollars in "pork," and also includes the first federal increase in minimum wage in 10 years. And since the beginning of the minimum wage increase effort, certain tax credits have been bundled along to make it more palatable.

In the version that appears likely to be signed now by the President, the WOTC is extended until August 31, 2011 which is the longest single extension the program has ever received. But perhaps more importantly, the bill makes changes to the credit itself which will significantly enhance its value.

HCD Issues Guidelines For Noncontiguous Zone Expansions

One of the significant changes to the Enterprise Zone program instituted by AB 1550 last year was the ability for a zone to expand its borders non contiguously. HCD has now issued guidelines to zones explaining how to apply for such an expansion. While this new provision allows greater flexibility for the zones, it also creates an opportunity for local controversy. For example, the HCD memo explains, "The second criterion states that the jurisdictions must also demonstrate that the excluded areas between the proposed new boundaries would not, based on the enterprise zone's EDS, also benefit from the expansion." This seems to leave just enough subjectivity to ensure that someone will be unhappy at some point.

It's Not Easy To Run An Enterprise Zone Under These Conditions (2)

I hope this doesn't become a a whole series of posts. This time it's the City of South Gate that's getting hit with a big court settlement making a difficult fiscal situation more difficult. From the Los Angeles Times:

Four minority South Gate police officers who claimed they were harassed on the job because of their ties to two controversial and eventually ousted Latino city officials won a $10.4-million jury award Thursday.

The award is believed to be one of the largest ever in a police employment discrimination case and represents another setback for the controversy-plagued, working-class community in southeastern Los Angeles County.

The City will be appealing the decision.

TALX Shareholders Approve Merger With Equifax

Equifax is now in the tax credit business after shareholders of TALX Corporation approved the takeover today.

Local EZ News: Siskiyou and Delano

The Siskiyou Daily News reports that communities in that county have been awarded over $3 million in economic development grants:

Great Northern Corporation (GNC) in a recent press release announced that the State of California Housing and Community Development (HCD) program has awarded over $3 million in funding for both their Planning and Technical Assistance Awards (PTAA) and their Economic and Community Development Block Grants (EDBG).

Part of this money will apparently be used to apply for a new Enterprise Zone designation in the upcoming application round:

“This was an impressive collaborative effort led by GNC,” Siskiyou County Economic Development Council Executive Director Tonya Dowse said in the release. “It is really unheard of to have so many communities come together on one project. With this funding we will be able to put together a quality Enterprise Zone Application.”

And in Delano The Bakersfield Californian reports on plans for a new $65 million retail development project:

Delano, where one in five residents is behind bars, is hoping an ambitious commercial development project will free the town from economic lockdown.

At first glance, Delano comes across as a sluggish, why-go-there town struggling with its always-uncertain agricultural economy -- a town perhaps distinguished most for the 11,148 inmates it holds in two state prisons within a total population of 53,037.

The city is imprisoned by a double-digit unemployment rate, antiquated roads and sewers and an anemic retail market.

But construction of a proposed $65 million project, now planned for some 20 retailers including a Wal-Mart Supercenter and Lowe's home improvement store, could begin as early as this fall.

Geary Coats, project director of the 45-acre Delano Marketplace, said, if approved, construction would take 12 to 18 months and provide more than 600 jobs.

Bill Bopf, a city economic development consultant, said the marketplace should generate $120 million to $150 million in annual sales.

That, he said, translates into $1.1 million in sales taxes.

Light Reading

Here is a 194 page PDF: "Draft Environmental Impact Report: City of Long Beach Enterprise Zone."

Looks expensive.

Send your letter of support for SB 341.

New Enterprise Zone Lawsuit

Dicon Fiberoptics, Inc. has filed a suit in Los Angeles Superior Court against the Franchise Tax Board for denying their claim of Enterprise Zone tax credits. The complaint clearly states an intention to create a precedent setting case, "that could have a significant impact on thousands of taxpayer employers."

In the complaint filed with the Court, Dicon's attorneys raise three questions:

Does the California Franchise Tax Board have unfettered authority to retroactively interpret and act upon a construction of the Revenue and Taxation Code that ignores express language concerning the requirements that a taxpayer must meet to receive available tax credits or refunds? Second, does the California Franchise Tax Board deprive a taxpayer of notice and procedural protections when its statutory interpretation creates additional administrative hurdles for taxpayers otherwise eligible to receive credits or refunds? And third, should the law permit the California Franchise Tax Board to deny taxpayers their credit or refunds, in some cases years after approval by an authorized administrative agency specifically tasked to review and certify eligibility for such benefits?

This is essentially the same fundamental issue that has already been decided by the State Board of Equalization in the appeal of Deluxe Corporation. Deluxe Corp., in its BOE appeal, attempted to argue that the FTB had no statutory authority to examine supporting documentation "behind" approved employee vouchers. The BOE decided that the FTB does indeed have that authority. It now appears that Dicon is attempting to have the Courts override that BOE decision.

The Dicon complaint states that in January 2007 they did file an appeal of the FTB's findings with the BOE, but that on March 1, 2007 that appeal was dismissed. When asked about the reason for the dismissal, the BOE supplied a copy of the dismissal letter which states, in full: "Dear Mr. Dakessian, On February 16, 2007, appellant [Dicon] requested that the above-named appeal for the year ended March 31, 2001 be dismissed. Therefore, the appeal is dismissed."

The letter of dismissal is addressed to Mr. Marty Dakessian of Dakessian & Associates. Mr. Dakessian is the same attorney involved in the Deluxe appeal (see the case documents linked above). The court documents also connect Dicon to California Credits Group, LLC, who, according to a January 2006 Los Angeles Times article, was the same consulting firm responsible for Deluxe's credit claims.

Dakessian and California Credits Group are also behind the current case Cyntron Payroll Solutions v. Department of Housing and Community Development in which they are claiming that the state agency improperly propagated vouchering regulations. (I wrote about that case here.)

In two places the Dicon complaint against FTB says, "On March 1, 2007, the SBE dismissed plaintiff's appeal thereby giving rise to the instant action," and in one place, "Moreover, plaintiff has exhausted all administrative remedies." According to BOE Publication 81 it is a normal procedure for an appellant to request an appeal to be dismissed, however, sources at the BOE were not sure if such a dismissal represented an exhaustion of all administrative remedies that would allow a taxpayer to file an action against the FTB in Superior Court.

Hershey Closing: Oakdale Plant To Lose 575 Jobs

I posted a story in March about the possible closure of the the Hershey plant in Oakdale, CA. Well, apparently the follow up is not good news. The Modesto Bee reported yesterday that the Hershey Company announced this past Monday that the plant will indeed close next January. The closure will result in the loss of 575 jobs (and the loss of chocolate aroma).

Now some area residents are considering a boycott:

Deborah Weaver and Racheal Jackson both looked as if they'd had a bite of bitter chocolate as they discussed Hershey.

"Reese's Peanut Butter Cups are my favorite, but I'm seriously considering telling everyone I know to stop buying Hershey," said Jackson, 19. "I don't see the point of what they're doing."

California "Tax Freedom Day"

The Tax Prof Blog posts on the special report issued by the Tax Foundation, "America Celebrates Tax Freedom Day." Interestingly, they have calculated when this day occurs based on each state. California ranks as 7th highest tax burden state with a "Tax Freedom Day" on May 7. But Nevada is the 6th highest and doesn't achieve tax freedom until May 8.

EZ Policy Blog Live In Delano

On May 8th I will be sitting on an Enterprise Zone Workshop panel to discuss the new EZ designation in Delano. Click here for an event flyer. I think there will be an HCD representative there as well along with the local folks.

Remember The LARZ?

In the Los Angeles Times: "15 years after L.A. riots, tension still high":

Although a 15th anniversary typically does not carry the emotional cachet of, say, a 10- or 25-year milestone, hundreds of residents gathered Saturday at two South Los Angeles events to call attention to a community still racked by the poverty and violence that fueled the 1992 Los Angeles riots.

The message from both gatherings on the eve of today's anniversary was stern and angry: The city's southern neighborhoods are still largely ignored.

A standing-room-only crowd at the Community Coalition lambasted city officials for failing to close nuisance liquor stores and motels that the nonprofit group has pinpointed as hot spots of illegal drinking, drug dealing, prostitution and violence.

Six months ago, coalition members gave city Planning Director Gail Goldberg a list of the 21 "most egregious" businesses and pleaded for their closure or improvements within six months. They learned Saturday that public hearings have been held or set for only eight stores, frustrating many who said they expected more from the city.

"We have heard this so many times," an angry Manya Anderson, 58, told Goldberg as nearly 200 people looked on at the coalition's offices on South Vermont Avenue.

"We are dying. This community is dying. The bottom line is, this never would have been allowed in any other community."

Resident Jackie Garrett, 60, was equally discouraged.

"I feel like we're living in Iraq," she said. "Tell me we lost the war in Iraq — we lost the war in L.A."

Santa Clarita EZ Shakeup

Carrie Rogers, erstwhile manager of the Palmdale Enterprise Zone, has just become the erstwhile manager of the new Santa Clarita EZ - before it ever got its final designation! The Signal has the whole story:

After a little more than two years with the city, Carrie Rogers resigned Friday as Santa Clarita's marketing and economic development manager.

Rogers, who will officially leave her position April 27, has taken a job with the Los Angeles Economic Development Corp, where she will be responsible for business attraction and retention in the county as the firm's vice president of business assistance and development.

City spokeswoman Gail Ortiz said "it is too early to say right now" who will serve as Santa Clarita's interim marketing and economic development manager as the city searches for a replacement for Rogers.

Santa Clarita's marketing and economic development manager is responsible for recruiting and retaining business, redevelopment, tourism and film.

"While Carrie will be missed, we wish her much success on her new endeavor," City Manager Ken Pulskamp said in a statement.

Rogers, who began working at the city on Oct. 11, 2004, is credited with several achievements, including the city's application for enterprise zone status.

The designation provides Santa Clarita businesses in the zone with several incentives, including tax credits, interest and expense deductions and priority for some state programs and contracts.

Rogers has spent more than a decade in the field of economic development.

Prior to working for Santa Clarita, she was the economic development project manager for the city of Palmdale and managed the state-designated Antelope Valley Enterprise Zone.

Carrie has also resigned her position on the board of the California Association of Enterprise Zones.

I have had the benefit of knowing and working with Carrie for several years, both in Palmdale and in Santa Clarita, the accolade and promotion are well deserved. I wish her all the best and hope to have opportunities to continue working with her.

President Bush Is About To Veto The WOTC Extension

Well, not exactly. Congress has decided to lump the federal minimum wage increase, and its dependent tax credit sweeteners, into the emergency war spending bill that the President has vowed to veto because of its inclusion of a "surrender date."

Delano Profiled in Los Angeles Times

The Los Angeles Times has quite an extensive profile of the economic conditions in Delano. The Enterprise Zone is mentioned as well.

Inc. Magazine Lists Top Cities To Do Business

Inc. Magazine has released its annual lists of the top cities in which to do business. There is a top twenty list for large, midsize and small sized cities.

In the large city category (employment base of 450,000 and more), two California cities make the list: the Riverside-San Bernardino-Ontario area at number 5, and Sacramento at number 15. Both of these areas are homes to Enterprise Zones.

In the midsize category (employment base of 150,000 to 449,000) there is only one representative from California: Bakersfield at number 11. Bakersfield was home to an Enterprise until last year when it expired.

No California cities made it into the top twenty small cities (employment base of under 150,000).

Dan Walters Takes CBP To Task

Thank you to Dan Walters of the Sacramento Bee who takes the CBP "Who Pays Taxes In California?" report to task. Read the whole thing.

With other reports like this one out there - "Report: Rich Pay Lower Taxes", I was beginning to lose patience.

AB 1186 No Longer An EZ Bill

AB 1186 (Karnette) was a bill that would have increased the credit limits for Enterprise Zone sales or use tax credits. After amendment, it is now a bill that address the pressing issue of private railroad car tax law.

"Who Pays Taxes" - Tax Burden Gap

The Sacramento Bee is one of several newspapers writing about the California Budget Project's new "Who Pays Taxes in California?" report I wrote about yesterday.

They focus on a point made in the report that I did not address:

A new study by the Sacramento-based the California Budget Project -- called "Who Pays Taxes in California?" -- cites a wide tax burden gap between the poorest and wealthiest taxpayers, based on the percentage of income that goes toward income, sales, property and excise taxes.

For the poorest fifth of taxpayers, taxes amount to 11.7 percent of their average household budget of $11,000. On the flip side, the richest 1 percent, averaging $1.6 million in annual income, pay 7.1 percent for state taxes.

So the gap is in how much of one's income goes to the State. Kudos, though, to reporter Gilbert Chan for also citing a report issued this week by the Legislative Analysts Office,
"California's Tax System: A Primer":

Yet, these high-income taxpayers foot more of the income tax bill, according to a report issued Monday by the Legislative Analyst's Office. They account for about 5 percent of income tax returns, but pay 55 percent of the tax liability, or more than $27 billion in 2005-06.

Those earning $200,000 and more make up only 5% of taxpayers, yet they pay 55% of all taxes collected by the state. The LAO report goes on to say that those earing $50,000 or less make up 45% percent of taxpayers but pay only 6% of taxes collected.

Five percent pay 55%, and 45% pay 6% - isn't that also a "tax burden gap"?

AB 579 LAMBRA Bill Amended

AB 579 (Swanson) was going to be a bill to add a Net Interest Deduction (NID) benefit to the LAMBRA program. The bill has now been amended to extend the potential duration of a LAMBRA up to 15 years.

It's Not Easy To Run An Enterprise Zone Under These Conditions

From the Los Angeles Times:

The mayor of Lynwood, a City Council member and three former council members were charged today with collectively misappropriating hundreds of thousands of dollars in public funds.

Mayor Louis Byrd and Councilman Fernando Pedroza allegedly padded their salaries by using city credit cards and other city funds for personal expenses, such as trips for their spouses, and in the case of Pedroza, a session with exotic dancers in Guadalajara, Mexico, authorities said.

Along with three former council members, Byrd and Pedroza allegedly made nearly $80,000 a year over two years just by attending numerous brief committee meetings without authorization, said David Demerjian, head deputy district attorney for the Public Integrity Division.

Prosecutors began looking into Lynwood after a 2003 investigation published in The Times highlighted the hefty perks enjoyed by City Council members.

The charges comes a year after Lynwood's longtime mayor, Paul Richards, was sentenced to 16 years in federal prison after being convicted of public corruption charges.

Byrd, Pedroza and former council members Armando Rea, Arturo Reyes and Ricardo Sanchez are scheduled to be arraigned Friday.

California Budget Project Annual "Who Pays Taxes" Report

Last year I wrote a long post about the 2006 California Budget Project special tax-day report, "Who Pays Taxes in California?" That was the first time I had seen the report so I wasn't yet familiar with its pattern. Apparently, the report is issued annually in nearly identical form.

Last year there was a lot of fuss about the report and a subsequent report the CBP published the following day, "California Enterprise Zones Miss The Mark," that I wrote about here.

There is a section toward the end of the report called "Who doesn't pay taxes in California?" Here is how that section read in the 2006 report:

In 2003, the most recent year for which data are available, 380,075 taxpayers reported incomes of $200,000 or more. However, 1,659 of these households paid no California personal income tax. How did they do it? The largest tax breaks claimed by “no tax” households include enterprise zone tax breaks, the Manufacturers’ Investment Credit, and miscellaneous deductions. The number of high-income, “no tax” returns more than tripled between 1996 and 2003, rising from 510 to 1,659.

Here is what I wrote about that paragraph last year:

The actual report tells us that, according to the Franchise Tax Board's 2003 annual report, 1,659 households with incomes of $200,000 or more paid no personal income tax out of 380,075 households in that category. So 0.436%, less than half of one percent, paid no income tax in a given year due to the use of "enterprise zone tax breaks, the Manufacturers' Investment Credit and miscellaneous deductions." Keep in mind that these are specifically business owners who have engaged in business growing activities and provide jobs to other California taxpayers.

Now here is how that section reads in the new 2007 report:

In 2004, the most recent year for which data are available, 449,277 taxpayers reported incomes of $200,000 or more. However, 1,343 of these households paid no California personal income tax. How did they do it? The largest tax breaks claimed by “no tax” households include enterprise zone tax breaks, miscellaneous deductions, and the R&D Credit. The number of high income “no tax” returns more than doubled between 1996 and 2004, rising from 510 to 1,343.

Some observations:

1. There was an 18% increase in the total number of taxpayers that reported incomes over $200,000 between 2003 and 2004. In my book, that sounds like good economic news.
2. There was an absolute drop in the number of high-income taxpayers paying no personal income tax from 1,659 in 2003 to 1,343 in 2004, a 20% drop. But as a percentage of all high income earners the difference is even more significant. In 2003 0.436% of high income earners were "no tax," but in 2004 that ration drops to 0.299% - a third of one percent. This sounds like it ought to be good news in the CPB book, but the shift escapes mention (except for the fact that they had to change from saying that the number of "no tax" returns "more than tripled" to saying that they "more than doubled").
3. Is the fact that "no tax," high-income returns have doubled or tripled since 1996 a cause for concern? My interpretation of the tone of the CBP report is that they view it as such - the number has "more than doubled." But in reality, there hasn't actually been any change since 1996. The CBP report tells us that there were 449,277 $200,000+ returns in 2004 with 1,343 of these paying no tax (0.299%). Then they tell us that the number of no tax returns in 1996 was 510. According to the FTB's 1999 Annual Report, there were 191,758 returns in 1996 with more than $200,000 in income. The CBP omits this fact. 510 is 0.267% of 191,758. So while the absolute number of "no tax" returns has "more than doubled," so has the number of high-income returns. The difference, therefore, between 1996 and 2004 is 3 one-hundredths of one percent (3 out of 100,000). But it's much more dramatic to say that the number of rich people paying no taxes has more than doubled than it is to say that the number of people making high incomes has increased significantly while the ratio of those utilizing government programs to reduce their taxes has remained unchanged.
   

In any case, I'm quite sure there will be some newspaper coverage of this report in the next few days.

CAEZ Board Meeting On April 23

The next CAEZ board meeting will take place in Sacramento on April 23. This is a schedule change to enable people to attend both this meeting as well as the FTB training the following day. Here is a copy of the agenda [PDF] for the CAEZ meeting.

Committee Hearing Update

The Assembly Committee on Jobs, Economic Development and the Economy will hold a hearing at the Capitol on April 17. Here is the tentative agenda - AB 1398 will not be discussed, but many other relevant bills will be heard.

You can listen to live audio of hearing by clicking here at 9 am next Tuesday.

AB 1398 Update And Suggestions

AB 1398 (Assemblyman Arambula's Enterprise Zone overhaul bill) will not be heard in Committee on April 17 as previously reported. Apparently there is going to be a more extended discussion on the issues and it has been made into a two year bill. Expect some hearings or other meetings on the topic in the coming months and a final version of the bill next January.

I have two suggestions for the bill so far (which should not be necessarily construed as an endorsement of the concepts):

1. Preserve the name "Enterprise Zone" for the newly constituted zones. "G-TEDA" just doesn't have a ring to it. Besides that, there is a lot of value to the Enterprise Zone "brand" and the important role it has played in California's economic development strategy. Redefining the Enterprise Zone will be perceived very differently then ending the Enterprise Zone and replacing it with something else. This one small adjustment in semantics would change the bill from one that ends the Enterprise Zones to one that expands the Enterprise Zones (albeit at the expense of MEAs, TTAs and LAMBRAs).
2. Instead of changing the hiring credit to be 30% of wages for five years, keep the 50% in the first year and then drop it down to 30% for subsequent years. If that doesn't create the "revenue neutral" result necessary, then keep the 50% credit in the first year, and offer 30% for years two to four and no credit in the fifth year. This adds up to a net reduction of the overall credit (but one that people might be willing to live with) which could then be useful in enhancing other aspects of the program. The logic being that there are two incentives here: to hire a qualified employee, and to retain them. I think it is important to provide the extra impetus to employers to go out on a limb and hire that person; once they are employed there are many other factors involved in their retention and the credit plays a smaller role.

Let me know what you think: max@ezpolicyblog.com

A Tax Is A Hard Thing To Kill

The Politico's latest "Pit Boss" column has a fascinating discussion on the repeal of the 100 year old telephone excise tax:

The story begins in 1898, when Congress imposed a penny-per-phone-call tax to pay for the war against Spain over the liberation of Cuba. The tax was aimed at the well-to-do because most people could not afford telephone service then. The war lasted just 10 weeks, but the tax has endured for more than a century, growing in 2006 to 3 percent on local and long-distance calls.

Over time, the payers of the tax have changed even more dramatically as businesses used their deep pockets to beat back the tax in court and upper-income households adopted more modern modes of communication than those enjoyed a century ago. People who use cell phones or those who buy bundled services are not subject to the tax. So today, those who still pay the tax are people who cannot afford or do not want today's newfangled technology.

I think the lesson is that governments always become immediately addicted to any source of revenue it receives. This is evidenced in discussions of tax credits when the issue is usually framed in terms of "cost" to the government.

Enterprise Zone Success Story: Fresno

The Fresno Bee reports on a growing ice cream business that is using the Enterprise Zone to further their expansion:

Business has been, well, fruitful. Sandoval was one of only three employees -- all relatives -- in 1986. Within 10 years, it had a work force of 15. Today, it has 55 workers -- and Sandoval plans to open a new manufacturing plant on 4.1 acres he bought at Roeding Business Park in southwest Fresno.

The new plant will be almost twice the size of the current operation and could double his work force. The $3 million plant could be under construction by June, following city approvals, he said....

Sandoval selected the property in Roeding Business Park because of its central location and being near freeways. It also is in the state enterprise zone, federal empowerment zone and city's new Municipal Restoration Zone.

Legislative Update - SB 341 & AB 1398

SB 341 - Senator Lowenthal's bill dealing with the removal of the environmental impact report requirement in new EZ applications - passed through the Senate Environmental Quality Committee this past Monday. My understanding is that they are now planning on amending the bill to include an urgency clause so that it can be applied to the upcoming round of new zone applications. The bill now moves to the Appropriations Committee and it would be appropriate to send the members letters of support.

AB 1398 is the bill of the season that attempts to make the largest impact on Enterprise Zones. It will be heard in the Assembly Committee on Jobs, Economic Development, and the Economy on April 17.

HCD: Status Of New TEAs

HCD has posted a new memo explaining the status of the TEAs for zones effected by AB 1550.

Just In Time For The New Enterprise Zone

From the Los Angeles Times:

A 75-year Los Angeles tradition came to an end Wednesday as officials disclosed that last year's Hollywood Christmas Parade was the final one.

FTB To Host EZ Training

The FTB announced today that they will be holding a training session about the Enterprise Zone program:

On April 24, 2007, Franchise Tax Board staff will be hosting a training event focusing on the basics of enterprise zone tax incentives. This course will provide a basic understanding of the tax incentives available to businesses that operate in an enterprise zone and provide enterprise zone managers and vouchering agents' valuable information that will assist them in marketing these incentives to local businesses.

Click here for a PDF file with all of the details.

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SB 341: The Enterprise Zone CEQA Compliance Bill

The last round of Enterprise Zone applications brought to the fore a serious problem in the process. The Enterprise Zone statute makes the designation of a new zone contingent on the completion of an environmental impact report (EIR). According to the professionals, this process is entirely redundant and unnecessary. Not only that, but it usually costs jurisdictions over $100,000 to complete the process.

Last year, AB 1550 managed to put a band-aid on the problem by allowing new zones that overlapped old zones to become effective immediately even pending the EIR. But the wholly new zones such as Compton and Santa Clarita will not be fully designated for at least several more months because of this requirement.

To solve this problem, State Senator Lowenthal has introduced SB 341 (co-authored by Assemblyman Arambula) to allow future EZ applicants to comply with CEQA (the California Environmental Quality Act) via one of the other more normal, expeditious, cost-effective manners that are usually available for similar endeavors.

Here is a link to a fact sheet prepared by Senator Lowenthal's committee staff. The bill is scheduled for a hearing in the Senate Environmental Quality Committee on March 26. Letters of support should be sent to:

The Honorable Alan Lowenthal, Chairman
Senate Transportation and Housing Committee
State Capitol, Room 2032
Sacramento, California 95814

By the way, I checked my previous "side note" about sending letters of support/opposition with a couple of my friends in the Capitol. One agreed with me completely, and one felt that cogent arguments are indeed helpful. Therefore, if you have time, by all means send a letter with a well reasoned argument. But if you don't have time, a letter simply stating "support" or "oppose" will also contribute to the process.

Downtown Dynamics

There is an interesting article in today's Los Angeles Times, "Developers, industry battle for L.A.'s heart," by Cara Mia DiMassa. The story deals with competing trends and interests in downtown Los Angeles. On the one hand, there has been a great deal of success and revitalization as a result of creative redevelopment of old warehouses into upscale housing units. On the other hand, there is the pressure to maintain the industrial character of downtown because of the job base it forms.

The analysis conducted for the city by Keyser and Marston, a real estate advisory firm, concluded that changing the zoning of downtown's industrial land from industrial to residential "would confer substantial additional land value."

For city planners, there is a palpable fear that those "industrial users" would take their businesses and their good-paying jobs and tax dollars to more industry-friendly cities such as Vernon or Duarte. This is likely to become an issue when the L.A. Planning Commission and City Council take up the matter in the coming weeks.

"We are looking at it from the big-picture point of view," said Jane Blumenfeld, a city planner. "We are trying to make public policy…. The reason you have these rules and regulations in a city is to intervene when you have to intervene, for public purposes."

Read the whole thing.

AB 1134: EZ Bill From The Twilight Zone

Am I missing something?

AB 1134, as introduced, Dymally. Medical enterprise zones: student loans: tax credits.
(1) Existing law authorizes the governing bodies of cities or counties to propose the designation of areas within their respective jurisdictions as enterprise zones based upon specified findings that those areas are depressed areas and in need of private sector investment. The Trade and Commerce Agency is authorized to designate not more than 25 enterprise zones within the state based on its determination that the zones propose the most effective, innovative, and comprehensive regulatory, tax, program, and other incentives in attracting private sector investment in the zones proposed.
This bill would require the California Healthcare Workforce Policy Commission of the Office of Statewide Health Planning and Development to designate 10 medical enterprise zones that are medically underserved areas, as defined.

The last time the Trade and Commerce Agency was authorized to designate 25 enterprise zones was 1991.

State Senator Wants To Publish Your Tax Return

What would you say about a bill that required certain sensitive parts of your tax return to be made public? How about a list in the Los Angeles Times of the gambling losses you itemized on your return? Or how about website that lists your name, address and how much of a tax credit you claimed to adopt a child?

Preposterous.

But this is exactly what a bill by State Senator Gil Cedillo (D-Los Angeles) proposes for economic development subsidies in California.

SB 103 just passed through the Senate Committee on Local Government by a 3-2 vote on March 7. The bill calls for requiring local jurisdictions to release to the public and post to the internet the name and address of any entity or individual that is the beneficiary of an "economic development subsidy." The bill states that:

"Economic development subsidy" means any expenditure of public funds or loss of revenue to a local agency in the amount of twenty-five thousand dollars ($25,000) or more, for the purpose of stimulating economic development within a local agency, including, but not limited to, bonds, grants, loans, loan guarantees, enterprise zone or empowerment zone incentives, tax-increment financing, fee waivers, land price subsidies, matching funds, tax abatements, tax exemptions, and tax credits.

Let's suppose you are the owner of an LLC in the Enterprise Zone. You contribute to your community by investing in such an economically challenged area. The government has informed you (through the creation of an Enterprise Zone) that it is so valuable for you to hire individuals with certain demonstrable barriers to employment that they would like to give you a rebate on your taxes if you do so. Instead of then congratulating you for participating in a great public-private partnership to improve your City's economy, the State instead requires the City to publish a website containing your name, address and how much Enterprise Zone tax credit you claimed. Then, anyone with a calculator can simply deduce a good estimate of what your personal income is.

SB 103 has been referred to the Senate Committee on Appropriations where a similar billed (SB 1268) died last year. If you would like to voice your concern about this bill simply write a note and (snail) mail it to: Senate Committee on Appropriations, State Capitol Room 2206, Sacramento, CA 95814.

[A side note on writing letters of support or opposition on bills: My understanding is that the committees essentially just make a list of those in support and those in opposition. Little attention, if any, would be paid to well formulated arguments in such letters. Therefore, it is effective to simply send a letter (preferably on letterhead) stating that you are supporting or opposing a given bill.]

"Stockton's Enterprise Zone is mostly credited for the job growth"

From The Record (Stockton): "County employers set to hire, survey finds":

"Stockton-area employers expect significantly more favorable hiring conditions than in the first quarter," said Becky Holmes-Tracy, Manpower spokeswoman in Stockton.

Stockton's Enterprise Zone is mostly credited for the job growth, said Darlene Henson, business development specialist with Manpower Inc.

Salinas Mayor Wants Enterprise Zone

According to The Monterey County Herald, Salinas Mayor Dennis Donohue is interested in having Salinas and other parts of southern Monterey County designated as an Enterprise Zone. In his "state of the city" address he announced he was going to ask his City Council for $750,000 to put toward a revitalization plan that includes an Enterprise Zone application.

Fun At The Capitol

In today's Los Angeles Times:

Don Perata, the Democratic leader of the California Senate, locked three Southern California legislators from his own party out of their Capitol offices Monday. Their perceived offense was that they had attended a fundraiser for the Legislature's business-friendly caucus despite Perata's objections.

And some people say that California is not "business friendly;" where would they get such an idea?

Ahh Taxes

From The Sacramento Bee:

When the fruit trees blossom, the color of green returns two ways to the Sacramento landscape: with spring and the arrival of $60 billion in California tax returns.

Can The Enterprise Zone Save Hershey's?

The Modesto Bee reports on The Hershey Corporation's new plans for a manufacturing plant in Mexico and the potential repercussions on their U.S. operations including California. Once again, the Enterprise Zone is mentioned as a major attraction:

"Food processing companies want to be within close proximity to the source so your products are as fresh as possible," said Jan Ennenga, executive director of the Manufacturing Council of the Central Valley. But there are concerns that the cost of doing business in California may outweigh the benefits of being in the heart of agriculture land. Improved logistics in recent years means Hershey could be cost-effective in shipping almonds or dairy products from the valley to Mexico, Boyd said.

"The proximity to raw materials is trumped by lower labor costs and lower raw material costs, principally sugar," said Boyd, adding that the efficiency of the Oakdale plant is likely being taken "under serious consideration" by Hershey executives.... Modesto Irrigation District provides "affordable, business-friendly energy" rates, Ennenga said, and clean water. Oakdale also is within the boundaries of Stanislaus County's enterprise zone, which gives companies tax breaks.

However, she said, global competition can prove to be a much stronger influence than those factors when companies must cut costs.

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If you are interested, click this link and fill out the form. At the end of the form, complete the sentence "I would like to have an EZ Policy Blog travel mug because..." I'll choose from the best responses and send you a mug absolutely free.

New York Times Editorial: Give Employees The Tax Credit

Today's New York Times has an interesting Op-Ed by Sarah Hamersma, assistant professor of economics at the Warrington College of Business Administration at the University of Florida, questioning the link between a federal minimum wage increase and an extension of the Work Opportunity Tax Credit:

First, most eligible companies don’t take the credit, which averages about $1,000 for each employee who belongs to one of the specified categories of workers (for instance, recent recipients of welfare or food stamps). Even though national surveys show many such workers being hired, employers claim the credit for less than a third of them.

Second, there is no evidence that employers have hired more eligible workers as a result of the program. Indeed, according to a number of studies — including one by the Department of Labor, another surveying 101 temporary help agencies, and a statistical analysis of welfare recipients in Wisconsin — the credit seldom influences hiring decisions of participating firms. Many companies wish to avoid preferential hiring, even though the policy is explicitly intended to give disadvantaged job seekers an advantage in the labor market.

Is it a good idea to extend this program, even though it hasn’t meaningfully improved the employment picture for disadvantaged workers? But suppose such a program had even a small effect. Would it undo the negative consequences of a minimum wage increase? The answer is no, for two reasons.

First, data from Wisconsin show that fewer than 25 percent of workers claimed under the credit are earning the minimum wage.

Second, large corporations are the most active participants in the program. In 1999, the average participating corporation received more than $100,000 in credits. The Senate bill, however, is supposed to support small businesses, which have never taken advantage of the Work Opportunity Tax Credit in large numbers, but are the most likely to suffer under the proposed minimum wage increase.

She goes on to make a logical case that a more effective way to help low-income earners would be to provide or enhance subsidies that go directly to the employee:

There’s a more direct path to improving incomes for the working poor. Instead of requiring employers to pay more, and then allowing them to apply for reimbursement through tax subsidies, why not skip the middleman and subsidize the worker directly?

Such a program already exists. The Earned Income Tax Credit is a federal tax refund for workers, who qualify based on family income rather than individual income or wages. This means that an upper-class teenager working at McDonald’s will not get a benefit, but someone trying to support a family will.

California's Enterprise Zone statute includes a credit that is intended to be available directly to an employee working in a zone. However, since it was very small to begin with, and the applicable numbers are now 20 years old, the credit is essentially impossible to implement even for an individual earning the minimum wage. Perhaps this is an area that the legislature should look into.

Boeing to Close Long Beach Enterprise Zone Plant

From CNN:

"Without further aircraft orders, significant workforce reductions will begin in early 2008 as the production line heads toward complete shutdown in mid-2009," said the company's statement. It said it has 7,000 employees directly involved in building the aircraft and that its supplier base has more than 25,000 people working on making parts for the plane.

And the Los Angeles Business Journal notes:

The announcement by Boeing comes despite efforts by the state’s Congressional delegation to keep the plant open. The Long Beach facility, one of the state’s largest manufacturing plants, employs about 5,700 people and contributes $3.7 billion to the California economy.

Business Attraction Update

Governor Schwarzenegger held a press conference yesterday (link to video) to announce USG Corporation's decision to build a new $220 million factory in the Port of Stockton. There was a lot of talk about how great it is going to be for the environment, but the Enterprise Zone wasn't mentioned. However, Dave Freitas, the former manager of the Enterprise Zone at the defunct Trade and Commerce Agency was specifically thanked. Dave is now the manager of the CalBIS program at the Labor & Workforce Development Agency.

Here is the Governor's press release, and here is USG's press release.

New EZ Legislation

I'm starting to gather information about new bills effecting Enterprise Zones in the new legislative session. So far. the one to watch seems to be Assemblyman Arambula's AB 1398 which seeks to eliminate the distinctions between Enterprise Zones, Manufacturing Enhancement Areas, Target Tax Areas and LAMBRAs referring to all of them as Geographically Targeted Economic Development Areas. The bill also makes substantive changes to the incentives.

Will we soon be reading G-TedaPolicyBlog.com?

Oh Brother

The front page of this morning's Los Angeles Times (Tuesday, Feb. 27) has an extraordinary photograph of some audacious criminal "tagging" a bus window. The photographer managed to take the picture of the perpetrator from the inside of the bus. Why was the photojournalist on the bus?

On Monday, Brewer, Los Angeles Mayor Antonio Villaraigosa and other officials trumpeted a new tactic to ease the fears: locating a bus stop directly behind the school so students don't have to navigate through a gang-plagued neighborhood.

But just as officials were applauding their accomplishment, they got a fresh perspective on campus security problems when their bus got tagged.

While the crowded Metro bus carrying Brewer, Villaraigosa and a crowd of journalists was stopped at Washington Boulevard and Maple Avenue, an unidentified youth believed to be a Santee student dashed up and scrawled graffiti on a side window.

Mayor Villaraigosa was ON THE BUS. No, they didn't catch the thug. The incident, which the article states took place at the intersection of Washington Boulevard and Maple Avenue, occurred in the Enterprise Zone.

Update 2/28/2007
The Los Angeles Times today provides the update that the vandal above was eventually caught:

Carbino said Tuesday that school officials had identified the youth, spoken to a parent and agreed to meet with them. He described the boy only as "having achievement issues in school." The boy's name, which was not made public, was turned over to the Los Angeles County Sheriff's Department. Sheriff's Det. Michael Shaw said the boy would likely face a misdemeanor charge of vandalism.

Still, the principal assured students in an intercom address Tuesday that he was less interested in punishing the student than in helping him. On Monday, he had said the brazen act appeared to be a "cry for help" from a troubled youth who needs counseling.

Zoner's brush with infamy occurred as the mayor and superintendent were inaugurating a Metropolitan Transportation Authority bus stop at the school that would eliminate a two-block walk that exposed students to dangers of life in the area. When the bus stopped one block from the school, the youth struck.

I'm not sure if "counseling" is going to be an effective disincentive. But the real question is why was the City's response to a "two-block walk that exposed students to dangers of life in the area" (described in yesterday's article as "[navigating] through a gang-plagued neighborhood") to just move the bus stop?

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Just enter your email address into the box on the right that looks like this:

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Then you will receive an email asking you to click on a hyper-link in order to confirm again that you indeed want to receive the emails.

Beware of Drooling

From The Arizona Republic, "Gore to Expand to Phoenix:"

Walt Plosila, a Battelle Technology Partnership Practice vice president who monitors Arizona's bioscience effort, said Gore's expansion could help Arizona attract other medical-device employers. The Valley's largest such employer is Medtronic in Tempe.

"It is good news they are expanding in Phoenix and not somewhere else in the country," Plosila said. "It suggests they find Arizona a conducive place to grow and develop a medical-device company."

Plosila expects Arizona and other states will attempt to recruit such companies from California, where high taxes, housing and other costs have made it difficult for employers to recruit out-of-state workers.

"The one hot prospect everybody is drooling over is how to go after the California medical-device business," Plosila said. "Those firms are getting more and more frustrated with the cost of doing business."

California Enterprise Zone Not Enough - Again

Back in November I posted an article from the Silicon Valley/San Jose Business Journal about electric-car maker Tesla Motors' search for a site to build their new 300 employee factory. Many different states were trying to entice the company and California was offering its Enterprise Zones as a major incentive. There was a particularly bitter line that I highlighted at the end of that article:

Because the company is based in Silicon Valley, has support from some wealthy technology investors and makes an expensive product, some in Sacramento think the company should just reach deeper in its own pockets to find that $15 million.

Well, today the Contra Costa Times reports that Tesla chose Albuquerque, NM over semi-finalist Pittsburg, CA:

Hoping to entice electric-car maker Tesla Motors to make Pittsburg the site of its first U.S. auto assembly plant, city officials assembled an offer for the startup larger than any pieced together there before. But the package wasn't enough to keep Tesla from choosing to head to New Mexico instead....Tesla's vice president of marketing, Darryl Siry, said Albuquerque's edge over Pittsburg can be explained in three key reasons: It's considered the No. 1 city in the country for business; it's a better location for a supply base; and the prevailing wage need not be as high compared with the Bay Area for workers to earn a good living.

Related: The Buck Stops Here

Hollywood Strike Threat Dims Forecast

Just as I head out to an enthusiastic meeting about the new Enterprise Zone in Hollywood, the Los Angeles Business Journal reports on an economic forecast with some foreboding news:

Los Angeles County’s overall economic future looks bright, but the prospect of strikes in Hollywood is a major concern, according to the 2007-08 Economic Forecast and Industry Outlook, released Wednesday.

The report, which is prepared by the Los Angeles County Economic Development Corporation, said that while the L.A. County region should see job growth of 1.1 percent, the movie and television production industry could quickly lose as many as 2,000 jobs in 2008 due to labor disruptions.

EZ Policy Blog Live In Hollywood

This afternoon I will be part of a panel presenting at a symposium, "Building Economic Opportunities in Hollywood & Central City" sponsored by Ramsey-Shilling Commercial Real Estate Services, Inc.

Other speakers at the event will include Lynn Jacobs, Director of HCD; Bud Ovrom, Deputy Mayor for Economic Development for the City of Los Angeles; and Cliff Weiss, Deputy Director of the Economic Development Division for the City of Los Angeles.

If you would like more information email me at max@ezpolicyblog.com.

Minimum Wage and WOTC Pass Next Step (and I Told You So)

On Friday, the House passed an amended version of their minimum wage increase bill including some of the tax breaks that the Senate had tagged on. From ABC News:

The U.S. House of Representatives overwhelmingly approved a $1.8 billion small business tax cut package on Friday aimed at winning passage of a $2.10 increase in the hourly minimum wage.

The 360 to 45 vote in favor of the bill moves lawmakers a step closer to approving the first federal minimum wage increase in a decade, a central campaign issue for Democrats who took control of Congress last month.

The tax cut package is meant to attract Senate Republican and White House support for raising the hourly minimum wage to $7.25 over two years from $5.15. In January, the House voted for the wage increase without the tax cuts. But the closely divided Senate added $8.3 billion in tax cuts to the bill and the two chambers have to work out their differences.

House Ways and Means Committee Chairman Charles Rangel, a New York Democrat, has made clear he believes the Senate measure went too far and noted that the more modest House bill has won some important backing from business groups.

"Not only did we achieve bipartisanship on this bill, but we've received key endorsements from the business community that underscore the strength of this tax relief for small businesses," Rangel said in a statement.

Rep. Jim McCrery of Louisiana, the top Republican on the Ways and Means Committee, said in a statement that the minimum wage increase would cost small businesses more than $16 billion over five years and that he would support more business tax relief. New congressional rules require the tax cuts to be offset and McCrery said he had "serious reservations" about some of the revenue raising provisions in the Senate bill.

In particular, a provision in the Senate bill that would limit deferred compensation plans for corporate executives has drawn criticism from business groups and House members.

The House bill would extend tax breaks to encourage hiring of veterans, the handicapped and high-risk youths through 2008. The bill also would raise the amount of investment in new equipment that small businesses can immediately write off to $125,000 from $112,000 and extend the break through 2010.

The House has changed the Senate's plan for a five year extension of WOTC to no extend just through 2008. As a matter of fact, I think that is exactly what I predicted would happen...

HCD Vouchering Workshops

Lawsuits notwithstanding, HCD is moving forward with two upcoming "workshops" to help everyone understand how to navigate the new vouchering regulations. Here is the memo posted at HCD's website (in PDF). There will be a workshop in Sacramento on 2/27 and another in Los Angeles on 3/1, and, after some debate, the workshops are open to anyone who would like to attend. The memo also has some important interim guidelines for how to handle vouchers during this transitional phase; most importantly, HCD is instructing voucher agencies not to refrain from issuing vouchers.