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Corporate welfare and California's budget deficit

The government handouts include tax breaks for businesses and incentives for some of the state's largest industries.

June 18, 2010|Michael Hiltzik

I believe we can all agree on the root cause of the state's $20-billion budget gap.

It's welfare: all those millions of taxpayer dollars going to recipients who line up for their government handouts instead of competing in the marketplace on a level playing field like the rest of us, who don't pay their fair share of taxes and who get protected by a politically powerful lobby.

Yes, I'm talking about the business community.

Hiltzik column: Michael Hiltzik's column in Sunday's Business section says that $1 billion in revenue from a state oil severance tax would benefit 1 billion children in the CalWORKS program. As indicated elsewhere in the column, the correct figure is more than 1 million children. —

For all the hand-wringing by Gov. Arnold Schwarzenegger about how there's almost nothing left to cut in the state budget except services to children, the aged and the destitute, hundreds of millions of dollars are spent every year on handouts to business. That's despite the lack of evidence that some of these programs keep employers in the state, lure employers from out of state or are cost-effective in any general way.

The governor is asking the Legislature to take such draconian steps as eliminating CalWORKS, the state's principal family welfare program (serving 1.1 million children), and downsizing child care and mental health programs.

Meanwhile, corporate welfare programs such as tax breaks for some of our largest companies and "incentives" for our largest industries are to survive. To his credit, Schwarzenegger has proposed delaying some new corporate tax breaks.

The state budget is rife with industry goodies. For example, there's the Hollywood subsidy, currently pegged at $100 million a year in tax credits.

The rationale for this welfare program is to keep productions from fleeing to other states, taking California jobs with them. But you could go blind looking for an independent study, as opposed to studies funded by the state film commissions handing out the dough, showing that such programs produce more in overall benefits than they cost.

Quite the contrary — according to Governing magazine, New Mexico, which had aggressively courted producers with $40 million in tax rebates, concluded in 2008 that for every dollar it spent, it received 14.4 cents in return.

No one knows to what extent the production companies pocketing California's cash would have filmed here anyway. And the program is hardly aimed at companies on the financial edge — as my colleague Richard Verrier reported recently, $20 million is going to pictures being shot here this year by Warner Bros. The money isn't allocated according to need but on a first-come, first-served basis among qualified productions, the California Film Commission says. In other words, it's more a windfall for the nimblest applicants than a program targeted at productions most likely to leave without it.

The biggest state incentives are attached to enterprise zones, which cost as much as $500 million a year in forgone taxes. Businesses locating within any of 42 designated zones across the state can apply for tax credits and other bounties for hiring unemployed or low-income workers.

But there's a vigorous debate over whether the program increases employment. A study published last year by the Public Policy Institute of California found "no statistically significant effect on employment" from the program.

That hasn't moved its influential fans. The California Chamber of Commerce, which was last seen electioneering for Pacific Gas & Electric's Proposition 16, thinks enterprise zones are great.

For proof, it relies on two studies from 2006. It fails to mention that the author of one of them, the late Ted K. Bradshaw of UC Davis, had received funding for some of his work from the California Assn. of Enterprise Zones, which is a bit like my obtaining a character reference from my mother.

The chamber quotes Bradshaw as concluding that California's program is "probably the most successful in the nation." But it doesn't say he also found that two-thirds of the growth in the zones would have occurred anyway, or that no "definitive study" had been conducted to nail down the "impact of the zones on local economic development."

In other words, while we know that children have to eat and get medical care, we don't know for sure that businesses need the half-billion-dollar annual tax break they get from enterprise zones. So why is the former expendable and the latter a sacred cow?

As for the other 2006 study, it found that for households within enterprise zones, poverty rates were lower and incomes higher than in the rest of the state. But that measure applies to households within the zones, not employees of zone-based companies, which are by no means the same thing, according to Jed Kolko, an author of the critical Public Policy Institute of California survey.

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