California's enterprise zones, which are designed to stimulate investment in hard-pressed geographic areas by providing tax credits, don't create jobs, according to an analysis released Monday by the California Budget Project.
"Our review of the most up-to-date data on the Enterprise Zone Program finds its cost has soared, but our communities haven't seen the jobs and economic growth they were promised," said Jean Ross, executive director of the California Budget Project.
The analysis shows that the cost of enterprise-zone tax credits grew to $465.5 million in 2008, the latest year for which data are available, from $675,000 in 1986. The average cost per zone increased to $11.1 million in 2008, from $48,000 in 1986.
In addition, 70% of tax breaks related to enterprise zones are claimed by corporations with assets of $1 billion or more. Many of those corporate tax credits in 2008 were claimed by companies in the San Francisco zone, costing the state $25.5 million.
The report also says enterprise zones don't necessarily motivate companies to create new jobs. Because the credits are for new hires, not new jobs, companies can continually hire new employees into high-turnover positions and get credits although no new jobs are created.
The data echo a 2009 report by Jed Kolko of the Public Policy Institute of California, which found that enterprise zones have no overall effect on job growth. The nonpartisan Legislative Analyst's Office has agreed, recommending in 2010 that enterprise zones be eliminated.
The issue is, however, a controversial one. Some business leaders contend that doing away with enterprise zones is unconstitutional. Others cite a 2009 study by USC professors that showed that enterprise zones increase employment by 2% and household income by 7%, reducing poverty.
"The governor's proposal to eliminate enterprise zones is not only legally questionable, but will also increase taxes, put a further burden on the jobs climate and disadvantage communities who are already struggling during these tough times," said Craig Johnson, president of the California Assn. of Enterprise Zones. "While we understand the state is facing a tough economic time, the last thing the state should be doing is raising taxes, making it more difficult to hire and eliminating one of the few programs that helps people get off government assistance and on to self-sustainability."
On Monday, a state Assembly budget committee heard testimony from supporters and detractors of enterprise zones, the geography-based tax incentive program that is on Gov. Jerry Brown's chopping block. Brown says eliminating enterprise zones would make an additional $924 million available to local governments.