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Business would feel the sting of Brown's budget proposals

The governor wants to close a $25-billion gap in California's spending plan partly by eliminating redevelopment agencies and enterprise zones and ending a new corporate tax break.

January 10, 2011|By Marc Lifsher, Los Angeles Times

Reporting from Sacramento — Business would feel the pain along with the rest of the state under Gov. Jerry Brown's proposals to fill a $25-billion hole in the California budget.

Brown's plan would eliminate two long-standing incentives for business development as well as a new corporate tax break.

"It's better to take our medicine now and get the state on a balanced footing," the new governor said Monday as he unveiled an $86-billion spending plan for the coming fiscal year.

Major business lobbies appeared to be cautiously supportive of Brown's call for deep spending cuts in health, welfare and higher education programs. At the same time, they said they were open to discussing a plan to ask voters in June to extend for five years a series of temporary taxes on income, sales and motor vehicles.

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Bill Hauck, president of the California Business Roundtable, said his members "generally would be supportive of the theme that the governor is taking, which is to stop living in a state of denial and get real."

Big business, he said, wants California to "get back to a level of financial stability that would encourage new business investment here."

Brown's business proposals would shift or raise $3.6 billion in revenue. In its first year, his plan would take $1.7 billion from local government redevelopment agencies and distribute the funds to counties, cities and special government districts that provide fire protection, water and other services.

The agencies, which provide low-interest loans and subsidies to developers to rebuild deteriorated central cities and other blighted areas, would be axed. However, funds would continue to be available to pay off outstanding bonds as they are due.

Redevelopment officials denounced the governor's push to put them out of business.

"Bottom line, the budget proposal to eliminate redevelopment will hurt California and cripple the local economy in cities and counties statewide," said John Shirey, executive director of the California Redevelopment Assn.

Los Angeles has 32 community redevelopment districts, which last year invested $178 million in the city's economy.

Brown also wants to eliminate enterprise zones, which would make an additional $924 million available to local governments. In enterprise zones, businesses can get tax credits of up to $47,000 for hiring workers who live in designated areas.

Los Angeles is "prepared to shoulder its fair share of the responsibility" for balancing the budget, said Mayor Antonio Villaraigosa. But, "any scenario that would completely eliminate the redevelopment zones and state enterprise zones is a non-starter."

Brown also is going after a third business benefit. He wants to raise $1 billion by ending a corporate tax break approved by state lawmakers in early 2009. The legislation, which took effect this month, allows multistate and multinational corporations that operate in California to choose each year between two methods of calculating their state income taxes, whichever results in the lower payment.

Instead, Brown wants to require that all companies pay taxes based solely on their sales in California and not on a formula involving in-state sales, real estate holdings and payroll size.

Some business and trade organizations that successfully defeated a fall initiative to repeal the corporate income tax break criticized Brown's plan. A change in tax policy would create uncertainty at a time of continuing national economic weakness, they said.

Jack Stewart, president of the California Manufacturers & Technology Assn., warned that such a move would "raise taxes for many manufacturers" and remove "an incentive to attract and retain business to California."

Opponents of the tax break praised the governor for ending a wasteful policy.

"Current policy allows endless manipulation and tax avoidance with no economic development or job benefits," said Lenny Goldberg, executive director of the California Tax Reform Assn.

Brown's method would put California in step with at least 23 other states that adopted similar laws to base corporate income taxes only on in-state sales, according to the state Department of Finance. The change, it said in a budget summary, generally helps smaller, California-based companies.

"It's an opportunity to compete with other states, to grow jobs and still be here in California and to act as a global player," said Kirk Everett, vice president for tax policy for the Silicon Valley Leadership Group, a high-tech trade association.

marc.lifsher@latimes.com

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