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Gov. Jerry Brown struggles to revamp enterprise zone tax break

A vote on replacing the enterprise zone program with other business tax incentives is delayed multiple times as the governor musters support.

June 25, 2013|by Marc Lifsher, Los Angeles Times
  • In the hours before the vote, Gov. Jerry Brown personally lobbied a number of senators to get commitments to give him the votes needed to pass the Senate.
In the hours before the vote, Gov. Jerry Brown personally lobbied a number… (Rich Pedroncelli, Associated…)

SACRAMENTO — Gov. Jerry Brown's drive to revamp a nearly three-decade-old business tax break teetered late Tuesday as he struggled to round up commitments for aye votes from a needed two-thirds of the members of the state Senate.

Lobbying and head counting on the controversial bill to all but eliminate the $750-million-a-year enterprise zone program forced multiple postponements of a scheduled 4 p.m. session and sowed doubts about whether the governor would get his way.

The program "is wasteful. It's inefficient and not giving taxpayers the biggest bang for their buck," Brown said recently. "There's a better way, and it will help encourage manufacturing in California."

In the hours before the vote, Brown personally lobbied a number of both Democratic and Republican senators to get commitments to give him the minimum of 27 ayes needed to pass the Senate.

The California Assn. of Enterprise Zones counters that its members are fulfilling the program's promise of persuading companies to invest in hard-to-hire workers, including the chronically unemployed, veterans and ex-convicts. The zones collectively created 25,000 new jobs and saved 110,000 others from disappearing in 2012, the association said, though the numbers are difficult to corroborate.

Brown's proposal, contained in AB 93, would redirect existing economic development funds, spending $400 million on a sales tax credit to boost manufacturing and biotech research and development, $200 million on incentives for hiring the poor and unemployed, and as much as $100 million to reward specific businesses that move to California.

The bill is backed by a coalition of labor unions, Silicon Valley tech companies and pharmaceutical firms and opposed by some city and county governments and chambers of commerce. They accused Brown of trying to shove his bill through the Legislature without giving lawmakers and the public enough time to analyze the new incentive plan. Indeed, a handful of key amendments were still being drafted when senators arrived for the scheduled floor session.

Critics point to studies that say enterprise zones don't create jobs that wouldn't have been created otherwise. They also complain that most of the benefits go to large companies that don't need the tax breaks. According to the Franchise Tax Board, 65% of the credits issued in 2010 went to companies with more than $1 billion in assets, 15% to companies with $100 million to $1 billion in assets and only 6% to employers with less than $10 million in assets.

Additionally, the entire program is cloaked in secrecy, they complain, since most enterprise zone officials cite taxpayer confidentiality laws to deny state Public Records Act requests for information about which companies receive tax breaks and how much they get. Those credits can be claimed up to four years after hiring a worker, who may no longer be on the payroll. What's more, excess credits can be carried forward for up to five years to be used as needed to lower future state corporate and personal income tax bills.

Enterprise zone supporters, including the city of Los Angeles, counter that they're eager to mend their system but are loath to give up what they consider their last remaining economic development tool under California law. The governor successfully defunded locally controlled redevelopment agencies in 2011.

Twitter: @marclifsher

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