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Brown seeks to eliminate state tax break for 'enterprise zones'

In his revised budget, Gov. Brown proposes that 40 enterprise zones be replaced by a sales tax credit for firms that buy manufacturing or biotech R&D equipment.

May 15, 2013|By Marc Lifsher, Los Angeles Times
  • In his revised budget, Gov. Jerry Brown proposed that 40 enterprise zones be replaced by a sales tax credit for companies that purchase manufacturing or biotech research and development equipment.
In his revised budget, Gov. Jerry Brown proposed that 40 enterprise zones… (Rich Pedroncelli / Associated…)

SACRAMENTO — Gov. Jerry Brown is taking another stab at largely eliminating a state $700-million tax break for "enterprise zones" aimed at creating jobs in economically strapped localities.

The governor failed in his efforts in 2011 to eliminate these politically popular quarter-century-old zones, located in the legislative districts of about three out of every four lawmakers.

In his revised budget Tuesday, Brown proposed that 40 enterprise zones be replaced by a sales tax credit for companies that purchase manufacturing or biotech research and development equipment.

Currently, employers in enterprise zones can get tax credits of up to $37,000 per hired person in an area identified as blighted. Some of the existing zones include portions of Los Feliz, Silver Lake and Venice in Los Angeles, suburban Santa Clarita and the SOMA district of San Francisco — neighborhoods that are far from economically depressed.

But Brown criticized the tax credit for failing to create new jobs and rewarding employers for moving existing jobs from one place to another within California. Labor groups and a number of studies, such as a 2009 report by the Public Policy Institute of California, have questioned whether enterprise zone credits, which are based on new hires, actually translate into an overall increase in the number of people with new jobs.

The governor's proposal, though lacking in detail, won praise from manufacturers, who have been calling for years for passage of a 4-percentage-point cut in the sales tax for new equipment purchases.

"This will make California a more competitive place to scale up production," said Jack Stewart, president of the California Manufacturers & Technology Assn. California is lagging behind the rest of the country in creating good-paying manufacturing jobs, he said.

Enterprise zone defenders said they were disappointed to be targeted again by the governor.

"Effectively eliminating enterprise zones is the wrong approach if the goal is to keep Californians working, especially in minority and disadvantaged communities," said Craig Johnson, president of the California Assn. of Enterprise Zones. He credited the program with adding 25,000 new jobs and preserving 115,000 others in 2012.

The governor's proposal faces potentially strong opposition from lawmakers whose districts contain enterprise zones as it moves through the Legislature as part of a package of budget bills that must be approved by June 30.

Another part in Brown's economic development initiative is a tax credit for hiring the long-term unemployed, veterans and people receiving public assistance. He also wants to create a California Competes Recruitment and Retention Fund that would negotiate tax-break agreements with companies that invest in California and hire more people here.

The extra stimulus is needed to bolster an economy that is experiencing only "slow-but-steady" growth, according to an economic forecast contained in Brown's revised spending proposal.

The all-important housing market is stronger and unemployment is falling, the report from the Department of Finance said. The annual state unemployment rate, which hit a high of 12.3% in 2010, should decline to 9.4% this year and 8.6% in 2014, the forecast said. Total jobs are expected to reach 2008 pre-recession levels by the end of 2014, while the labor force should expand to 18.77 million in 2014 from 18.21 million in 2008.

But lingering uncertainty about future growth could cause individuals and businesses to hold back on spending, the Department of Finance report cautioned.

marc.lifsher@latimes.com

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