By Harold Meyerson
Originally Published at The American Prospect_July 12, 2013

Want to know the problem with enterprise zones? Then check out Sunday’s Riverside Press Enterprise, one of the best midsized newspapers in California. [To read the article, see below.]

A story in it covers Governor Jerry Brown’s successful campaign to have the legislature put enterprise zones out of their misery. (Brown recently signed the bill abolishing the zones.) Conceived by the late Jack Kemp and other unusually well-meaning right-wingers to bring jobs to the inner-city, enterprise zones have provided subsidies to businesses for creating jobs they might have created in any case. Disproportionately, the jobs created were low-paying.

Also at Brown’s prompting, the legislature replaced enterprise zones with a better-targeted subsidy. Under the new law, businesses in high-unemployment and high-poverty areas will be eligible for tax credits that come to 35 percent of a new hire’s wages—provided those wages are between $12 and $35 an hour.

This drew a wondrous complain from Colin Strong, the head of the San Bernardino Chamber of Commerce. In the several decades that the San Bernardino Enterprise Zone was in existence, he told the Press Enterprise, it helped subsidize roughly 10,000 jobs. Had the new wage criteria been in effect during that time, Strong added, that number would have dropped to 350.

In other words, just 3.5 percent of the enterprise-zone jobs paid more than a poverty wage. People who wonder how San Bernardino fell into receivership may want to ponder this. Californians’ tax dollars subsidized poverty so pervasive that San Bernardino is now in bankruptcy court—just in case you were wondering what the problem is with enterprise zones.

ECONOMY: No consensus on plan to stimulate California business

BY JIM MILLER AND JACK KATZANEK
Originally Published at Press Enterprise. July 20, 2013; 11:55 AM

SACRAMENTO — There was plenty of symbolism this month when Gov. Jerry Brown signed legislation phasing out tax breaks in the state’s “enterprise zones” and replacing them with a package of incentives intended to benefit the state’s manufacturing and high-tech sectors and create middle-class jobs.

Brown was at Takeda California, part of San Diego County’s vibrant biotech industry. The company’s headquarters up the street from UC San Diego is in a census tract where median earnings top $75,000, according to the most recent census data.

“This state is going to thrive not by the lowest-paid jobs, but by those that require a lot of intellectual addition, content, skill, people working together,” Brown said July 11.

Created in the mid-1980s, California’s 40 enterprise zones offer various tax exemptions and credits to attract business and jobs to areas deemed distressed. The Inland area has two: the San Bernardino Valley Enterprise Zone, which includes much of the cities of San Bernardino and Colton, other urban pockets and stretches north along the Interstate 215 corridor; and the Coachella Valley Enterprise Zone covering Coachella, Indio and nearby communities.

Under the new incentives available starting a year from now, manufacturing and biotech companies anywhere in the state would be eligible for sales-tax exemptions on the purchase of manufacturing equipment. Companies also could get hiring credits if they are located in census tracts with the highest rates of poverty and unemployment. There also would be tax credits to attract and retain businesses.

But some Inland Southern California lawmakers and business leaders say they fear the region will be hurt by the demise of enterprise zones and will gain little, if anything, from the new program.

Riverside and San Bernardino counties are not manufacturing or biotech hubs, they say. The requirement that employers pay workers from $12 to $28 an hour to be eligible for the new hiring credits ignores the realities of the region’s labor market, they contend.

“It will largely benefit those that are already in the world of robust economies. It will help those in San Diego, the Bay Area,” said San Bernardino Mayor Pat Morris. “But to those of us in the Central Valley, the Inland region, it doesn’t help us.”

Brown unsuccessfully pushed to scrap enterprise zones in 2011. This year, Brown’s allies in organized labor led attacks on the program as a giveaway to large corporations that yielded few well-paying jobs and, late last month, lawmakers of both parties passed legislation phasing out the zones.

Inland lawmakers were divided.

State Sen. Richard Roth, D-Riverside, who leads the budget subcommittee that oversees the program, voted for the bill. Many parts of California lack enterprise zones — including his district — but need some incentives to create jobs, he said.

With enterprise zones, Roth said, “we had no performance metrics, at least none I could identify, to tell if we were achieving victory or losing the battle.”

But Assemblywoman Cheryl Brown, D-San Bernardino, said she thinks the new program “will be great for those areas that are close to the beach.”

State Sen. Bill Emmerson, R-Redlands, agreed and said he would have been open to correcting flaws in the enterprise zone program.

“For some reason the governor wanted to eliminate them and go another route,” he said.

MANUFACTURING
Businesses in existing enterprise zones have been eligible for certain sales-tax benefits.

Under the new law, manufacturing or biotech companies anywhere in California can avoid the state sales tax on purchases of new manufacturing or R&D equipment. The breaks will total an estimated $500 million annually.

About one-tenth of California’s workforce is in manufacturing, according to the most recent census estimates. Of the 10 counties with the most manufacturing, three are in the state’s interior, including San Bernardino. Riverside County ranks 12th.

A 2009 report by the California Healthcare Institute showed that the San Francisco Bay Area had the largest share of biotech workers, followed by Los Angeles, Orange and San Diego counties. About 3 percent of the workers were in Riverside and San Bernardino counties at the time, according to the report.

Kish Rajan, the director of Brown’s Office of Business and Economic Development, said the sales-tax exemption will help businesses everywhere. The Inland area’s manufacturing sector, he said, is poised to take advantage of the sales-tax exemptions.

Roy Paulson, CEO and president of Paulson Manufacturing, a Temecula-area company that makes protective masks and shields, said his company is among those that will benefit.

Paulson Manufacturing, which is not in an enterprise zone, usually spends about $1 million a year on new factory equipment, Paulson said. Being able to deduct state sales tax will save him about $45,000 a year, which he said he can reinvest in his business.

Some Inland manufacturers, though, have been caught between the phase-out of the enterprise zone program and the start of the new incentives.

California Steel Industries in Fontana purchased $100 million worth of equipment for a state-of-the-art pipe mill. Upon installation, the company would have received a capital investment sales-tax credit.

That credit goes away at the end of the year — before workers finish installing the equipment. And the new sales-tax exemption is not retroactive.

“It’s a loss,” said Brett Guge, California Steel’s executive vice president for finance and administration. He estimated that the company will lose $1.6 million on the equipment incentive, along with more money from the loss of enterprise zone hiring credits for workers installing the equipment.

Based on the latest census information, the company is not in a tract that would make it eligible for the new hiring credit.

“It’s not that it’s a bad program they’ve come up with,” Guge said of the new law. “It’s just that we got caught in this doughnut hole.”

HIRING CREDIT
The new program also revamps the use of hiring credits. Some $200 million worth of credits will be targeted at employers in census tracts where unemployment and poverty are among the highest 25 percent in the state.

Among other criteria, the credits are available only when the worker earns from $12 to $28 an hour. Employers will be eligible to receive 35 percent of wages for a period of five years when there is a net increase in jobs.

“Instead of subsidizing low-wage corporations, we’re playing to the strengths of innovation and a solid middle class that built this state’s economy into one of the greatest economies the world has ever known,” said Art Pulaski, executive secretary-treasurer of the California Labor Federation.

Colin Strong, director of business resources for the San Bernardino chamber, said his analysis is that companies located in the San Bernardino enterprise zone have generated 10,000 jobs since the zone came into existence.

If the state’s new hiring criteria had been in effect, he said, the area would have been able to generate only 350 jobs, Strong criticized the new law as “based on a Palo Alto economy.”

Rajan disagreed. Census data shows that workers in the two-county Inland region already earn more than $13 an hour on average.

In those Inland census tracts with the highest unemployment and poverty, median earnings are less than $21,000, according to the census’ most recent American Community Survey. That is about $10 an hour in a 40-hour workweek.

“You work with the world as it is, not the world as you wish it would be,” Morris said. “This will benefit those who are already well-positioned.”