California Enterprise Zones On the Chopping Block (Again)
Governor Jerry Brown has again proposed elimination of California’s much-maligned Enterprise Zone (EZ) program in order to help balance the state’s precarious budget and redirect the foregone business tax revenues to better uses. (Gov. Brown’s previous attempt to cut the program in 2011 during a severe revenue shortfall was thwarted by business groups and localities seeking to retain the business tax breaks; the state instead eliminated municipal redevelopment agencies.)
In the past, the state has hidden the names of companies getting the EZ tax breaks of up to $37,000 per employee. Multiple disclosure requests by Good Jobs First and other accountability-minded organizations have been denied by California’s Franchise Tax Board, which claimed tax confidentiality. For the first time, however, recipient data has just been released by the Sacramento area Enterprise Zone administrator.
The Sacramento Bee revealed that over 6,000 employment vouchers—essentially the bounty documents for EZ tax credits—have been claimed by county businesses since 2010. FedEx alone benefited from nearly 1,400 vouchers. Other notable recipients include Verizon, Wells Fargo, and Walmart. However, the most notorious enterprise zone claimants are a casino and two strip clubs in Rancho Cordova.
The EZ program is no stranger to controversy. Policy makers have been reluctant to cut or even reform the program, even in the face of evidence that it has had zero net effect on job creation in the state. The lost revenue currently costs the state approximately $750 million a year and is projected to grow to over $1 billion annually in coming years. Seventy percent of those tax dollars go to companies with assets valued over $1 billion. Even more troubling, companies can retroactively claim EZ credits for employees hired up to five years in the past—even if the person is no longer working at the company—meaning that there is literally no incentive for new job creation in order to receive the subsidy.
The state also allows companies to claim EZ credits for new hires, rather than on net new positions created. Companies don’t need to be creative to abuse the poorly designed system. VWR, formerly located in Brisbane, laid off 75 unionized workers and moved across the state to Visalia, where it located its new facility in an Enterprise Zone and receives tax credits for the (non-union) replacement hires. In Anaheim, stadium concessions contractor Anaheim Arena Management recently announced it would lay off 500 workers, the replacements for which would be eligible for EZ vouchers under current program rules.
Clearly it is time for California to rethink its costly EZ program. A program that fails to create jobs, subsidizes wealthy and abusive businesses, and incentivizes job churn cannot be called economic development. Whether California elects to reform the program to actually create jobs or eliminates it altogether, it is past time the state made this use of economic development dollars deliver for taxpayers.