Accountable USA - California

Although California has often been on the losing end of interstate job piracy, the state generally does not offer major state subsidy packages to individual companies.  And contrary to the norm, it has only a few programs of any significance.  These include the Research and Development Tax Credit, the Enterprise Zone program, and the Employment Training Panel program.  California’s Film and TV Production Tax Credit was enacted in 2009 in response to the 46 other states actively pirating the business of Hollywood with often-lavish film tax credits. 

The state experienced an eruption of controversy over its economic development spending in 2011 when Gov. Jerry Brown proposed eliminating both the Enterprise Zone (EZ) program and the state’s Redevelopment Agencies, which are funded with tax increment financing.  Backlash from the business community derailed Gov. Brown’s efforts to balance the state budget, or even reform the EZ program to prevent the controversial practice of allowing businesses to retroactively claim tax credits for existing employees.  Gov. Brown’s proposal to eliminate the state’s Redevelopment Agencies and absorb the agencies’ excess diverted tax increments into the state coffers met just as much opposition from developers and cities alike.  Both proposals were stymied by the legislature in 2011.  The state’s budget situation remains dire.

Fiscal context aside, many of California’s subsidy programs have been criticized as wasteful.  Despite hundreds of millions of dollars in tax breaks offered through the EZ program, a 2009 report by the Public Policy Institute of California found that EZs had no net effect on employment in the state.  Previous academic studies have also been critical of the program.  Another controversial  tax-based subsidy was the Manufacturers’ Investment Credit.  Criticized as costly and ineffective by the California Budget Project, it was repealed in 2004; it had cost more than $350 million in 2001.  Credits carried forward are still costing the state nearly $100 million a year, and won't run out until 2014.

Because the state has little fiscal flexibility when it comes to economic development subsidies, some localities in the state provide substantial subsidy deals, often making use of tax increment financing. Fortunately, there is a sophisticated accountable development movement in the state (including eight member groups of the Partnership for Working Families) that often wins community benefits agreements (CBAs) with subsidized developers. The Los Angeles Alliance for a New Economy spearheaded the pioneering Staples Center CBA, which obtained living wages for the construction of the stadium and surrounding development, local hiring provisions, a large affordable housing set aside, and more.  Other major victories include the Los Angeles Airport expansion CBA and the Los Angeles/Long Beach ports campaign, which inspired similar initiatives in Oakland and other major U.S. ports known as the Clean and Safe Ports campaign.

California also has its share of subsidized stadiums. For example, the San Diego Padres ballpark was subsidized with more than $410 million in local hotel tax revenues (see below).  California is enthusiastic about green technology, so some of its rare state subsidy deals involve this sector. For example, the electric sports car company Tesla Motors got a big state sales tax exemption as well as a local subsidy deal (see below).

Of the four key subsidy programs we examined in Show Us the Subsidies, only the Employment Training Panel regularly discloses recipients online. Despite major transparency initiatives in recent years, the state lags far behind its peers in online disclosure practices.

2010 and 2011 have brought disappointing defeat for transparency and accountability in California.  In 2010 then-Gov. Schwarzenegger vetoed two bills aimed at disclosing corporate use of tax subsidies and measuring their effectiveness.  The bills, promoted by the California Labor Federation, CALPIRG and other progressive organizations, would have mandated that the Franchise Tax Board name publicly-traded companies that claim corporate income tax credits and the value of those subsidies. In late 2011 Gov. Brown vetoed a bill that would have automatically sunsetted corporate tax breaks and a separate piece of legislation aimed at clawing back tax subsidies from recipient businesses that substantially reduce the size of their workforce in the state.

Key Subsidy Programs

Subsidy Program Recent Annual
Cost
Online Recipient
Disclosure
Recipient Disclosure
Score
Job-Creation/
Job-Quality Score**
Monitoring/
Enforcement Score***

Employment Training Panel

workforce training grants funded by the Employment Training Tax; California’s sole discretionary economic subsidy program

$66.0 million (2012)
46/100
58/100
69/100

Enterprise Zone Hiring Tax Credit

corporate income tax credits for hiring; formerly applied only within EZ areas but now statewide with restricted eligibility

$800 million (FY2012-13)
0/100
15/100
28/100

Film and TV Production Tax Credit

created in response to spread of film subsidies throughout the country; provides credits that may be applied against corporate income and/or sales and use taxes for expenditures made by film productions

$120 million (FY2012-13)
36/100
10/100
38/100

Research and Development Tax Credit

credit against corporate income tax for increased R&D expenditures

$2.2 billion (FY2012-13)
0/100
10/100
38/100

* The score is derived from the Good Jobs First report Show Us the Subsidized Jobs (January 2014).

** The score is derived from the Good Jobs First report Money for Something (December 2011).

*** The score is derived from the Good Jobs First report Money-Back Guarantees for Taxpayers (January 2012).

Major Subsidy Deals

Tesla electric car assembly plant (2008-2010)

Tesla Motors, whose mission is to bring high-performing, stylish (and expensive) cars to the emerging electric-vehicle sector, has been wooed by various cities while also being granted lavish state and federal subsidies. The company, founded in California, agreed in 2008 to abandon a plan to locate its assembly plant in New Mexico after California Gov. Arnold Schwarzenegger and State Treasurer Bill Lockyer arranged for it to avoid paying state sales tax on $100 million worth of manufacturing equipment (later increased to $320 million).  They did this by committing the state to purchase the equipment and lease it to Tesla. The company was also made eligible for at least $1 million in training funds. At that time, Tesla was looking for a site in the Bay Area. It settled on one in San Jose where it was to pay no rent for the first ten years.

Several months later the company abandoned that plan and began looking for an existing building to retrofit. During this period the company was awarded a $465 million low-interest federal loan to help finance a powertrain plant in the Silicon Valley area. Tesla began gravitating toward sites in southern California for the assembly plant, including one in Downey, where the city put together an $8.7 million subsidy package. However, in May 2010 Tesla announced a deal with Toyota to use the recently closed NUMMI plant in Fremont, a facility that the Japanese automaker had previously operated in a joint venture with General Motors. In addition to selling the NUMMI plant (without its equipment) to Tesla for $42 million, Toyota agreed to invest $50 million in the electric car firm. However, Toyota announced in August 2011 that it would not use the Fremont plant for the electric Rav4 SUV it was developing with Tesla. (Key sources)

San Diego Padres (1998)

During the 1990s San Diego Padres owner John Moores repeatedly sought to get the city to finance the construction of a baseball-only stadium for his Major League team. In July 1998 his efforts paid off as officials agreed to a deal under which 70 percent of a $411 million ballpark would be financed by a diversion of hotel tax revenue away from the city's general fund. Despite some vocal opposition, voters ratified the plan in a vote weeks after the Padres made it to the World Series for only the second time.  Progress on the stadium was slowed down by lawsuits filed by former city councilman Bruce Henderson. In January 2001 City Councilwoman Valerie Stallings resigned after pleading guilty to receiving unreported gifts from Moores. The stadium, dubbed Petco Park after naming rights were sold to the pet supply company, opened in 2004. (Key sources)

Walmart in California

  • At least 18 Wal-Mart locations have received subsidies worth about $50.8 million in California.
  • At least 10 Wal-Mart locations in California have challenged their property tax assessment, recouping about $873,000.
  • Many Wal-Mart workers are ineligible for health coverage from their employer or choose not to purchase what is available, because it is too expensive or too limited in scope. These workers often turn to taxpayer-funded health programs such as Medicaid. California is among those states that have not disclosed data on the employers with the most workers or their dependents enrolled in such programs.

For more information, see the California page of Wal-Mart Subsidy Watch.