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Enterprise Zone Elimination Bill Passes Senate Floor, Returns to Assembly

June 26, 2013
The Senate debated a measure last night to eliminate the state’s Enterprise Zone (EZ) Program.
 
After a passionate discussion on the merits of AB 93 (Committee on Budget), the Senate approved the measure largely by a 30–9 party line vote. The bill is opposed by business groups and the League, Because the bill was amended in the Senate, AB 93 now heads back to the Assembly for amendment concurrence. This action came just one week after the Legislature acted on the FY 2013-14 budget.

The following EZ background information, description of the Governor’s May Revise proposal to eliminate EZs, and summary of AB 93 provide more insight on this pressing issue.   
 
EZ Program Background
 
Established in 1986, California’s 40 EZs are designed to encourage and spur manufacturing investment and increase employment in high-poverty or blighted areas. The state offers companies various tax incentives and benefits to operate within specified zones. By reducing the tax burden on job creating companies, struggling economic areas benefit through businesses locating, relocating and/or expanding within these EZs.   
 
Some of these incentives have included:
  • Hiring tax credit per hired qualified employee over five year period; 
  • Sales or use tax credit on qualified purchased manufacturing equipment;
  • Preference on state bids and contracts; and
  • Net operating loss (NOL) deduction.
According to the California Association of Enterprise Zones data, EZs created or retained more than 118,000 jobs in 2010 and continue to create thousands of jobs each year. An estimated 35,000 state businesses qualify for EZ tax incentives amounting to more than $700 million in annual tax credits as of 2010.These tax incentives are a vital component to the continued economic recovery of California’s businesses and state unemployment.   
 
Governor’s May Revise Proposal to Eliminate EZs
 
As part of the FY 2013–14 May Revision, Gov. Jerry Brown outlined a proposal he argued would “revamp” the state’s EZ program in a revenue-neutral manner. Upon review, however, the League concluded that the plan would actually eliminate much of the current EZ structure and replace it with an entirely new statewide approach. For more information on the Governor’s plan, please see “Governor Releases Revised FY 2013-14 Budget," CA Cities Advocate, May 14, 2014.   
 
Provisions of AB 93
 
Though some components of the current EZ program remain in an altered and limited capacity (including the sales tax credits for companies that buy manufacturing or biotech research and development equipment in California), the plan creates a new program to be administered by the Governor’s Office of Business and Economic Development (GO-Biz). The new program creates the “California Competes Tax Credit Committee” and charges GO-Biz with negotiating tax incentive deals in an effort to lure more companies to invest in California businesses and hire Californians. The powers of this newly created committee are broadly defined and will need to be monitored to ensure innovation and economic development at the local level continues to occur even though the EZ program has been eliminated.
 
Additional provisions of the plan include a wage floor of $12 – $28 per hour for tax credit qualification, limiting the amount of available tax credits and increased restrictions on employee hiring qualifications.  The League and other coalition members in opposition raised concerns that these new requirements are not only detrimental to the overall state economic recovery, but will undermine local development as AB 93 is devoid of almost any local involvement. Unfortunately, these concerns were largely ignored.      
 
In order to secure enough votes for passage, several specific amendments were made to AB 93 yesterday evening. These changes were presented verbally and then put in print on the Senate floor. They include:
  • Extending the carryover provisions from five to 10 years;
  • Expanding the “hard to hire” category for hiring tax credit eligibility to include ex-offenders; and 
  • Extending the sunset date on hiring and manufacturing tax credits within existing EZs from five to seven years.
Take Action
 
With approximately three out of every four legislators representing an EZ in their district, it is extremely important that city officials communicate with their legislators regarding the adverse effects AB 93 will have on their constituents and resulting destabilization of local economies. Furthermore, the passage of AB 93 would result in decreased local and state tax revenue and place additional burdens on already struggling communities. 
 
The League strongly encourages city officials to call their Assembly members regarding this issue as soon as possible.


 
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