National Voices

Thursday, Jun 27 2013 11:08 PM

OTHER VIEWS: Time to scrap enterprise zone tax breaks

Not much is hidden at the Gold Club. Even tax breaks are on display at the suburban Sacramento strip joint, one of about 35,000 businesses that benefit from California's enterprise zone program.

Businesses in the 42 enterprise zones are eligible for up to $37,400 in tax credits for every person they hire. Last year, these subsidies added up to $700 million; they're projected to reach $1 billion by 2016.

What do the rest of the state's taxpayers get for this largesse? Nothing.

The naked truth, according to a raft of academic studies, is that there's no evidence that enterprise zones accomplish their stated goals -- promoting economic and employment growth in blighted areas.

A 2009 report by the Public Policy Institute of California concluded that "on average, enterprise zones have no effect on business creation or job growth." The California Budget Project and the state's nonpartisan legislative analyst echo that finding in their own reports.

"Most rigorous research has found that (enterprise zones) do not create a net increase in jobs or increase the rate of job creation," the legislative analyst said in a May 2013 report recommending elimination of the 27-year-old program.

Gov. Jerry Brown has been trying to get rid of enterprise zones since he took office 2½ years ago. It's a natural progression from his successful effort to eliminate redevelopment, another program that promised economic development in return for special tax treatment.

As Brown noted recently, some businesses are qualifying for generous tax breaks simply by firing people in one community and relocating those jobs to another community with an enterprise zone.

Critics also point out that enterprise zone tax credits are awarded for new hires, not new jobs. That's an incentive for turnover, not employment stability. According to the Franchise Tax Board, two-thirds of the 141,000 claims for enterprise zone tax credits in 2010 were for people hired to fill existing jobs.

The tax credits can be collected retroactively and often go uncollected for years, undermining claims that they are a catalyst for businesses to locate or expand in enterprise zones. That has, however, spawned a new line of work for accountants as well as for lobbyists working to keep the enterprise zone program intact.

Because of privacy provisions in tax law, it's difficult to identify businesses receiving the credits. But a few have been identified, among them are Wal-Mart, FedEx and the Los Angeles Times as well as the Gold Club and another strip joint in Sacramento.

A bill by state Sen. Jerry Hill, D-San Mateo, would address some of the abuses, among other things limiting tax breaks to businesses that add more workers, not just new ones. Unfortunately, SB 434 stalled in the state Senate when the budget trailer bills passed out last weekend.

But it seems that nothing is ever dead in Sacramento, not legislation and not wasteful programs.

So if they can't kill it, we encourage Brown and Hill and their legislative allies to keep trying to strip this wasteful program of its worst features.

-- Santa Rosa Press Democrat

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