Vince Vasquez, the senior policy analyst at the San Diego Institute for Policy Research, recently published a commentary highlighting the success of the San Diego Regional Enterprise Zone. The following was originally printed in La Prensa San Diego on 1/9/2009:

When the City of Chula Vista began reviewing its budget-balancing options last fall, government officials considered cutting the city coordinator for the “enterprise zone” (EZ) program. A new economic analysis released this week finds cutting this position would be a mistake, as Chula Vista’s participation in the San Diego Regional Enterprise Zone has created hundreds of jobs and developed millions of dollars for potential community benefit.

Enterprise Zones are special packages of tax breaks and other incentives designed to increase jobs and investment opportunities within a limited, economically-distressed area. Invented in Great Britain in the 1970’s, and popularized in the United States under the leadership of President Ronald Reagan, EZs have become a major component of urban renewal strategies across the nation. More than 40 states have established EZ programs tailored to their own unique needs and goals, including the Golden State.

California’s Enterprise Zone program offers four key benefits that increase job opportunities and a attract private investment: 1) credits for sales tax paid on certain machinery equipment; 2) a maximum five-year tax credit for hiring qualified employees; 3) lender interest deductions; and 4) an extended carryover of corporate net operating losses. In addition to state benefits, municipal EZ administrators expedite local permits and provide technical assistance for EZ participants. Combined, these incentives have helped retain businesses in some of the state’s most economically distressed areas through two recessions, spurring greater capital expenditures, and expanding workforce opportunities for at-need, disadvantaged and economically challenged Californians. Since 1986, California’s EZ program has been a net gain for San Diego’s economic climate – assisting in the creation and retention of more than 25,000 area jobs, and spurring nearly $1 billion in private investment.

Chula Vista’s participation in the state EZ program has only been a recent development. The “South Bay Zone” was ultimately established in 1992 to include 6,563 acres in Otay Mesa and San Ysidro, and later expanded in 2000 to include 447 acres in Chula Vista’s bay front area. Many large employers were located in the South Bay Enterprise Zone including Delimex, Sony, Honeywell, Howard Light Industries, Panasonic, Martin Furniture, Raytheon, and Sanyo. From 1990-2000, unemployment dropped in the South Bay EZ, which also saw a significant decrease in the poverty rate (22% to 16%) compared to the City of San Diego, which over the same period experienced an increase (from 13% to 15%).

Moreover, EZ program encourages businesses to hire and retain more low skilled employees, which is vital in today’s economic downturn. These jobs may often be the first opportunities for employment these individuals have after reentering society, such as the case may be with an ex-offender or military veteran, and thus it provides a critical first opportunity to learn new skills that will enable them to reach for higher-paying skilled positions.

In 2006, local lawmakers in the City of San Diego, National City and Chula Vista successfully developed a strategic partnership and applied for the approval of a larger, reorganized “Regional Enterprise Zone” (REZ) that stretches across 36,000 acres in more of the communities that need additional investments and job opportunities. The REZ has since been conditionally approved by the state, and businesses within the REZ began qualifying for benefits in late 2007. Today, approximately 6,400 acres of Chula Vista is covered under the REZ, which is more than a fourteen-fold increase from the covered city land under the South Bay EZ. With hundreds of more local businesses now able to tap into the lucrative program benefits, the Regional Enterprise Zone has been a stunning success for economic development efforts on Chula Vista’s west side.

According to government data from the San Diego EZ administrator’s office, Chula Vista’s first full year participating in the Regional EZ has been a positive economic experience. Approved hiring credit vouchers have more than quadrupled (446%) from 2007’s tally, rising from 96 to an estimated 428. More than 650 hiring credit vouchers have been issued throughout Chula Vista’s participation in the California enterprise zone program, a sum worth more than $3.2 million. EZ benefits in 2008 were concentrated to those most at need – small businesses and local residents. 62% of companies receiving hiring credit vouchers employ 50 or fewer workers, and citywide, 90% of vouchers were received by residents of Chula Vista’s west side. The jobs that have been created or retained with the use of hiring vouchers are good paying positions, and field from a diverse number of industries, including retail, heavy industry, and construction. Wages range from the state minimum to as high as $36 dollars an hour, and the average rate fell at $9.80 an hour, 122% above the hourly minimum wage.

Analyzing the industries which receive vouchers, employment numbers, and average earnings, the San Diego Institute for Policy Research estimates that in 2008, Chula Vista’s participation in the San Diego Regional Enterprise Zone produced a total economic impact of $11.57 million.

The San Diego REZ is still only conditionally approved by the state of California, and is at risk of elimination if Chula Vista decides to forfeit its contractual obligations and cuts funding for the EZ program. The original tri-city partnership calls for Chula Vista to commit to marketing the EZ program, and it has a designated “Principal Economic Specialist” employee at City Hall to manage marketing and promotion responsibilities. However, last December this position was up on the government chopping block for elimination, which would have potentially caused Chula Vista to forfeit its participation in the REZ, and jeopardized the entire program.

Chula Vista’s participation in the EZ program is a critical investment in protecting its local economic future and its unique community character. With a broader regional EZ approach, Chula Vista has gained tremendously, creating jobs and protecting small businesses. But these gains are fragile, and can be quickly lost with the elimination of the city’s economic development specialist position and the loss of the EZ marketing budget. With a long term multi-million dollar gap projected in the city government’s budget, the City Council would be wise to find sustainable solutions to meet its fundamental enterprise zone commitments.

As of the census of 2000, there were 12,956 people, 3,010 households, and 2,645 families residing in Arvin, CA. The population density was 2,695.9 people per square mile (1,040.0/km²). There were 3,145 housing units at an average density of 654.4/sq mi (252.5/km²). The racial makeup of the city was 45.04% White, 1.08% Black or African American, 1.46% Native American, 1.10% Asian, 0.12% Pacific Islander, 46.55% from other races, and 4.65% from two or more races. 87.53% of the population were Hispanic or Latino of any race.

There were 3,010 households out of which 63.2% had children under the age of 18 living with them, 67.7% were married couples living together, 13.7% had a female householder with no husband present, and 12.1% were non-families. 9.5% of all households were made up of individuals and 5.4% had someone living alone who was 65 years of age or older. The average household size was 4.28 and the average family size was 4.51.

In the city the population was spread out with 40.0% under the age of 18, 12.8% from 18 to 24, 28.8% from 25 to 44, 12.5% from 45 to 64, and 5.8% who were 65 years of age or older. The median age was 23 years. For every 100 females there were 111.0 males. For every 100 females age 18 and over, there were 108.3 males.

The median income for a household in the city was $23,674, and the median income for a family was $24,816. Males had a median income of $20,506 versus $17,684 for females. The per capita income for the city was $7,408. About 30.9% of families and 32.6% of the population were below the poverty line, including 37.6% of those under age 18 and 23.1% of those age 65 or over.

Wilmington, California is a neighborhood of Los Angeles, with industry as its primary economic activity. It lies adjacent to the Port of Los Angeles, San Pedro, and Harbor City. Wilmington is the site of Banning House and Drum Barracks, or Camp Drum, the only major American Civil War landmark in California.

This beautiful city is also home to a California State Enterprise Zone, so if you have a business operating in this area, contact us to see if you qualify for corporate tax credits.

In September 2006, the cities of South Gate and Lynwood, applied to the State of California for an Enterprise Zone designation. This is a competitive process and on November 3, 2006, the cities of South Gate and Lynwood were awarded conditional designation. The City of South Gate was also authorized to receive and process applications from eligible businesses located within the Enterprise Zone area.

WHO IS ELIGIBLE?
Any individual or company operating a trade or business within the Enterprise Zone is eligible to participate in the program.

WHAT ARE THE BENEFITS?
The Enterprise Zone program may provide substantial tax savings for your business. There are five incentives available to taxpayers that invest in or operate a trade or business located within the Enterprise Zone. For additional information about each incentive, refer to the State of California Franchise Tax Board Publication: FTB 3805Z Enterprise Zone Business Booklet 2006 or call the Voucher Coordinator in either the City of South Gate or City of Lynwood.

The incentives are:

1) Hiring Tax Credit

2) Sales and Use Tax Credit

3) Business Expense Deduction

4) Net Operating Loss Carryover

5) Net Interest Deduction for Lenders and Bankers

WHAT ARE STATE HIRING CREDITS?

• A business within the Enterprise Zone boundary may reduce its State income tax by a percentage of the amount of wages paid to one or more qualified employee(s).
• A business/firm can claim up to 50% of an employee’s wages in the first year of employment. The credit percentage decreases by 10% annually, phasing out after five years.
• Approximately $31, 570 or more in State tax credits is potentially available per qualifying employee hired over a five-year period.

On November 3rd 2006, California Governor Arnold Schwarzenegger announced that the City of Compton was one of 23 communities to receive a State Enterprise Zone Program. The state awarded the Enterprise Zone designations on a competitive basis. Compton’s application ranked 8th of the 25 applications approved for a California Enterprise Zone.

Compton invested thousands of hours of staff time, creative energy and knowledge, and paid out thousands of dollars for consulting support and environmental studies to prepare the EZ application. When completed the City’s application consisted literally two telephone books of documents, tables, GIS maps and other documentations required by the state for the City to have a responsive application. The City believes that the investment in securing the designation and developing a Compton Enterprise Zone Program will generate significant returns in the form of:

1. Business and industrial expansion and growth,
2. New businesses and industry cluster attraction,
3. Jobs and job opportunities for Compton residents ,and an
4. Infusion of new private sector equity capital and financing for Compton businesses.

Richmond offers businesses a great opportunity to operate and if you have a company inside this region, there may be sizable tax breaks for you through the enterprise zone tax credits. The following is a summary of the five main tax incentives within the Enterprise Zone Program:

Hiring Credit

Hiring Credit for 50% of first year wages paid to qualified new employees; over a five-year period, this credit can exceed $26,000 per new hire.

Sales and Use Tax Credit

Sales and Use Tax Credit for sales and use tax paid on qualified equipment purchased for use within the zone – up to a $1 million of machinery cost on individual claims; up to $20 million a year on corporate claims.

Business Expense Deduction

Business Expense Deduction for the costs of certain tangible, depreciable property up to a range between $20,000 and $40,000 in the first year placed in service.

Net Operating Loss Carryover

Net Operating Loss Carryover to future tax years to reduce the amount of taxable zone income.

Net Interest Deduction for Lenders

Net Interest Deduction for Lenders making loans in the zone; lenders can deduct net interest income made on loans to trade or business located in the enterprise zone including business loans, mortgages and loans from non commercial sources.

The City of Pittsburg is one of only 39 state designated Enterprise Zones.  The Enterprise Zone Program offers state tax credits to businesses located within a designated Enterprise Zone.  Additionally, each local jurisdiction is encouraged to offer Local Incentives to the businesses located within each Enterprise Zone.

The City of Pittsburg has adopted the Fee Waiver/Reduction Program to encourage investment and community revitalization within Pittsburg’s Zone by providing fee waivers or reductions for the improvement of property located within the Zone.  The Program offers a 100% fee waiver for City development fees associated with the rehabilitation of existing commercial buildings and a 50% fee waiver for City development fees associated with brand new commercial construction.

Credit Overview:

Hiring Tax Credits.

The Hiring Tax Credits tend to be the most lucrative for most enterprise zone businesses. The credit is based on qualified wages paid to qualified employees. In order for an employee to be qualified he/she must have been hired after the zone was designated and before it expires and the employee must meet one of the program’s eligibility criteria at the time of hire, including but not limited to the following:

• Economically disadvantaged
• Eligible for public assistance
• Disabled individuals
• Dislocated workers
• Certain veterans (all veterans from the Vietnam era)

Qualified wages are defined by the portion of wages that do not exceed one hundred fifty percent (150%) of minimum wage. One hundred fifty percent of the current minimum wage ($8.00 – Effective 1/1/08) is $12. Therefore if an employer is paying a qualified employee $15.00 per hour, only $12.00 will be eligible for computing the hiring tax credit. To compute the hiring tax credit the following percentages of qualified wages are used:

• 50% during the 1st year of employment
• 40% during the 2nd year of employment
• 30% during the 3rd year of employment
• 20% during the 4th year of employment
• 10% during the 5th year of employment

Although Pittsburg’s zone expired January 10, 2008, as long as the employee is hired on or before that date, the hiring credit will be good for a full five year period beginning on the date of hire. Consider the following example where an employer has 20 qualified employees each earning $15 per hour ($12 cap is
used for the calculation) and each employed full time for a cumulative total of 41,600 hours per year and the employees were all hired on January 1, 2008:

• Year 1 credit (2008): $249,600
• Year 2 credit (2009): $199,680
• Year 3 credit (2010): $149,760
• Year 4 credit (2011): $ 99,840
• Year 5 credit (2012): $ 49,920
• Total 5-year credit: $748,800

Now consider the following example that illustrates how small businesses with few employees can benefit from this program as well. An employer has 2 qualified employees each earning minimum wage ($8.00) and each working 20 hours per week for a total of 1,040 hours per employee, per year:

• Year 1 credit: $ 8,320
• Year 2 credit: $ 6,656
• Year 3 credit: $ 4,992
• Year 4 credit: $ 3,328
• Year 5 credit: $ 1,664
• Total 5-year credit: $24,960

The hiring credit is limited to tax on income earned in the zone. If a business has two locations and one is located in the enterprise zone and the other one is not then a formula based on the percentage of property and payroll in the enterprise zone is used to compute the hiring credit. The credits cannot be used for a net gain but unused credits can be carried over until exhausted.

All qualified employees must be certified or vouchered in order for the California Franchise Tax Board to recognize an eligible employee. Eligible employees can be vouchered through the City of Pittsburg’s Economic Development Department.

Sales and Use Tax Credit

The Sales and Use Tax credit is a credit in the amount of sales or use tax paid or incurred for the purchase of qualified property.  In order for property to qualify the property must have been purchased and placed in service after the zone designation date and before the expiration date and the property must be used exclusively in the zone. Qualified property includes:

• Machinery and machinery parts used for: Fabricating, processing, assembling or manufacturing, Used to produce renewable energy sources, Used for air or water pollution control mechanisms

• Data processing and communications equipment, such as computers, copy machines and telephone systems
• Motion picture manufacturing equipment such as cameras, recorders and sound processing equipment

The property must be purchased in California in order to qualify for the credit unless the property of a comparable quality and price is not readily available in California. The yearly limitation for individuals is the first $1 million of qualified property purchased. As with the hiring credit, the sales and use tax credit is limited to tax on income earned in the zone.

Consider the following example, a company spends $50,000 to purchase machinery used to manufacture wooden toys. The sales tax paid (8.25%) for the purchase is $4,125. That company may reduce the amount of tax imposed on the enterprise zone income by up to $4,125.

If your business is located in the Oakland Enterprise Zone then you may be leaving significant dollars on the table that can benefit your business.

Case Study:

An Oakland business with less than 40 employees was able to generate over $50,000 per year in California Enterprise Zone Credits.  This was money that the business was able to use to make additional investments in business property and enhance the employee benefit plan it offers to its employees.

Is Your Company Located in Oakland or Planning to Move There?
If you are located in Oakland, you should check to see whether your location falls within the Oakland Enterprise Zone.  By simply having a location in the Oakland Enterprise Zone, a business is eligible to take advantage of certain business incentives (credits, deductions, etc.).

Please review the available map or street listing of the Oakland Enterprise Zone to see if your location falls within the qualified area.

Want to Know If an Employee Is Eligible for the Hiring Tax Credit?
If you would like to know if an employee qualifies for the hiring tax credit, complete the Oakland Voucher Checklist and submit the required information to the Enterprise Zone Coordinator. Click here for a list of supporting documentation accepted for each category.

Where is the Oakland Targeted Employment Area (TEA)?
Oakland’s TEA is one of the largest in the state.  See the published street ranges listings to determine whether an address falls with the qualified area.

State tax credits, deductions and employment incentives are available for businesses located within any of Sacramento’s state-designated Enterprise Zones or LAMBRA areas. Sacramento Enterprise Zones include the Northgate/Norwood, Oak Park/Florin Perkins and Sacramento Army Depot Zones. Address ranges and maps can be found at SHRA’s Commercial Business Assistance home page. LAMBRA areas include Mather Field and McClellan Park.

Benefits include:

• Sales Tax Credits on qualified property.
• Wage Tax Credits for 5 years for hiring eligible employees. New welfare-to-work incentives may also qualify you for federal wage credits.
• 100% Net Operating Loss Carryovers available up to 15 years.
• Rapid Expensing of Equipment.
• Financing Assistance, Hiring Assistance through Sacramento Works!, and much more.

The Madera County Recycling Market Development Zone (RMDZ) includes all of the unincorporated areas and the incorporated cities of Madera and Chowchilla. The Madera County RMDZ is located in the heart of California’s Central Valley, 240 miles northwest of Los Angeles, 166 miles southeast of San Francisco and 22 miles north of Fresno. The county is bisected by State Highways 99, 41, and 145 running north-south and Highway 152 running east-west. The RMDZ emphasis will be placed on commercial and industrial areas along the Highway 99 corridor and the eastern Madera County Highway 41 corridor.

Incentives

Incentives that Work From a Community That Works

Madera County functions through an efficient government that applies its resources where they provide the most benefit. Each incentive package is designed to meet customer needs and to directly address the specific barriers to selection. From employee training to financial support, our local toolbox of options is one of the most inclusive in the state of California.

Local incentives include fast tract permitting and site review, site location assistance, financial assistance with short and long term, industrial development bonds, equipment only purchase program, and a revolving loan fund for gap financing. The Madera Enterprise Zone and the City of Madera’s Redevelopment Agency offer tax and business incentives. Employee credits can be used to write down impact fees.

Special Districts and Zones

Madera Enterprise Zone. Since its inception, Madera has had the state’s most successful economic and employment incentive area (Enterprise Zone). Companies located in the Madera Enterprise Zone are eligible for substantial tax credits and benefits that include:

• Firms can earn over $29,000 in state tax credits for each qualified employee hired.
• Firms may reduce taxes by the amount of sales or use tax paid or incurred on certain equipment. Individuals may claim a credit on the first $1 million of qualified equipment and Corporations may claim a credit on the first $20 million.
• Firms can take advantage of up front expensing of certain depreciable properties.
• Firms can carry forward 100 percent net operating loss (NOL). NOL may be carried forward 15 years. Lenders to businesses located in the Enterprise Zone may receive a net interest deduction. Unused tax credits can be applied to future tax years, stretching out the benefits of the initial investment.
• Enterprise Zone companies can earn 5 percent preference points on state contracts.

Madera Redevelopment Agency (RDA). In an effort to end urban blight, the Madera RDA offers assistance for off-site improvements, infrastructure development and economic development assistance projects within the district.

Foreign Trade Zone (FTZ). Three designated Foreign Trade Zone areas will allow applicable companies to purchase imported equipment, raw materials and supplies at duty-free or duty-reduced rates. The FTZ also provides benefits to companies developing products for export. Some benefits include:

• Re-exports: Merchandise imported and later re-exported is never assessed any Customs duties.
• Reject, Scrap, and “Consumed” Merchandise: Imported merchandise that is admitted into a Zone and then rejected, scrapped or consumed is not assessed any Customs duties.
• Zone-to-Zone Transfers: Merchandise imported into a zone and then shipped into another zone can be shipped duty-free to the receiving zone.
• Duty Deferral: When imported merchandise is shipped to U.S. locations from a zone, the duties are deferred while the merchandise remains in the zone. The cost-of-money savings on duty deferral can be significant for large volume distributors, or operations with long inventory turnover periods.
• Inverted Tariffs: When components are imported and manufactured into a new product for re-export or sold in the U.S., the importer may elect to apply the finished product duty rate, or the component duty rate, whichever is lower.
• Merchandise Processing Fee: Importers into U.S. Foreign Trade Zones are only required to submit one Merchandise Processing Fee (MPF) per week for all shipments from the zone, thus reducing MPF costs to importers who otherwise would file multiple entries.

Bond Financing

Purchasing of Land, Building and Equipment. The Madera County Economic Development Commission (MCEDC) has been a leader in securing low interest, tax-exempt bonds (requiring a letter of credit) for new and existing industrial projects through the Industrial Development Bond Program. These special bonds can be used for the purchase of land, building and equipment up to a total amount of $10 million.

Municipal Incentives That May Be Accessed

Partnering Program. Madera County and its cities, Madera and Chowchilla, partner with new industry locations and expansions in a cost-sharing program that can include the purchase of land, the reduction of development/impact fees, and the construction of offsite infrastructure.

Locally Administered Revolving Loan Fund. The Madera County Economic Development Commission (MCEDC) is authorized to provide long- and short-term fixed asset financing and working capital for new and existing businesses, through the Madera County Small Business Loan Program. MCEDC administers funds that provide low interest loans in “gap” financing situations. The program is funded, primarily by, the State Community Development Block Grant (CDBG). Funding from the program can be for working capital, inventory purchase, equipment or machinery purchase, real estate purchase, and leasehold improvements. Terms and interest rate are set on a case-by-case basis, and are based on the asset being financed. Loans of less than $50,000 are processed and approved locally. Loans greater than $5O,000 require additional approval from the State CDBG Program. The MCEDC assures speedy, effective, and confidential processing of your loan.

Target Materials
Materials identified to provide businesses with continuous feedstock include targeted plastics, mixed paper, glass, and agricultural by-products for manufacturing development.

Infrastructure
There are two transfer stations and one disposal site in Madera County. Madera Disposal Systems, Inc. has just completed a new materials recovery facility (MRF) to separate recyclable materials. Madera offers a variety of commercial and industrial properties that range in price from $6,900 to $21,000 per acre. There are 900 acres zoned for light and heavy industry; about 50 percent is vacant and available, in parcels ranging in size from 1.7 to 150 acres.