Here’s an article from the San Diego Union-Tribune:

Don’t pare enterprise zones
BY DAN DUFRESNE
THURSDAY, DECEMBER 17, 2009 AT MIDNIGHT

The state’s nonpartisan Legislative Analysts’ Office (LAO) just released some staggering figures: our state must address a deficit of $20.7 billion between now and the time the Legislature enacts a 2010‑11 budget. What is perhaps even more frightening is the LAO prediction that California will have a deficit of around $20 billion each year for the next several years.

In the same report, the LAO also states that unemployment is expected to fall slowly as the unemployment rate usually peaks several quarters after a recession ends. “By 2015, unemployment is projected to be down to 7.3 percent – well above the pre-recession level,” the report says.

In the face of this ongoing fiscal crisis, the LAO recommends that lawmakers look for new sources of revenue and consider ending certain tax breaks for businesses.

Most unwisely, this includes the suggestion to reduce or eliminate the Enterprise Zone Program.

The mere suggestion of cutting back California’s only economic development tool when unemployment is not expected to drop for several years does not make any sense. The reality is that California’s economy will not recover on its own. Enterprise zones were created to revitalize distressed communities, entice business development in California and create jobs. The LAO’s own predictions about the state’s continued economic woes only highlight the need for the Enterprise Zone Program now more than ever.

In fact, the program is ultimately revenue generating as it creates more taxpayers – corporate and individual – paying more money back to the state. This is the type of program that will help get our state back on track and has already proven to reduce unemployment and poverty levels.

Other states such as New Jersey, Massachusetts and Oklahoma have embraced economic development in the midst of the recession. For example, the New Jersey Legislature enacted legislation creating a new $3,000 grant for each job created in that state during 2009, as well as another grant to offset 7 percent of new investment in plant and equipment costs. Massachusetts created a package of new programs intended to attract new investment from life sciences companies and Oklahoma is encouraging new higher wage jobs by offering a 6 percent incentive payment on payroll for new jobs that pay 150 percent of a company’s current average wage.

California needs to be able to compete with these and other states. Now is time to bolster our economic development initiatives and encourage participation in the Enterprise Zone Program so we can turn our state’s economy around.

Epsilon Systems Solutions Inc., which is headquartered in San Diego, has two locations in the San Diego Regional Enterprise Zone. Epsilon Systems’ National City location employs approximately 90 people and the Otay Mesa facility has 10 employees. Most of Epsilon Systems’ work is focused on offering technical support for government agencies such as the Department of Defense, Department of Energy and the Department of Homeland Security. More than 90 percent of the work performed at Epsilon Systems’ National City and Otay Mesa locations is performed by those in good-paying blue collar jobs, ranging from pipe fitting to welding to general laborer duties.

With a population of just over 60,000 people, National City has been especially impacted by this recession, with a 19.4 percent unemployment rate as of September 2009. Epsilon Systems – a growing company – just hired several people in the last month and a significant portion of them work at the company’s National City facility. Over the past few years, the company has hired a number of Vietnam veterans and recently discharged veterans, providing opportunities for those who often face barriers to employment.

The money that our company has saved by participating in the Enterprise Zone Program has allowed us to offer additional training for employees, hire more people, provide top-notch benefits and expand the National City facility.

While other companies are laying off workers or closing their doors, Epsilon Systems has remained competitive and continues to succeed in California’s depressed economy – and this is due, in part, to the Enterprise Zone Program’s valuable tools for business growth. The Enterprise Zone Program is crucial for businesses and residents not just in the San Diego area, but throughout California. It’s a program that California cannot afford to be without.

Dufresne is director of government relations for Epsilon Systems Solutions Inc.

Santa Clarita wins top honors for cities with populations greater than 50,000, while Vernon wins for cities with less than 50,000 residents.

The Los Angeles County Economic Development Corporation (LAEDC) today announced the cities of Santa Clarita and Vernon as the winners of its annual “Most Business-Friendly City in Los Angeles County” competition at its 13th Annual Eddy Awards on November 17, 2008. The Eddy Awards are attended by more than 700 leaders from the business, government, and education communities.

The City of Santa Clarita emerged as the most business-friendly city in LA County for the cities with more than 50,000 residents. Santa Clarita does not assess a utility user tax, allowing businesses to save up to five percent or more on their electric, telephone, water, and gas bills, and it has recently been designated as a State of California Enterprise Zone. Santa Clarita offers its businesses and residents a highly educated workforce, available land for development, site selection assistance, and expedited plan reviews and permit processing.

Click here for the full article and award details from CitySpur: Santa Clarita and Vernon Named Los Angeles County’s Most Business-friendly Cities

Merced County Supervisor, Deidre F. Kelsey, has responded to Dan Walter’s opinion of California’s Enterprise Zone program. The full text of his response is below:

Contrary to Dan Walters’ column (“It’s time for a hard look at California tax dodges,” Nov. 9) enterprise zones create jobs.

Proof is in the numbers: Since the designation of the Merced County Enterprise Zone in December 2006, 577 new jobs have been created.

These jobs are a lifeline for residents in Merced, many of whom face barriers to employment.

Merced County and its cities have typically struggled to attract new businesses and is an area that has been hard hit by the economic downturn. In September of this year, Merced County had a 15.7 percent unemployment rate, which is down from 20.2 percent in March 2009.

Our state desperately needs concrete economic development tools in order to remain competitive
We cannot afford to be short-sighted; we should not cut back programs that will fundamentally help us grow our economy and recover from the recession. Merced has seen first-hand the benefits of the enterprise zone designation.

Recent research has shown that enterprise zones increase employment, increase wage, salary and income levels, and decrease poverty rates. These are measurable benefits that are eagerly welcomed in our county.

The enterprise zone program represents an important investment in the future of Merced, and in the health of our state. We can no longer take for granted that businesses will locate in California and grow into a healthy and sustainable tax base.

We need to show that our cities and county are open for business, and the enterprise zone helps deliver that critical message.

Deidre F. Kelsey is chairwoman of the Merced County Board of Supervisors.

The State of California create the Enterprise Zone initiative in order to assist cities attract businesses, and one of the cities that have championed this opportunity was the City of Palmdale who received designation from the State for the Antelope Valley Enterprise Zone in February 1997.  They encourage businesses both small and large to take advantage of a number of tax incentives through the Antelope Valley Enterprise Zone. Any company located within the boundaries of the 61-square-mile Enterprise Zone may reduce its state business income tax through five tax incentives.

This particular area is experiencing tremendous growth due to its proximity to Los Angeles combined with the low cost of living.  And with the following five tax incentives, this particular enterprise zone is sure to see continued economic growth for years to come:

Hiring Tax Credit:
Firms may earn up to $31,574 in state tax credits for each qualified employee hired over a five-year period.

Sales & Use Tax Credit:
Corporations may earn sales tax credits on purchases of up to $20 million per year on qualified machinery or machinery parts used in the Zone. Partnerships and individuals may annually claim a credit on the first $1 million of qualifying purchases.

Business Expense Deduction:
You may deduct up to $20,000 of the cost of qualifying business equipment, furniture and fixtures or other depreciable personal property.

Net Operating Loss Carryover:
Up to 100 percent of Net Operating Loss may be carried forward for 15 years.

Interest Deduction for Lenders:
Lenders to Zone businesses may deduct direct expenses incurred in making the loan from the interest income. This may mean more favorable rates or terms for the borrower.

So if you have a business or you’re a tax professional who has clients that run their companies in the Antelope Valley Enterprise Zone, contact us and let us help you take advantage of the tax credits available.

The thriving metropolis of Los Angeles has three State Enterprise Zones as well as a Federal Empowerment Zone and a Renewal Community designation. Within these areas, businesses can take advantage of State and/or Federal tax credits and deductions not available to businesses elsewhere. The goal of the incentives is to stimulate business attraction, growth, and increased employment opportunities within economically challenged areas of the City.

Enterprise Zones assist businesses located in the zones to lower their operating costs by providing them with tax credits and deductions. The state offers incentives such as: hiring credits, sales & use tax credits, expense and interest deductions. The City of Los Angeles offers local incentives such as, DWP rate discount, site fee waivers, sewer facility hookup payment plans, Work Opportunity Tax Credit, and reduced parking rates.

The Los Angeles Enterprise Zone was conditionally designated by the State on October 15, 2006. When the designation becomes permanent it will be valid for 15 years. In addition, the Eastside State Enterprise Zone designation is valid through January 10, 2008, and the Harbor Zone through March 3, 2009

EMPLOYER HIRING CREDITS
Up to $37,440 over a 5-year period per each qualified employee can be claimed by an Enterprise Zone business as a tax credit. An employee can qualify under any one of 13 different categories.

SALES and USE TAX CREDITS
An Enterprise Zone business can receive a tax credit of 100% of the sales/use tax paid for equipment purchases for use in the zone. Machinery, machinery parts, telecommunications equipment and office equipment such as copiers, printers, fax machines and telephone systems also qualify.

BUSINESS EXPENSE DEDUCTION
An accelerated depreciation is available for tangible personal property the first year it is placed in service in an Enterprise Zone. Office supplies and inventory do not qualify. Limits: $20,000.

NET INTEREST DEDUCTION
Lenders can earn tax-free interest on loans made to Enterprise Zone businesses.

NET OPERATING LOSS CARRYOVER
100% of Net Operating Losses may be carried forward for 15 years to reduce the amount of taxable income for those years.

DEPARTMENT of WATER and POWER RATE DISCOUNT
The Department of Water and Power offers a five-year electric rate discount to new businesses that are moving into the zone and apply within 18 months for the discount. Existing businesses whose energy consumption in the 6-month period before the date of application was at least 35% greater than the monthly average in the prior 12 months also qualify.

SITE PLAN REVIEW and FEE WAIVER
The City provides a fee waiver for review of commercial or industrial architectural plans for projects of 40,000 square feet or greater located in an Enterprise Zone during an initial application for a site plan review.

SEWER FACILITY CHARGE EXTENDED PAYMENT OPTION
The City allows Enterprise Zone businesses qualify for a one-time lump sum payment exemption if the Sewer Facility Charge is over $17,000. The fee can be paid in installments over five years but interest is payable on any unpaid balance.

REDUCED PARKING ORDINANCE
This ordinance provides reduced parking requirements for Enterprise Zone businesses compared with other areas of the City.

WORK OPPORTUNITY TAX CREDIT (WOTC)
The Work Opportunity Tax Credit (WOTC) has been IMPROVED! The WOTC program is now good through 2011. Now any business anywhere can qualify for the credits as long as they hire persons between the ages of 18-39 who reside in either the Federal Empowerment Zone (EZ) or the Federal Renewal Community (RC) area. Los Angeles contains both an EZ and an RC. There are eight (8) additional eligibility categories, some of which are not dependent on the employee’s address. The WOTC hiring credit is worth up to $2,400 per year for each eligible hire.

San Diego has a rich history of business success and innovation, and it is also home to companies that are constantly visible on the national level.

Aside from the normal benefits that operating a business in one of the State’s California Enterprise have, such as:

• Tax credits may be claimed on up to half the wages paid to qualified new employees.
• Tax credits may be claimed for sales taxes paid on equipment purchased for manufacturing or production purposes.
• All net operating losses may be carried forward as a deduction in future years.
• Business equipment depreciation can be accelerated, up to a limited amount.
• Low-income employees can claim their own personal income tax credits.
• The state will give priority for Industrial Development Bond applications.
• Lenders (both commercial and private) may deduct net interest income on loans to Enterprise Zone businesses.

Running a business in San Diego also has additional benefits, such as:

• The Enterprise Zone Job Referral Service will assist with recruitment and pre-screening for new employees at no cost and will provide the necessary verification for you to claim tax credits on their wages.
• City staff can expedite permit applications and serve as liaison with other City departments.
  Certain development fees may be reduced or waived.
• New development projects located in the City’s Enterprise Zones are eligible for direct assistance by the City. Assistance includes help in determining project application requirements, fast track permit processing, liaison help in the development process.
• The City can provide an exemption from urban impact fees and housing trust fund fees.

I attended Monday’s JEDE hearing only to hear more of the same arguments from the AB1139 opposition.  The primary opposition was once again from Labor and once again they just curtly referred to a scattering of old reports claiming that the EZ program doesn’t work.  On the contrary, the audience was filled with people from the private and public sectors beaming about the benefits of the EZ.  Several highlights were Lydia Moreno’s testimony about the effectiveness of the program and the companies who decided to stay in California because of the program.  Individual company representatives waited in line to tell their story and urge continued support and expansion of the EZ program.

Professor Samuel Bornstein, from Kean University School of Business, offered a keen remodel of the net interest deduction that he claimed could save the mortgage meltdown and cause the capital markets to function again.  The proposal was to allow lenders to claim the net interest deduction for residential loans made to small business owners who pulled money from their equity and invested it into their business.  Professor Bornstein cited statistics that many small business owners mortgaged their homes with toxic loans to fund their businesses.  Giving the lender a tax break will allow the lenders to renegotiate with the borrowers for lower monthly payments or lower principal to allow them to stay in business and keep their homes.  Several business owners testified that they could not have made it through the tough economic times without the Enterprise Zone program.

A revised 1139 should be ready by December and then open for discussion or vote in the JEDE committee by January 5, 2010.  Stay tuned.

Today I attended the second of three hearings related to AB1139. The hearing focused on the Enterprise Zones and innovation. Assemblyman Manuel Perez, as head of the JEDE, presided over the hearing. Assemblyman John Perez, AB1139’s author was also present for the first part of the hearing and stated that his two main concerns were getting rid of the TEA criteria and getting rid of retroactive vouchering. His stated reason for wanting to delete the TEA criteria was not persuasive. He did not cite to any concrete numbers or even rough statistics, but in a general baby-out-with-the-bathwater stroke suggested that “some” employees who live in expensive lofts are qualifying for the credit because some nicer areas of Oakland, Long Beach and San Francisco are within the TEA. On that basis, he concluded that the TEA category must go.

There was some very persuasive commentary by proponents of the EZ, and particularly some truly amazing real life stories from businesses who said that but for the EZ, they would not be in business today. Interestingly, those employers are hiring the types of employees and providing the types of benefits that the EZ program was designed to accomplish. More on today’s hearing next week.

The next AB 1139 hearing is October 19 in San Diego.

After missing out on this year’s Enterprise Zone program, the city of Needles continues to push for tax breaks in order to attract businesses away from nearby Arizona. With Assembly Bill X3 82, the city has put together enterprise zone legistlation that would establish several key benefits for the region.

Marj Dario, from the Needles Deser Star, had this to say about the development: “The group effort started when those enterprise zone applicants not selected this year came together to form a coalition. Those applicants, plus an auto plant in Fremont, have proposed an initiative titled “100,000 New Jobs for Californians (11 New Enterprise Zones) which requests special one-time enterprise zone designations be granted.”

Along with Needles, other cities that joining the coalition are: Anaheim, El Monte, Escondido, Fremont, Gardena, Los Angeles County, Madera County, Monrovia, Needles, Oxnard and Wasco.

Despite previous reports, it appears that several cities pursuing Enterprise Zone designations in California may still be in the running. Specifically the cities of Needles and Anaheim are looking to combine their efforts to gain the tax advantages offered by the program.

The Needles Daily Star reported that According to Sue Godnick, executive director of the Needles Chamber, Anaheim has invited the city to join a group effort proposing state legislation that will allow those cities not ranking high enough this year, plus an additional zone for an auto plant in Fremont, to be granted one-time enterprise zone statuses. The initiative is to be titled “100,000 New Jobs for Californians (11 New Enterprise Zones).”

Needles specifically is in need of the EZ program status due to its close proximity to Arizona, which has historically been more friendly to businesses. Without some sort of exemption, it will continue to be difficult to attract local companies to settle in the region.