A case involving the FTB’s ability to scrutinize the documentation behind Enterprise Zone vouchers has been scheduled on March 6 for argument in the California Supreme Court after a long delay. The following is the summary of the matters at hand from the Court:

Dicon Fiberoptics v. Franchise Tax Bd., S173860. (173 Cal.App.4th 1082; Los Angeles County Superior Court; BC367885.) Petition for review after the Court of Appeal reversed the judgment in a civil action. This case presents the following issues:

(1) When an employer claims an income tax credit under Revenue and Taxation Code section 23622.7 for wages allegedly paid to a “qualified employee” in an enterprise zone, does the certifying voucher obtained from a designated public agency constitute conclusive proof the employer is entitled to the tax credit? (2) If not, does the voucher constitute prima facie evidence that the employer is entitled to the credit and shift to the Franchise Tax Board the burden of proving that the employee was not a “qualified employee”?

The Sacramento Business Journal has the following extensive article on on Enterprise Zones today:

The death of California’s redevelopment agencies makes enterprise zones more necessary than ever to keep and create jobs, say some business and city officials. But ominous language about reform in Gov. Jerry Brown’s proposed budget has them worried.

“The governor was very vague in his budget message,” said Craig Johnson, president of the California Association of Enterprise Zones. “I quite frankly don’t know what his idea of reform is.”

Johnson said he expects one or more bills to be introduced this month. Last year Brown proposed eliminating enterprise zones entirely to save the state $900 million.

The move was backed by a report from the Public Policy Institute of California that claimed employment grew no faster in enterprise zones than in similar areas and that big companies reaped the tax benefits while small-business owners received little benefit.

The state created the enterprise zone program in 1986 to stimulate business investment in depressed areas, offering tax credits to companies that hire workers who often have a tougher time landing jobs – such as military veterans, former foster children or ex-convicts. A business in an enterprise zone can qualify for tax credits of up to $36,000 over five years. Enterprise zones also offer sales-tax breaks, increased deductions for expenses and preference for companies bidding on state contracts, among other benefits.

With the shuttering of redevelopment agencies, enterprise zones are one of the few economic development tools remaining, said Barbara Hayes, president and chief executive at the Sacramento Area Commerce & Trade Organization.

In 2009, the city and county of Sacramento merged their zones and joined Rancho Cordova, which was seeking a zone at the time. The combined zone – a dozen industrial districts on 31,000 acres scattered over the region – more than tripled the area where the benefits are available. The expanded zone received final approval last month.

There’s also a zone in West Sacramento, plus areas where similar benefits are offered, such as McClellan and Mather – former Air Force bases that have been turned into business parks.

Businesses that participate say the enterprise zone program has been essential to keeping them competitive.

“What else is left for employers? What else is left for industry?” asked Tom Kandris, chief executive of American River Packaging in Sacramento. The company, which fashions corrugated cardboard into boxes for wineries and food processors like Blue Diamond Growers, has been participating in the enterprise zone program for years. In 2009, the company weighed closing its Sacramento plant but chose to shut one in Reno instead, partly because of the benefits the local enterprise zone offered.

“I want to stay in California and I was looking for every excuse I could to stay here,” he said. “If we didn’t have the enterprise zone, I don’t know what the recommendation would’ve been.”

The company has about 140 workers in Sacramento, and Kandris said a significant number of them have been hired through the program. He estimated his tax savings was in the six figures.

“It’s necessary for manufacturing if we’re going to survive in this state,” said Dorinda McMillan, director of operations for Woodmack Products Inc. in Rancho Cordova. “There are tremendous fees on us that our competition outside of the state doesn’t have.”

The firm makes burners and other hardware for gas appliances and uses the enterprise zone and various federal programs for all its hiring because of the tax breaks and other benefits.

McMillan said the company has been using federal hiring programs for 20 years, but only recently hired through the enterprise zone when the zone expanded to include Rancho Cordova. Woodmack, which at one point was down to 30 employees from about 120 due to overseas competition, has been hiring of late and has doubled its work force to more than 60 as clients have been coming back to the company.

The hiring of disadvantaged workers requires the same screening as hiring any employee, she said. Some with criminal records have been good employees for decades.

Dean Peckham, a senior project manager with the city of Sacramento, said that hiring through the enterprise zone program has nearly tripled from 2009 to last year. He said he believes the program is safe and won’t be gutted by lawmakers.

He and Micah Runner, economic development manager in Rancho Cordova, said the zone has been an effective tool for keeping companies from relocating.

HCD sent out an email blast today from Cathy Creswell announcing that the Governor has asked her to leave her position with the Department as of February 14:

To HCD Stakeholders and Colleagues:

A new year brings the promise of new beginnings and renewal. Recently, the Department has undergone a number of changes and faced many challenges, and I have been proud to lead this great organization over the last year. However, I have been informed by the Administration that my service will be complete as of February 14th. It has been my greatest honor to work at HCD for the past 25 years and have the opportunity to make a real difference in the lives of low income Californians and communities. This Department has a noble history and tradition exemplifying the best in public service. I am grateful to have been able to lead an effort during the last year to build on our strengths and improve our effectiveness in serving the people of California. Despite great uncertainty, budget reductions, and an economy and housing market that exacerbate the problems we are trying to solve, the Department has made significant progress in meeting those challenges.

Working at HCD all of these years has also given me the opportunity to work with some of the most dedicated, compassionate, and talented professionals and advocates in the world. I am so grateful for your generosity in sharing your talents, expertise and passion and am a better person for having known all of you.

The Administration has indicated an interim appointment should be announced shortly. Randy Deems, Acting Chief Deputy will be responsible for helping to make a smooth transition and will be in charge should there be any gap between the time I leave and an interim appointment is made.

I remain committed to working for housing opportunities and justice for all Californians. As Professor Clare Cooper Marcus reminds us: “A good home can protect, heal and restore us. A good home expresses who we are now, and over time can help us become who we are meant to be.” Every Californian deserves that good home and I look forward to working with you to bring that goal to a reality.

Cathy Creswell

According to this article from the AP, the top 10 highest unemployment rates in the Country are:

El Centro, Calif. 26.8
Yuma, Ariz. 23.1
Merced, Calif. 18.7
Yuba City, Calif. 18.1
Visalia-Porterville, Calif. 16.2
Fresno, Calif. 16.2
Modesto, Calif. 16.1
Stockton, Calif. 15.9
Hanford-Corcoran, Calif. 15.3
Ocean City, N.J. 15.1

Eight out of those 10 are in various California Enterprise Zones.

On the other end of the spectrum, none of the 10 cities with the lowest unemployment rates in the Country are even in California.

This article from the Santa Clarita Valley Signal has some interesting details about the process taking place on the way to final designation of their new Enterprise Zone. All the way at the end, for example, the article notes that:

Laura Biery, administrative analyst for the city of Santa Clarita, said the Santa Clarita City Council is expected to vote on aspects of the Enterprise Zone program at its meeting Feb. 28.

That indicates that we should not expect that final designation announcement from HCD until some time in March. The article also notes that, once approved, the zone will be effective retroactively to 1/1/2011.

Here is the February 2012 edition of the FTB’s “Tax News” newsletter.

State Assemblyman Jose Solorio (D-Anaheim) just sent out a press release via email celebrating the new Anaheim Enterprise Zone which will be operational tomorrow, Feb. 1, 2012:

SACRAMENTO – State Assemblyman Jose Solorio (D-Anaheim) heralded the fact that the City of Anaheim Enterprise Zone designation will be effective starting tomorrow. He issued the following statement:

“As a fighter in the Assembly to save Enterprise Zones from statewide extinction, it is particularly gratifying to see the Anaheim Enterprise Zone designation finally get off the ground effective February 1.

The successful effort to bring Enterprise Zone designation to Anaheim is the result of much hard work by City officials and Anaheim business and community leaders. I’m glad the City will continue to partner with the Anaheim Chamber of Commerce to market the Enterprise Zone. With their efforts, the fight for jobs will be a lot more robust in Anaheim. It’s expected the Enterprise Zone will create 20,000 jobs in the next five years.”

The Enterprise Zone program, established by the State of California, serves to stimulate economic growth by providing hiring tax credits and other incentives for businesses located within the Enterprise Zone boundaries. To receive the hiring tax credit, businesses must employ local residents, those economically disadvantaged or the unemployed.

In Anaheim, the Enterprise Zone boundaries include nearly all of the city’s industrial and commercial areas, and approximately 80 percent of all Anaheim businesses. The Enterprise Zone designation is for 15 years. In Orange County, now both the cities of Anaheim and Santa Ana have Enterprise Zones.

State Assemblyman Jose Solorio is the Chair of the Assembly Insurance Committee and also serves on the Assembly Appropriations and Transportation committees. He represents the Sixty-Ninth Assembly District, which includes the cities of Anaheim, Garden Grove, and Santa Ana. For more information about Assemblyman Solorio, visit www.assembly.ca.gov/solorio.

The Antelope Valley Enterprise Zone expires today, January 31, 2012.

Assemblymember Luis Alejo who represents the areas including the Salinas Valley Enterprise Zone and the Watsonville Enterprise Zone. In reaction to the Governor’s State of the State Address yesterday, a press release has been posted to the Assemblyman’s website. Assemblyman Alejo is focusing on Enterprise Zones this year as evidenced by his attendance at HCD’s listening session yesterday in Sacramento.

Here is the text of the press release:

Today, Governor Jerry Brown presented the 2012 State of the State Address before a joint session of the Legislature.

The speech highlighted the hard choices and cuts necessary for the state to balance the books, while still protecting the services, schools, and public safety most needed by working families.

“With the loss of redevelopment we are on the lookout for new options to spur economic growth,” said Assemblymember Luis A. Alejo. “The budget’s not just about numbers. It’s about keeping teachers in the classroom, making sure our communities have cops and firefighters to keep us safe, but most importantly putting Californians back to work.”

Alejo invited two guests to the Assembly chambers during the State of the State: Eduardo Montesino, Mayor of Watsonville, and Robert Reyes, a constituent from Salinas.

Watsonville is struggling financially due in large part to the loss of redevelopment funding and the potential loss of its Enterprise Zone. Montesino, who was elected by the city council to be mayor just last November, has spoken publicly about redevelopment’s importance to the city’s economic recovery. The Watsonville Enterprise Zone, which is set to expire in April, is credited with bringing many businesses and good jobs to move to and stay in Watsonville. The city cannot afford to lose another economic development tool.

“I agree with Governor Brown that our education system should be on the forefront of our local government needs,” said Montesino. “I’ve seen what the cutbacks in recent years mean to students, teachers, and parents. I’ll be watching the budget discussion closely to make sure Assemblymember Alejo knows what the proposals mean to those of us at the local level.”

Reyes is a Salinas mortgage and real estate broker whose company has been impacted economically due to the slow housing market. Bringing jobs to the Salinas Valley will have a multiplier effect to spur the economy and help his business.

“I was happy to hear about the Governor’s new office of business development called GO-BIZ,” said Reyes. “It’s very important to me and other business owners that our Chief Executive has advisors with real business experience in his office. I’m hopeful that it translates into real economic development measures.”

Luis Alejo represents the 28th District in the California State Assembly, which consists of San Benito County, the Salinas Valley, North Monterey County, South Santa Clara County and the city of Watsonville.

HCD is on a roll. Fast on the heels of new final designations for Anaheim and Sequoia Valley, the new Sacramento Enterprise Zone (which also includes the City of Rancho Cordova) has now received its final designation.

This leaves five more conditional zones for HCD to complete by April.

On October 10, 2011 HCD issued a memo that they would be moving ahead with the final designation process for eight remaining zones that had previously received conditional designations. In that memo, a 180 day deadline was established for all of those zones to comply with all of their conditions or lose the opportunity to receive a final designation.

At today’s CAEZ board meeting in Sacramento a representative from HCD announced that the Anaheim EZ has received it’s final designation effective February 1, 2012 and the Sequoia Valley EZ in Tulare County received its final designation which will be effective retroactively to October 2010 (because of AB 1550).

The remaining six conditional zones are:

• Harbor Gateway Communities cities of Los Angeles and Huntington Park, and County of Los Angeles)
• Pittsburg (City of Pittsburg and County of Contra Costa)
• Sacramento (cities of Sacramento, West Sacramento, Rancho Cordova, and County of Sacramento)
• San Diego (cities of San Diego, Chula Vista, and National City)
• San Francisco (City and County of San Francisco)
• Santa Clarita Valley (City of Santa Clarita and County of Los Angeles)

HCD has announce three more listening sessions in January to gather public feedback about possible regulatory changes to the Enterprise Zone program. The full announcement can be found here.

There will be meetings on January 18th in Sacramento, on January 23rd in Los Angeles, and on January 26th in Tulare.

Mayors from around the State have been in Sacramento advocating for the Enterprise Zone Program in the wake of the loss of Redevelopment.

The Los Angeles Daily News, for example reports:

In Sacramento, Villaraigosa will also explore legislation to spur development in the absence of CRA/LA funds, said [Deputy Mayor Sarah] Sheahan.

“We are advocating for the tools L.A. will need to create jobs, such as state enterprise zones,” Sheahan said, cautioning that the mayor isn’t advocating for a “new CRA.”

In Watsonville, however, the situation is more urgent. The Mercury News explains:

WATSONVILLE – For nearly 15 years, Watsonville has dangled tax breaks as a lure to businesses looking for a new home or an incentive for existing companies to expand.

But in April, the city’s state-approved enterprise zone expires, leaving the city with few tools to stimulate the local economy at a time when more than one in five workers is out of a job, officials say.

“It’s very tough, especially on the back of losing redevelopment,” said Jan Davison, interim redevelopment and housing director. “We’re losing the only other form of economic development assistance we had. It’s a double whammy.”

The state Supreme Court ordered the elimination of redevelopment agencies statewide in a late December ruling. The City Council on Tuesday will take the first step toward dismantling the local agency by designating a successor to distribute assets and ensure obligations are met.

On Monday, city leaders advocated for help on the redevelopment front as well as for an extension of the enterprise zone during meetings with legislators in Sacramento.

Mayor Eduardo Montesino said leaders came away without a clear answer.

“We’re pushing everybody,” he said, “but it’s a fluid situation.”

California established enterprise zones in 1984 to spark economic investment in depressed areas of the state. Watsonville’s enterprise zone, one of 42 in the state, was established in 1997.
The program aims to jump-start private investment by providing tax credits for hiring and equipment purchases.

According to the California Association of Enterprise Zones, the program was responsible for creating or retaining more than 118,000 jobs in California in 2010.

Critics, however, say the program costs too much and merely shifts jobs from one region to another.

Last year, Gov. Jerry Brown proposed to eliminate the program, a move the state Department of Finance said would save $343 million in 2010-11 and $581 million in 2011-12.

The program was spared, but the state Department of Housing and Community Development, which oversees the program, is not currently accepting renewal applications.

Julie Lambert, director of finance and human resources for S. Martinelli & Co. in Watsonville, said her company uses the program and called it a “valuable” resource for business as well as the city. She said it could use some tinkering to help businesses plan better. For example, legislators have changed the timing on when tax credits on equipment purchases can be used from year to year.
But she said the enterprise zone does spur economic development.

“It’s very valuable for the city for attracting new business, whether they’re in startup mode or expansion mode,” Lambert said. “It’s another gold star on the evaluation sheet as they decide where to locate their business.”

Siskiyou County Enterprise Zone manager is one of the voices featured in this news story about the assault on business in that county:

The Governor moved up the release of his 2012-2013 budget proposal from Jan. 10 to today. Under the heading “Supporting Job Creation,” the budget summary document says:

The resulting stability from a balanced budget will give businesses the certainty and the reassurance they need to invest in California. In addition, the Administration will propose legislation to reform the enterprise zone program and move to a mandatory single sales factor for apportioning multistate business income. Such changes will allow the state to afford investments in manufacturing, business incentives, and other tax relief.

Details of these reforms will follow in specific legislation.