Time to fix California’s enterprise zones

Enterprise zone hiring credits are supposed to help businesses, especially in disadvantaged areas, create jobs. Sounds good, right? The problem is research indicates the enterprise zone program falls woefully short of fulfilling its intended purpose.

The Public Policy Institute of California released a study in 2009 finding that enterprise zones have “no statistically significant effect on either employment levels or employment growth rates.” In addition, the California Legislative Analyst’s Office has issued several reports concluding that enterprise zones don’t create jobs, finding the program is “expensive and not strongly effective.”

The enterprise zone program costs the state $700 million a year currently, and is growing by more than 35 percent annually. The program simply isn’t a good return on the investment taxpayers are making.

Despite all the evidence of the program’s failures, proponents, like the California Enterprise Zone Association, say any effort to reform this wasteful program by making it more transparent and accountable is “anti-business.” That defies common sense.

In theory, tax credits for jobs are positive. They can help businesses stay competitive and strengthen communities by incentivizing real job creation. The Hollywood film tax credit is an example of a program that actually is creating and retaining California jobs. The tax break is reviewed by the legislature for effectiveness before it is extended.

With enterprise zones, there’s no such review. In fact, the enterprise zone program is shrouded in secrecy, with no mechanism for the public to see where the tax credits are going and no requirement for companies to create new jobs. Even worse, a cottage industry of enterprise zone consultants has sprung to life, profiting off taxpayer dollars that are supposed to be going to job creation.

While the state budget is in better shape than previous years, California’s economy is still fragile. Every available dollar of state spending should go to creating jobs and strengthening the middle class. The enterprise zone program, in its current form, does neither.

Though the program was originally conceived to bring jobs and businesses to economically distressed areas, it has long since deviated from its mission. An overwhelming 61 percent of enterprise zone tax breaks were claimed by corporations with over $1 billion in assets, according to the Franchise Tax Board. And many of those businesses were in some of the most expensive areas of San Francisco and Los Angeles, not in areas with the highest unemployment.

In fact, according to the California Department of Housing and Community Development, in 2011 only 7 percent of hiring credits went to workers that are economically disadvantaged and less than one percent went to veterans. For a program that’s supposed to be encouraging job creation for low-income people and veterans, that’s a miserable track record that underscores the urgent need for reform.

With a price tag at $700 million per year and growing, enterprise zones have become the poster child for wasteful spending on what amounts to corporate welfare.

Instead of going to wealthy mega-corporations like Walmart and Taco Bell, those resources could instead be used in our schools to provide textbooks for kids and reduce class sizes. The taxpayer funds wasted on enterprise zones could be used to keep cops and firefighters on the street or to rebuild our crumbling infrastructure. Those funds could also be used on a real, transparent, accountable job creation program.

Unfortunately, all the state money devoted to enterprise zones appears to be going down the rat hole, providing little benefit to our communities.

Other states have done a much better job than California in making sure that business tax breaks are accountable to their intended purpose.

In Texas, for example, corporate subsidies are transparent. The public actually knows which companies are getting the tax credits and companies are required to create new jobs in order to get a public subsidy. The subsidies are also attached to wage standards, and companies can’t get public assistance unless they create new and good jobs.  And, in Texas, companies must give the tax credit money back if they don’t meet job creation goals. California, on the other hand, requires none of this transparency or accountability from the enterprise zone subsidy program.

California is just now emerging from a dark budget hole. Enterprise zones threaten to push California back into the abyss by bleeding our state dry for no return on the dollar.

Corporate tax breaks should be transparent and create good jobs for Californians.

Every single corporate tax break must be put to the jobs test. Tax credits need to be accountable to their intended purpose, and they should provide a return on the taxpayers’ investment. Enterprise zones fail that test.

Governor Brown is right to propose significant changes to the program. It’s time for enterprise zones to face serious reforms or be eliminated altogether.

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Ed’s Note: Art Pulaski is the Executive Secretary-Treasurer of the 2.1 million member California Labor Federation.