Archive for the ‘Enterprise Zones’ Category

California Enterprise Zones Tax Credit Overhaul Enacted

July 1, 2013

CA EZ 2Last week brought a satisfying conclusion to Governor Jerry Brown’s two year effort to bring an end to California’s controversial Enterprise Zones (EZ).  Assembly Bill 93 passed the Senate with a required two-thirds vote and awaits the governor’s signature.  While falling short of Gov. Brown’s original intent to completely eliminate the $700 million per year program, the bill will implement critical reforms to EZ hiring tax credits and de-fund the most wasteful aspects of the subsidy.

The EZ program has been criticized in the past for failing to actually create jobs, its spiraling out-of-control costs to the state, directing the vast majority of its financial benefits to extremely wealthy companies, subsidizing low wage employers and job sprawl, and assisting a company that replaced its entire unionized work force with new workers.  Last month it was discovered that two strip clubs were receiving hiring tax credits for their employees.  Throughout its 27 year history, the program has never been transparent to taxpayers and recent revelations about which companies are getting tax breaks have unleashed a wave of opposition from interest groups and the public alike.

Among the reforms to EZ hiring tax credits enacted by AB 93 are:

  • A requirement that a business actually grow new positions to qualify for tax credits
  • A wage standard of 1.5 times the minimum wage for new jobs
  • Targeted hiring of ex-offenders, unemployed, veterans, and people receiving income assistance (credits are limited to these employees)
  • Public transparency requirements

In order to secure reforms to the hiring tax credits, the bill’s proponents enacted two new business tax credits, both of which would be funded with the state’s savings resulting from reduction of hiring credit activity.  A new credit against the state sales and use tax could be claimed by biotech and manufacturing companies for the purchase of business equipment.  Unfortunately, this credit will have no statewide or annual cap, although business purchases that exceed $200 million annually per company are ineligible.  The state estimates its cost at $400 million a year.

The second subsidy program enacted with AB 93 would take the form of a competitive discretionary fund.  Tax credits would be awarded to major job creation-focused projects approved by a newly established California Competes Tax Credit Committee, which would control $200 million worth of tax credits per year.

Only time will tell if California has traded one boondoggle subsidy for another, but it is encouraging that the new programs will be held to higher standards of accountability and transparency.  Almost anything will be an improvement over the EZs, and for the time being at least, California appears to have learned its lesson.

Economic Development Among Consenting Adults

June 14, 2013

Lalo Alcaraz (c) 2013

California has unwittingly joined New York and Pennsylvania in the distinction of subsidizing strip clubs. Is there a bi-coastal consensus for, ahem, full disclosure?

Late last month, as a part of California Governor Jerry Brown’s campaign to end the wasteful and ineffective Enterprise Zone (EZ) program, the Sacramento area EZ businesses list was made public.  This disclosure of companies benefiting from EZ hiring tax credits was the first time that taxpayers in California have ever had access to information about which companies receive economic development subsidies through the program and how much those tax breaks are worth.

In addition to showing that the state provides subsidies to highly profitable corporations and a casino, the list revealed that two strip clubs in the town of Rancho Cordova have been claiming EZ tax credits since at least 2010.  Gold Club Centerfolds is receiving tax breaks worth up to $37,440 apiece for nine employees, and Déjà Vu Showgirls is receiving the same deal for 13 employees.

It is unknown how many other “adult” businesses in the state are getting such tax breaks because the identities of EZ businesses are usually hidden from public scrutiny based on (clearly misplaced) taxpayer confidentiality policies.

As we blogged last week, the California EZ program is also extremely expensive, with an annual loss of state revenue now more than $700 million headed towards $1 billion.

California is not the first state to embarrass itself by subsidizing sexually-oriented businesses.  New York City provides substantial tax breaks to thousands of businesses through its Industrial and Commercial Incentive Program (ICIP).  In 2010, the New York Daily News revealed that at least three strip clubs were receiving subsidies through ICIP.  The scandal led many organizations, including Good Jobs New York, to call for an overhaul of the misguided program (NYC’s costliest).

Similarly, Pennsylvania’s Keystone Opportunity Zone program (KOZ is the state’s name for Enterprise Zones) became embroiled in considerable controversy when an “adult entertainment business” in LycomingCounty landed in a KOZ in 2005.  The business was later forced to relocate after an utterly predictable land use conflict with the nearby Little League World Series Complex, and the KOZ rules were modified to prevent strip clubs from receiving tax breaks.  Unfortunately, this eligibility rule is literally one of the only restrictions on uses of KOZ subsidies and the identities of participating businesses remain hidden from the public.

The common element these three costly programs share is secrecy: none publicly discloses recipients of the tax breaks.  Hiding government expenditures is a guaranteed recipe for waste and abuse.   Public outrage is justified when the veil of taxpayer confidentiality is lifted to reveal a subsidized strip club or other controversial enterprise.  Whether or not such uses of economic development funds are appropriate should be decided in broad daylight; without subsidy transparency, continuing scandals are inevitable.

(Comic compliments of Lalo Alcaraz, (C) 2013)

California Enterprise Zones On the Chopping Block (Again)

June 7, 2013

CA EZsGovernor Jerry Brown has again proposed elimination of California’s much-maligned Enterprise Zone (EZ) program in order to help balance the state’s precarious budget and redirect the foregone business tax revenues to better uses.   (Gov. Brown’s previous attempt to cut the program in 2011 during a severe revenue shortfall was thwarted by business groups and localities seeking to retain the business tax breaks; the state instead eliminated municipal redevelopment agencies.)

In the past, the state has hidden the names of companies getting the EZ tax breaks of up to $37,000 per employee.  Multiple disclosure requests by Good Jobs First and other accountability-minded organizations have been denied by California’s Franchise Tax Board, which claimed tax confidentiality.   For the first time, however, recipient data has just been released by the Sacramento area Enterprise Zone administrator.

The Sacramento Bee revealed that over 6,000 employment vouchers—essentially the bounty documents for EZ tax credits—have been claimed by county businesses since 2010.  FedEx alone benefited from nearly 1,400 vouchers.  Other notable recipients include Verizon, Wells Fargo, and Walmart.  However, the most notorious enterprise zone claimants are a casino and two strip clubs in Rancho Cordova.

The EZ program is no stranger to controversy.  Policy makers have been reluctant to cut or even reform the program, even in the face of evidence that it has had zero net effect on job creation in the state.  The lost revenue currently costs the state approximately $750 million a year and is projected to grow to over $1 billion annually in coming years.  Seventy percent of those tax dollars go to companies with assets valued over $1 billion.  Even more troubling, companies can retroactively claim EZ credits for employees hired up to five years in the past—even if the person is no longer working at the company—meaning that there is literally no incentive for new job creation in order to receive the subsidy.

The state also allows companies to claim EZ credits for new hires, rather than on net new positions created.  Companies don’t need to be creative to abuse the poorly designed system.  VWR, formerly located in Brisbane, laid off 75 unionized workers and moved across the state to Visalia, where it located its new facility in an Enterprise Zone and receives tax credits for the (non-union) replacement hires.  In Anaheim, stadium concessions contractor Anaheim Arena Management recently announced it would lay off 500 workers, the replacements for which would be eligible for EZ vouchers under current program rules.

Clearly it is time for California to rethink its costly EZ program.  A program that fails to create jobs, subsidizes wealthy and abusive businesses, and incentivizes job churn cannot be called economic development.  Whether California elects to reform the program to actually create jobs or eliminates it altogether, it is past time the state made this use of economic development dollars deliver for taxpayers.

Community Wins in Missouri

December 17, 2012

Congratulations to community groups in Columbia, Missouri on their win last week preventing most of the city from being designated “blighted” to create massive property tax abatements.

Photo credit: Charles Minshew/KOMU, via Flickr. “Columbia residents discuss EEZ concerns: Columbia resident Shari Korthuis (right) discusses the latest version of a map of the city’s Enhanced Enterprise Zone with Nancy Wood and Jeff Memmer at a meeting at Parkade Center in Columbia, Mo., on Wednesday, March 14, 2012.”

Photo credit: Charles Minshew/KOMU, via Flickr. “Columbia residents discuss EEZ concerns: Columbia resident Shari Korthuis (right) discusses the latest version of a map of the city’s Enhanced Enterprise Zone with Nancy Wood and Jeff Memmer at a meeting at Parkade Center in Columbia, Mo., on Wednesday, March 14, 2012.”

A year and a half ago, the Regional Economic Development Inc. (REDI) board proposed to create an Enhanced Enterprise Zone, or EEZ, that would cover most of Columbia (at one point, the Columbia City Council approved a 49-square-mile EEZ; later, the Council repealed its decision). Missouri EEZs (there are 124) allow certain companies to receive 50 percent local property tax abatements and state tax credits for investing and creating jobs. The program also requires zones to be designated as blighted.

A coalition of community groups (including the Columbia Climate Change Coalition, Grass Roots Organizing, and the local chapter of the Women’s International League for Peace and Freedom) opposed the fake blight designation. They spoke during REDI meetings, contacted media, and organized an informational community meeting with Good Jobs First’s Greg LeRoy and more than 80 participants. Using state EEZ disclosure data captured in Subsidy Tracker, LeRoy noted that EEZ credits were dominated by agricultural food processing companies that, of course, need to be close to Missouri’s abundant farmlands.

After months of grassroots pressure, the REDI board last week surrendered, asking the Columbia City Council to drop the plan, citing “lack of community support” as the main reason for its decision.

Shell “Cracks” Pennsylvania’s Tax Code

July 3, 2012

Pennsylvania Governor Tom Corbett’s controversial plan to award an estimated $1.7 billion in corporate tax credits to Royal Dutch Shell became law with the passage of the state’s budget late Saturday night.  The 25-year deal—one of the largest subsidy packages ever awarded to an individual company in the United States—is for an ethane refinery that Shell plans to build north of Pittsburgh in Beaver County. Known as a “cracker,” the facility will break down ethane into other petrochemical products.

The legislation did not name Shell but limited the new credit of 5 cents for each gallon of ethane purchased for processing to crackers that create at least 2,500 jobs and make a capital investment of $1 billion, which is what Shell plans to do.

It is no secret that the Corbett Administration cooked up the new credit in order to land the Shell project, which the company also shopped to Ohio and West Virginiain search of the best subsidy deal. The $1.7 billion price tag of Gov. Corbett’s package shocked Pennsylvania residents and made national news.  Astonishingly, the final signed law contains no annual or cumulative cap on the total value of credits that ethane refineries can claim, meaning the cost may be even larger than Gov. Corbett’s original proposal.

Because the Shell cracker will be located inside a virtually tax-free Keystone Opportunity Zone, the immediate value of its state tax credits will be derived from the cash value of selling them to other firms for an estimated 15 years.  The state changed an existing KOZ boundary to accommodate Shell’s project, despite the fact that the township never requested that the boundary be expanded.

The Corbett Administration, Shell and the American Chemistry Council trade association sought to justify the sweet deal with a contentious claim that the project would create a total of 20,000 new jobs, a figure composed of direct, indirect, induced, and temporary jobs such as construction positions.  The jobs figure was repeated by industry parties and notably, Administration officials, who were later forced to quietly revise the laughably rosy jobs estimate to half that amount, after admitting under pressure that no independent job creation analysis had been performed.  The Administration’s revised 10,000 new jobs figure remains no less preposterous, given that the ACC estimates just 400 to 600 permanent jobs will result from the new refinery.  (For more information about calculating “ripple effects” of job creation, see this report by the U.S. Economic Development Administration.)

Any legitimate economic analysis would have difficulty showing how the state could recoup a quarter of a century of huge giveaways to Shell.  Pollution concerns notwithstanding, the state needs to consider the potentially short life span of an industry based on depletion of limited resources such as natural gas.  Fortunately for Gov. Corbett, he will be out of office long before a final accounting of the deal can be made.

Oregon Ramps Up Transparency, Looks to Rein In Subsidies

June 14, 2011

The past couple of months have brought broad changes to economic development tax credit policy in Oregon.  Last month the state enacted major tax credit transparency practices when Gov. Kitzhaber signed into law House Bill 2825, which requires company-specific disclosure of tax credit recipients.  Also up for consideration in the state legislature’s final days is House Bill 3671, which if passed would reduce available business tax credits from approximately $40 million to $10 million annually and make significant structural changes to the contentious Business Energy Tax Credit (BETC) program.

The new transparency law, which was pushed by groups such as OSPIRG, requires state agencies responsible for administering economic development subsidies to disclose via Oregon’s transparency website information about recipients, including their names, addresses, subsidy values, and performance measures.  Programs covered under this law include the controversial manufacturing and renewable energy components of the BETC program, the state’s enterprise zone program, and contributions to the film production development fund, among others.  The law will go into effect later this year.  Oregon scored zero on Good Jobs First’s recent 51-state subsidy disclosure study, Show Us the Subsidies, for its failure to disclose company-specific recipient information for any of its major economic development programs.

As in other states, Oregon’s revenue crisis has forced the state to consider reducing and in some cases eliminating business tax credit programs.  HB 3671 would end the practice of subsidizing construction of major solar and wind production facilities through the BETC program.  It does not completely eliminate subsidies for manufacturers of solar energy equipment and energy conservation activities, but replaces existing subsidies with a set of smaller, more targeted programs.  The bill additionally proposes reducing the total value of business tax credits from the projected $40 million biennially at the state’s current rate to $10 million.  The measure has reportedly gained broad support, although Gov. Kitzhaber has proposed raising the cap to $25 million.

Both of these measures will move the Oregon’s economic development practices toward greater accountability and ultimately, more effective job creation and energy conservation policy.

Advances in Oregon’s Trailing Disclosure

March 1, 2011

A guest blog post by Jon Bartholomew of OSPIRG

As Oregon faces a $3.5 billion budget deficit, efforts are underway to give taxpayers a fuller picture of how much state revenue is being used for corporate subsidies.  While Oregon provides checkbook-level transparency of direct state spending, it does not provide any detail of spending through the tax code. We can get big picture about each tax subsidy program from our Tax Expenditure Report (TER), but it only tells part of the picture.

Based on what it says in the newest TER, there is likely to be about $600 million in the next biennium in tax breaks for businesses for the purpose of economic development. What you haven’t been able to see in the TER or anywhere online is who got these breaks, how much they got, how many jobs they promised to deliver, and what they actually did. If we are to ensure these programs actually create the jobs they said they would, and to ensure these breaks aren’t going to undeserving businesses, we need to be able to see that data.

One of the largest and most controversial of these tax expenditures that businesses benefit from is the Business Energy Tax Credit (BETC). Just last month, the Oregon Department of Energy began posting who has received and been pre-certified for BETC credits on their website. This information should be mirrored on the state transparency site, but at least it’s available at ODoE’s site. Some improvements that still need to be made are to include the data in a downloadable spreadsheet (instead of a pdf) and to include pass-through partners (where the company that received the credit then sold the credit to another taxpayer). This is the first improvement to transparency of economic development programs in Oregon since Good Jobs First gave Oregon an “F” in their report Show us the Subsidies. The report noted that none of Oregon’s economic development tax subsidies posted data online about who received the benefit and what the taxpayers got for it.

But besides the BETC program, there are hundreds of millions of dollars that go to corporations in the name of economic development that we can’t see online. For the Enterprise Zones, the Strategic Investment Program, E-Commerce Zones, Oregon Investment Advantage and a half dozen other programs, we still need to be able to see who got the money and what they did for it. This is exactly what is behind HB 2825, a bipartisan effort to make economic development tax incentives more transparent to the public. As an editorial in the Eugene Register Guard noted, “Oregonians need a clear picture of what they’re getting from these programs, both because of their big price tag and because it’s essential that the expenditures yield actual results.” This bill had its first hearing on February 17th and has broad bipartisan support.

Transparency is certainly not the silver bullet to ensure the state spends money in the most effective ways, but it is a powerful tool for accountability.  Through transparency, active citizens can analyze how we spend, and make suggestions for improvement. The arguments about state spending shift from about rhetoric to about facts. And since sunlight is the best disinfectant, transparency will also prevent the misspending of tax dollars. While there has been a lot of improvement over the last two years, we still need to ensure ALL state spending is transparent, and we need to make it more understandable.

Jon Bartholomew is a Policy Advocate for the Oregon State Public Interest Research Group (OSPIRG). He is a member of the Transparency Oregon Advisory Commission, a board member of Open Oregon, and works on promoting government transparency in Oregon. In addition, he works on consumer protection and democracy issues for OSPIRG. Prior to working for OSPIRG, Jon worked for Common Cause as Associate Director of Media Reform.

Mapping Job Subsidies: Becoming Easier in More States

February 15, 2011

As those who follow Good Jobs First know, since 2000 we have issued several studies mapping the geographic distribution of company-specific economic development subsidy deals—and then analyzing them for their pro-sprawl bias.

We are proud of the methodology we pioneered in creating these studies and have freely given away our data and advice to others seeking to replicate the work. These studies were tedious: we obtained lists of subsidy deals using state Freedom of Information laws and then spent months either obtaining street addresses or cleaning up the addresses provided.

So we are glad to announce new progress: in their online disclosure websites, states are increasingly including the street addresses of economic development deals. More than $3 billion per year among 15 states is now geocodable!

To be sure, the ease with which these street addresses can be copied or downloaded varies a great deal. But the truth is: it is becoming easier than ever to map where states and cities are subsidizing the creation or retention of jobs. And once you have project sites mapped, you can juxtapose them with numerous criteria like those we have used: poverty, race, tax-base wealth, population density, whether the worksite is served by public transportation, whether jobs are being created in communities hardest hit by plant closings and mass layoffs, etc.

Here, derived from our recent study, Show Us the Subsidies, are the state economic development programs we found with street addresses online:

States, Program(s), Most Recent Cost of Program

Arizona – Enterprise Zone Income and Premium Tax Credits – $10,943,276

Colorado – Job Creation Performance Incentive Fund – $6,097,056

Connecticut – Jobs Creation Tax Credit (aka New Jobs Creation Tax Credit) – $10,000,000
Connecticut – Manufacturing Assistance Act – $20,182,448
Connecticut – Urban and Industrial Site Reinvestment Tax Credit – $89,000,000

Illinois – Economic Development for a Growing Economy (EDGE) Tax Credit – $23,534,000
Illinois – Enterprise Zone Program – $112,767,000
Illinois – IDOT Economic Development Program – $4,820,496
Illinois – Large Business Development Assistance Program – $5,699,922

Indiana – Economic Development for a Growing Economy (EDGE) Tax Credits – $61,600,178
Indiana – Hoosier Business Investment Tax Credit (HBITC) – $107,011,548
Indiana – Skills Enhancement Fund (SEF) – $1,186,925
Indiana – Twenty-First Century Research and Technology Fund (21 Fund) – $16,264,300

Kentucky Business Investment (KBI) Program – $33,500,000
Kentucky Enterprise Initiative Act – $21,500,000

Louisiana – Enterprise Zones – $60,564,631
Louisiana – Industrial Tax Exemption Program – $946,890,819
Louisiana – Quality Jobs Program – $43,435,275

Michigan – Brownfield Redevelopment Credits (aka Brownfield Zone Credits) – $78,200,000
Michigan Economic Growth Authority (MEGA) Tax Credits – $105,600,000
Michigan’s Advanced Battery Credits (MABC) – $300,000,000

Minnesota – Job Opportunity Building Zones (JOBZ) – $32,799,000

North Dakota – Development Fund – PACE loans and Regional Rural Revolving Loan Fund – $5,564,016

New York – Brownfield Cleanup Program – $624,000,000

Oklahoma – Quality Jobs – $60,607,522

Rhode Island – Corporate Income Tax Rate Reduction for Job Creation – $21,256,182
Rhode Island – Enterprise Zone Tax Credits – $715,187
Rhode Island – Motion Picture Production Tax Credit – $8,112,990

Texas Economic Development Act (Ch. 313) – $282,900,000

Washington – Aircraft Pre-production Expenditures B&O Tax Credit – $6,200,000

Total – $3,100,952,771

For more information on mapping job subsidies, contact Leigh McIlvaine or Tommy Cafcas.

California Targets EZ Program for Elimination

February 15, 2011

Facing a budget hole estimated at $28 billion, the administration of California Gov. Jerry Brown has proposed program cuts that have economic development officials panicking.  The Enterprise Zone program, which subsidizes in-zone businesses with hiring tax credits, deductions, and exemptions, is a prime target for revenue-starved California.

The program’s history is controversial.  A host of research has thoroughly debunked the claim that EZs have a significant impact on job creation.  (See the Public Policy Institute of California, whose study we covered on this site in 2009;  the state Legislative Analyst’s Office in March 2010 and again this year; and most recently, the California Budget Project.)  In its February report, the California Budget Project describes a number of troubling aspects of the program:

  • The cost of EZ tax credits and deductions has increased by 35% per year on average since its inception.
  • 70% of EZ tax credits to go corporations with assets of more than $1 billion.
  • The EZ hiring credit does not require the creation of new jobs (many recipients simply relocate jobs).

Only one study has been released in recent years in defense of the EZ program.  A 2009 study released by USC’s Marshall School of Business reported favorably on the economic effects of the program.  (This study is not available online.)  It was rebutted by Robert Tannenwald, then a Senior Fellow at the Center on Budget and Policy Priorities, who stated that the study’s findings “fly in the face of empirical evidence and economic theory.”

Whacking the EZ program would save the state $343 million this year.  That figure increases to $600 million annually in just two years’ time.   Elimination of a program that has negligible impact should be an easy decision for the state legislature.  These funds would be better spent in an economic development program with a proven track record.

Enterprise Zones Have No Net Effect on Employment in California

June 24, 2009

This month, the Public Policy Institute of California released a study that describes the economic impacts of the state’s Enterprise Zone program.  Its findings:  “…the program, on average, has no effect on job or business creation.”  That’s a tough break for the California Association for Local Economic Development, whose members proposed expanding the $500 million program to help stimulate the state’s economy.  The study’s conclusions shouldn’t be a surprise, though.  Other studies around the country have found that Enterprise Zone (EZ) programs are poorly managed and often stray from their original intent to incent job and business creation in disadvantaged urban areas.  In the Chicago area, EZ tax credits have actually contributed to greater metropolitan inequality.  New York is in the process of attempting to rein in Empire Zone companies that for years have failed to meet basic program requirements.  A forthcoming Good Jobs First study shows that many companies in two of Ohio’s largest metropolitan areas simply move from zone to zone to reap the benefits of EZ subsidies.

At a time when state and local budgets are stretched to the breaking point, results-oriented economic development should be a priority.  States and cities can make every dollar count by investing in schools, fixing infrastructure, and creating quality workforces.  More tax giveaways won’t generate consumer demand for goods and services – they’ll only further damage budgets.


Follow

Get every new post delivered to your Inbox.

Join 50 other followers