California Targets EZ Program for Elimination

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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.

3 Responses to “California Targets EZ Program for Elimination”

  1. Tough Love for California TIF « Says:

    […] the Enterprise Zone program, also slated for elimination by the Brown Administration, redevelopment in California actually does provide some clear benefits […]

  2. California Enterprise Zones On the Chopping Block (Again) | Says:

    […] 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 […]

  3. California Enterprise Zones Tax Credit Overhaul Enacted | Says:

    […] 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, […]

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