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May 17, 2013
Editorial: Brown suggests tax break deal that could work


(May 17 -- By the Editorial Board)

Gov. Jerry Brown has renewed his push to eliminate the $700 million to $750 million a year business tax break known as enterprise zones, this time with the goal of using that money in ways that actually would stimulate economic development.

After failing to win legislative approval for the abolition in 2011, Brown now proposes to replace them in a variety of ways including reducing the sales tax on new manufacturing equipment, something representatives of manufacturers long have sought. That would be a $200 million annual savings to companies seeking to expand.

Brown also proposes investment incentives and hiring tax credits to encourage businesses to hire low-income individuals in high unemployment areas, regardless of whether they're in enterprise zones. Although details are sketchy, the concepts seem reasonable.

Conceived of in the 1980s, enterprise zones are supposed to provide tax breaks to employers in exchange for them setting up businesses in downtrodden parts of the state, and hiring people who need jobs.

Without a doubt, some employers followed the original intent, and changed lives for the better. Over time, however, consultants and accountants got involved and too often twisted the 40-plus zones into caricatures of themselves.

Employers who locate in one of the zones can collect tax credits for people hired years earlier. That amounts to a giveaway for decisions already made, not an incentive to hire new employees.

Some zones are in parts of the state where the economic recovery is a mere theory. Other zones are in vibrant areas, such as San Francisco's South of Market neighborhood.

The Public Policy Institute of California has found that enterprise zones "have no overall effect on job growth." Unlike Texas, which has a similar tax program that seems to work better, California does not identify companies that receive the money, so it's not clear whether low-paying retailers or high-end manufacturers receive the incentives.

At a press conference earlier this week, Brown referred to VWRA, a medical supply company owned by a Chicago private equity firm that closed its warehouse in Brisbane two years ago, reopened in an enterprise zone in Visalia, and became eligible for tax credits of up to $37,000 per employee.

The Visalia area has unacceptably high unemployment. But as Brown noted, the company merely shifted jobs from one end of the state to another.

Brown is aligned with organized labor in his disdain for enterprise zones. Labor will make their abolition a top priority, having seen too many instances in which companies shutter union shops, move and don't hire union workers.

The legislative fight will be heated. The outcome is not clear. The governor and legislators should be mindful of employers who made decisions based on the promise of tax benefits. But the annual cost of enterprise zone is huge. Surely, the state can use that money in ways that result in well-paying jobs for people truly in need.

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