News Column

Enterprise Zones to Be Phased Out

August 9, 2013
san bernardino
San Bernardino, Calif. (file photo)

California is preparing to initiate a new economic development strategy that will eliminate the state's "enterprise zones" in favor of new business incentives, a move that has many business leaders in Inland Southern California worried about their own strategies.

Gov. Jerry Brown in July signed new legislation that phases out the state's 41 enterprise zones, the specified geographic areas that offer tax credits and exemptions to companies that agree to move there. There are two in the Inland area: The San Bernardino Valley Enterprise Zone includes much of the cities of San Bernardino, Colton and parts of other cities, and the Coachella Valley Enterprise Zone.

Businesses concerned that the new laws could hurt the local economy attended a meeting on Thursday, Aug. 8, in Ontario with Kish Rajan, director of the Governor's Office of Business and Economic Development, also know as GO-Biz. The meeting, one of a series Rajan held in Southern California Thursday, was hosted by the Inland Empire Economic Partnership.

Enterprise zones have been in place for more than 30 years. They are being replaced by incentives that include a sales-tax break for businesses purchasing new manufacturing or research equipment, and a hiring incentive in areas with high unemployment where the employer pays workers more than $12 per hour. There is a $10 per hour minimum in selected pilot areas.

Rajan said the enterprise zones were designed to stimulate local economies, and the program did accomplish that.

"What we weren't seeing was adequate incentive, and enough tools for flexibility, to make companies want to invest California in the first place," Rajan said in an interview. "This signals to the marketplace that we're competing."

Rajan told the audience made up largely of business leaders and elected officials that the state is trying to counter efforts by people like Texas Gov. Rick Perry, who has aggressively offered companies incentives to move there.

"The enterprise zones in general were not fundamentally impacting the decisions in the first place about whether companies would relocate or expand in California," Kish told the audience.

He said that some innovation hubs were thriving, but admitted that most of them were in coastal areas. For example, only about 3 percent of biomedical workers are in Riverside and San Bernardino counties.

Rajan said both he and Gov. Brown do not want the Inland Empire, or any area, left behind in economic development. But some in the area are worried that the new laws, especially the ones that mandate $12 hourly pay, will drive employers away. Numerous businesses in the two enterprise zones in the area, which include small businesses and some major corporations, do not pay all their workers $12 per hour.

Mark Weber, manager of the Coachella Valley Enterprise Zone, questioned whether the hiring credit would work in an area dominated by the agriculture and hospitality industries, two sectors that typically pay low wages. It will discourage companies from giving the desert area any serious consideration.

"We feel we're going to get passed over on this," Weber said during an audience participation of the discussion.

Weber also was concerned about the timetable, which calls for these new systems to be phased in starting on Jan. 1, and he said eliminating the enterprise zone benefits would hurt the momentum of companies that are already operating.

Rajan said his office recognizes these concerns and said the true socio-economic divide in California is not north versus south but coastal and inland. Paul Granillo, president and CEO of the IEEP, said he was pleased that state officials are at least paying attention to that.

"I think he listened," Granillo said of Rajan. "It's part of an open discussion."


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Source: Copyright Press-Enterprise (Riverside, CA) 2013

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