Now let's see the lack of complaints about corporate leeches

By Richard Chang

Published: Monday, Jun. 3, 2013 - 12:00 am | Page 1A
Last Modified: Monday, Jun. 3, 2013 - 8:07 am
A rare glimpse into an embattled California tax credit program shows
that Fortune 500 companies * and one casino * are its biggest
beneficiaries in Sacramento County.
The state enterprise zone program offers businesses up to $37,440 in tax
credits per employee as an incentive to hire workers in economically
depressed areas. But the credits have come under fire from Gov. Jerry
Brown and labor groups who claim they are ineffective and direct money
away from more desperate state needs.
Many enterprise zone administrators, relying on advice from a state
attorney, have refused to disclose which businesses use the tax credit
program, citing taxpayer confidentiality. But a Sacramento joint powers
agency and West Sacramento last week provided data showing which
companies claim enterprise zone vouchers in their areas.
An assortment of fast-food restaurants, manufacturers and retailers are
on the lists. So are two strip clubs in Rancho Cordova, which have
claimed a combined 24 vouchers dating back to 2010. Opponents have
seized on that fact to assail the program.
"That's just an inappropriate use of money," said state Sen. Lois Wolk,
D-Davis, chair of the Senate Governance and Finance Committee, which
considers tax legislation. "Our schools need money, our strip clubs do
not."
Brown unsuccessfully tried to kill enterprise zones in 2011, ultimately
choosing instead to focus his political capital on eliminating
redevelopment agencies, another business-friendly program. But earlier
this month, he again sought to scrap enterprise zones when he unveiled
his May budget revision.
Under Brown's proposal, the state would eliminate its 40 enterprise
zones and use the money instead for a sales tax exemption for
manufacturing and biotech research firms. He would maintain hiring
credits but focus them on the long-term unemployed, veterans and people
receiving public aid.
But the Democratic governor faces an uphill battle, as enterprise zones
are located in nearly every legislator's district and thus come with
local support.
"By modernizing the state's job-creation incentives, we can get a lot
more bang for the buck than we've seen," said H.D. Palmer, deputy
director for external affairs at the California Department of Finance.
The nonpartisan Legislative Analyst's Office estimates the program will
cost state taxpayers $750 million this fiscal year, a number that has
grown exponentially since its creation by the Legislature in 1986.
Analysts project the cost to top $1 billion in the next few years.
Craig Johnson, president of the California Association of Enterprise
Zones, said he welcomes reform that would "strengthen and enhance" the
program, but scrapping it altogether would be a "mistake."
"We've seen successes of the program in some of the most economically
distressed areas of the state," he said.
About 500,000 tax vouchers have been issued since 2009, according to the
state Department of Housing and Community Development, the agency that
oversees the program.
In Sacramento County alone, shipping giant FedEx has obtained 1,382 tax
vouchers since 2010, by far the largest recipient, according to
documents obtained by The Bee. AutoZone, a national auto parts retailer,
ranked second with 159.
FedEx listed several office addresses and has a distribution center on
Elder Creek Road in Sacramento. In a written statement, FedEx said the
program "serves an important purpose in helping bring business and jobs
into areas of California."
Shipping competitor United Parcel Service has its own distribution
center in West Sacramento's enterprise zone and claims tax credits
there. But West Sacramento did not provide the total number of vouchers
companies obtained in its enterprise zone, which includes most of the
city save for its newer Southport neighborhood.
Enterprise zone foes have questioned why large corporations are getting
the tax credits. In 2009, companies worth at least $1 billion received
68 percent of those credits, according to the Franchise Tax Board.
"Wal-Mart is going to be located here anyway, whether there's a tax
credit or not," said Lenny Goldberg of the California Tax Reform
Association, whose group receives labor union support.
Senate Republican leader Bob Huff of Diamond Bar hailed the program as
"one of the few economic development tools" available to local
governments after the demise of redevelopment funds.
"Just because a company is big doesn't mean it can't get the tax
credits," Huff said. "If we want to have jobs here, we have to create an
environment that rewards business, not punish it."
Sandwiched between Fortune 500 companies in Sacramento's top five was
Capitol Casino, a North 16th Street card room that claimed 148 vouchers.
A sampling of vouchers issued this year went toward a cook, servers and
card dealers whose incomes were listed at between $8 and $10.50 an hour.
Capitol Casino officials did not respond to repeated requests for
comment.
In Rancho Cordova, strip clubs Gold Club Centerfolds and Deja Vu
Showgirls used 24 credits to hire waitresses, disc jockeys and security
guards.
"Five companies came and told us they could get us money, guaranteed,"
said Mark Boyles, owner of Gold Club Centerfolds. "We got a little extra
boost, but it probably didn't make much of a difference."
The state program is administered by local governments and special
enterprise zone agencies, which process and issue the vouchers.
But Terri Carpenter, spokeswoman for the Sacramento Employment and
Training Agency that administers the program in Sacramento County, said
her agency doesn't determine who can receive the vouchers.
"If they are eligible, we process it. We follow the letter of the law,"
Carpenter said.
Though SETA and West Sacramento responded to The Bee's request for
information, administrators for the Yuba-Sutter and San Joaquin
enterprise zones declined to disclose their voucher lists, citing
program rules and taxpayer privacy laws.
California Association of Enterprise Zones spokesman Nick Garcia said
most administrators will not provide such information.
Eric Johnson, spokesman for the state Department of Housing and
Community Development, said local administrators are free to reveal
enterprise zone applications but are not compelled to provide that
information.
A worker must meet one of 13 criteria, such as residency in a targeted
employment area, to qualify the company for the tax voucher. Though some
of the targeted areas are impoverished neighborhoods, others are drawn
broadly to include middle-class and wealthy blocks. Disabled workers and
veterans also qualify for the program.
Aside from new hires, the enterprise zone program allows employers to
retroactively claim credits for former and current employees. Critics
contend that has given rise to a cottage industry of tax consultants who
solicit businesses, promising to unearth unused tax credits from the
past.
A 2009 report by the Public Policy Institute of California questioned
the effectiveness of the measure, noting that "enterprise zones have no
statistically significant effect on either business creation or
employment growth rates."
Still, enterprise zone officials say the program works and gives
opportunities to workers who struggle most to find a job.
"The whole intent is to help people who have barriers to employment,"
said Fran Aguilera, San Joaquin County Enterprise Zone administrator.
"The business where they work is immaterial. You have a guy come out of
prison * do you think he's going to work on Wall Street?"
Brown's proposal is not yet contained in a bill, but the Senate
Governance and Finance Committee on May 24 expressed its support for his
plan in a 9-4 vote. A two-house budget committee will consider
formalizing his proposal this week, according to Palmer of the state
Department of Finance.
A second proposal spearheaded by state Sen. Jerry Hill, D-San Mateo,
drastically reforms the current program but stops short of scrapping it
completely.
Hill's SB 434 would cap the cost of the program and restrict the ability
to obtain retroactive credits. Employers would have to claim the credit
within a year, instead of the current four-year window. In addition,
employees must be paid $16 an hour or more for the company to obtain the
voucher.
Hill and state Sen. Anthony Cannella, R-Ceres, have planned a news
conference today in front of Deja Vu Showgirls.
"The whole system is an abuse," Hill said. "We want to find a reasonable
solution by modifying it, not eliminating it."
Call The Bee's Richard Chang, (916) 321-1018. Follow him on Twitter
@RichardYChang.

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