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Jon Fleischman

Governor Brown Would End Enterprise Zones To Feed Bigger Government

The appetite for more and more tax revenue by politicians in Sacramento is voracious.  If you stand still while reading this column, there is a decent chance that some legislation will be drafted targeting your wallet or purse for a State Capitol “cashectomy” — so I would suggest you kind of move around while you read this.

In Governor Jerry Brown’s May Revision to his state budget, he proposed pretty much sticking a fork into the state’s nearly thirty year embrace of what are referred to as Enterprise Zones, or EZ’s for short, in what appears to me to be a back door de facto tax increase.   What is an EZ?  Mark Lifsher over at the Los Angeles Times succinctly describes them this way:  “The 27-year-old enterprise zone program currently provides mainly large corporations but also small businesses with about $700 million a year in credits they can use to reduce the taxes they pay the state. The idea behind the 40 local enterprise zones is to create jobs in poor urban and rural areas by providing incentives to employers to hire local workers.”

In other words, EZ’s are an embrace of the idea that you can actually foster job creation by reducing the tax burden on businesses large and small.  For years now, businesses have located, relocated or expanded in one of these EZ’s based on the expectation that the numerous cost-saving policies in place in these areas would continue to be there.  In a big-government state like California, legislation which broadly takes areas and seeks to reduce the cost of doing business with state within their boundaries is a good thing.  Actually, Governor Brown’s proposals to significant pare back EZ’s is actually a step in the opposite direction from where he should be going.  To quote Board of Equalization Member George Runner,  “If I had my way, the whole state would be an enterprise zone.”

Brown’s proposal, put into written form only yesterday, minutes before a State Senate committee vote, would so pare back the EZ program that it would be a shadow of its former self.

Of course the usual parade of left-leaning think tanks have rolled out their studies where they purport that the EZ program and its policies are not resulting in job creation — or at least not enough jobs to justify the annual “cost” of the tax credits.  Leading the pack, of course, is the wacky-left California Budget Project (CBP), which comes out with “studies” that somehow justify the passage of massive tax increases all of the time, and who embrace class warfare like it’s going out of style.  One of their major critiques of EZ’s from the CBP is that a chunk of the tax credits go to — gasp — big companies.  You know, big companies that hire lots of people?  Yeah, those big companies.  Of course the reality is that whether a company is big or small, they are going to take advantage of a program that reduces their tax burden, which means more jobs.

Now I am not saying that the EZ program is perfect, of course.  There are certainly reforms that I would propose to them to make them more effective, and to reduce any instances of fraud or abuse (which at present, unfortunately, in almost every government program).  In fact the strongest defenders of the EZ program have produced a broad list of potential reforms for consideration.  But what the Governor is proposing is to basically “plunder” the program so that he can use those taxpayer resources in a very suspect way, which I explain below

Under Brown’s proposal, he wants to create a massive, taxpayer-funded slush fund, from which his administration would then dole out funds to companies that are ultimately of the Governor’s choosing.  Gee, I wonder how that will work out?  A year from now I would love to cross-match the recipients of these gifts of taxpayer funds — ostensibly given out to retain and or attract companies — with Governor Brown’s campaign contributor list.  There is some irony in Brown embracing a program that sounds similar to that employed by Governor Rick Perry in Texas, given Brown’s open contempt of effort by the Lone Star State to attract California businesses.  But it is terrible public policy, to empower the few, or the one, to make gifts of public funds.

In addition, Brown wants to “shift resources” from EZ’s, which broadly assist businesses across the spectrum, and instead “target” using funds for tax credits for only a couple of politically correct industries.  This is “code” for once again having Sacramento’s political class pick winners and losers in a massive game of “SimCity” – manipulating the market to their whims.

This EZ program dates back to a time when Sacramento politics were bi-partisan, and when Republicans had a say in the process.  No doubt the ultra-liberals who dominate Sacramento politics today look at this as a “relic” program that needs to end — sacrificed on the alter of big government.

Effectively killing the EZ program is tantamount to $700 million tax increase.  Or put another way, it equates to shifting the better part of a billion dollars from the private sector back into the hands of state capitol politicians, which takes me back to the point that I made when I opened up this column.   Hold on to your wallet.  Unless you are a good friend of Governor Brown’s, un which case perhaps open it up, and he’ll put some of the rest of our money into it.