Dan Walters: Are California enterprise zones just for cronies?

dwalters@sacbee.comJune 4, 2013 

Dan Walters

Yes, it was a semi-cheesy, made-for-media event – two state legislators standing in front of a suburban Sacramento strip club to complain for TV cameras that it got corporate tax breaks meant to help the poor.

But Monday's event in front of Déjà Vu Showgirls, featuring Sens. Jerry Hill, D-San Mateo, and Anthony Cannella, R-Ceres, dealt with a real issue: the evolution of well-intentioned economic development programs into crony capitalism.

Two years ago, Gov. Jerry Brown and the Legislature did away with local redevelopment agencies that had gone down that path.

A post-World War II program to clean up urban "blight" had morphed into a vehicle by which local politicians could subsidize development projects proposed by those with inside pull.

Redevelopment was, in effect, shifting billions of tax dollars that should have been spent on schools, police patrols, fire protection and other public services into welfare for the wealthy.

City officials screamed when redevelopment was erased, and legislators are busily attempting to resurrect it, albeit under other names. It will be interesting to see whether Brown stays the course.

Meanwhile, Brown has also set his sights on enterprise zones, another vehicle that allows local officials to hand out goodies to favored businesses – with the tax benefits, about $750 million a year, coming directly out of the state treasury.

As with redevelopment, there's a well-oiled machine to defend enterprise zones as boons to the economy, including local officials, businesses that benefit from the tax breaks, and "consultants" who advise businesses on how to claim the credits, even retroactively, and take a cut of the action.

Every objective study – those not paid for by the enterprise zoners – has found that the tax breaks have no net positive effect on job growth, sometimes just paying businesses to shed jobs in one locale and create them somewhere else.

Hill became involved when a company in his high-cost district moved to a low-cost rural area and claimed job creation credits, and he's allied with unions in complaining about the misuse of enterprise zones in that and other such cases.

The enterprise zone program was created nearly three decades ago on the assumption that it would encourage businesses to expand into high-unemployment areas and hire locally. But it has morphed into just another way to hand out subsidies with little or no proof that they are generating a net benefit.

The bill that Hill and his allies propose would not end enterprise zones but rather place some limits on their use that would, they say, focus benefits on real new jobs.

Perhaps it would, but the history is not encouraging.

There are always clever people out there who can find ways to bend such programs to their own benefit, rather than the public's.

Call The Bee's Dan Walters, (916) 321-1195. Back columns, www.sacbee.com/walters. Follow him on Twitter @WaltersBee.

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