Opinion

Monday, Nov. 09, 2009

Dan Walters: It's time for a hard look at California tax dodges

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Last June, the Public Policy Institute of California released a highly critical report on California's "enterprise zone" program that provides big tax breaks to businesses for supposedly hiring workers in areas of high unemployment.

PPIC's study of the 42 zones, which are created by local governments with approval from the state Department of Housing and Community Development, concluded that state and local governments were losing about a half-billion dollars in revenue each year without any discernible impact on joblessness.

"The state can ill-afford to continue the enterprise zone program without clearer evidence of its benefits or a well-defined plan to make it more effective," said Jed Kolko, co-author of the PPIC study.

There were three reactions to the densely sourced study:

• The University of Southern California's Marshall School of Business quickly re-released a study by Dr. Charles Swenson declaring that California's enterprise zones had "statistically significant" positive impacts on employment and incomes of affected households – without revealing Swenson's affiliation with a company, National Tax Credit Group, that advises firms on how to obtain government tax breaks;

• The state certified or recertified enterprise zones in Kern and Tulare counties and five cities; and

• The California Chamber of Commerce and other business groups ramped up a public relations campaign to defend the enterprise zone program.

As California's fiscal crisis deepens, the competition for ever-scarcer public funds is growing more intense. Spending programs and tax breaks – "tax expenditures" in fiscal parlance – are facing closer scrutiny.

The PPIC study is potent ammunition – as it should be – for those who question whether enterprise zones and other corporate tax breaks should remain untouched while health, education and welfare programs face deep spending cuts.

Michael Bolden, a lobbyist for the American Federation of State, County and Municipal Employees, cited the PPIC study during a legislative hearing on enterprise zones last month.

"There hasn't been any sort of proof that the enterprise zone program works," Bolden said. "It's been a boon for business, but we don't necessarily see the return on investment coming back to the state."

Like many loopholes enacted on the premise that they would enhance employment, including a new batch approved just this year, enterprise zones have received little objective evaluation on whether their purported benefits have materialized.

The dueling studies from PPIC and USC frame the vacuum. And if Gov. Arnold Schwarzenegger and the Legislature are serious about navigating through the sea of red ink now engulfing the state budget, they'll divert the energy they now expend on dreaming up gimmicks to making some hard decisions on how taxpayers' money is being spent – or squandered.