California’s legislators face many tough choices as they seek nearly $27 billion in solutions to balance the state’s budget, but eliminating the costly and ineffective Enterprise Zone Program should be a no-brainer.
Enterprise Zones are designated geographic regions where corporations can receive special taxpayer-funded incentives for their activities. Although zones are touted as spurring job creation and economic growth, the most credible research shows these programs don’t produce a net gain in new jobs or businesses.
At a time when virtually all areas of the budget are on the chopping block, California can ill afford to keep ineffective corporate subsidies on the books.
The California Budget Project reviewed the facts on the Enterprise Zone Program and found that:
• The cost of zone tax breaks has skyrocketed from $675,000 in 1986 to $465.5 million in 2008, for a total cost to the state of $3.6 billion since the program’s inception. That’s an average increase of 35 percent per year. In contrast, state spending overall rose by an average of 6 percent per year during that period.
• Big corporations, not small businesses, receive the overwhelming majority of Enterprise Zone tax breaks. Corporations with assets of $1 billion claimed seven out of 10 zone tax break dollars in 2008, even though they represented less than half of 1 percent of corporations paying taxes in California.
• Enterprise Zones fail to create jobs or new businesses, according to a report by the Public Policy Institute of California, recognized as one of the most reliable studies on the state’s zones.
While some city leaders, including those in Watsonville, point to “new” jobs created inside Enterprise Zones, what the programs’ proponents won’t tell you is that for every job created inside the zone, another worker likely lost his or her job in the region outside the zone. In other words, a gain for Watsonville could be a loss for Hollister or Salinas.
Legislators must ask themselves whether California can afford to spend nearly $600 million of state resources in the coming year to help corporations pick up stakes in one California community and settle in another, especially when doing so comes at the expense of other priorities.
A budget that keeps Enterprise Zones and other unjustified tax breaks intact and instead relies on spending cuts alone will severely compromise California’s future economic prosperity. The nonpartisan Legislative Analyst’s Office has determined that an all-cuts budget could include cutting school spending by an additional $884 per student, significantly increasing student fees while curtailing financial aid at the state’s public colleges and universities, and reducing state-funded research at California’s public universities by half.
With the cost of Enterprise Zones to California taxpayers sharply escalating and no more jobs to show for the increasing expense, eliminating these costly tax breaks that fail to deliver on their promises should be one of the easiest choices legislators face this year.
Alissa Anderson is deputy director of the California Budget Project, a Sacramento-based nonpartisan fiscal and policy research group.
Share on Facebook