Calif. Senate approves enterprise zone changes

SACRAMENTO, Calif. (AP) -- The state Senate late Tuesday passed a compromise version of Gov. Jerry Brown's proposal to retool California's enterprise zone program in a way the governor hopes will encourage manufacturing and job growth.

Three Republicans joined Democrats in voting 30-9 to meet a two-thirds vote threshold on AB93. The bill now moves to the Assembly.

Brown, who has called the enterprise zone program both wasteful and inefficient, has been advocating for changes for more than two years. He first proposed eliminating the economic development program along with community redevelopment agencies.

Senate President Pro Tem Darrell Steinberg said the compromise cleans up a flawed economic development program while adding tax incentives to make California more business friendly. The bill would redirect $750 million in business tax credits by using the money on three new economic development programs.

Those include a sales tax exemption on manufacturing or research-and-development equipment, a credit for hiring veterans and those who are among the long-term unemployed, and a tax credit to encourage businesses to expand and retain jobs in the state.

"It's not just about what's being restricted or being eliminated, it's what's being gained, what's being created," Steinberg said.

The late-night session was largely driven by the bill's high vote threshold. The Assembly will lose its supermajority at the end of the week because Assemblyman Bob Blumenfield is resigning his seat to join the Los Angeles City Council. He will be joined by Sen. Curren Price, a Democrat from Los Angeles, who also won a seat on that council.

Republicans immediately criticized the process, noting that the public will not have enough time to view changes to the legislation.

"It's pretty unusual to debate a bill that's not amended before us ... we're still waiting for the amendments," said Sen. Jim Nielsen, R-Gerber.

Lawmakers took the unusual step of debating the merits of enterprise zones ahead of the bill's printing, which was still undergoing last-minute revisions.

Some Democratic senators expressed misgivings about a dismantling a well-intended economic development program while other Republicans were tempted by tax incentives they believe could create jobs in underserved communities in their district. Republican Sens. Tom Berryhill, Anthony Cannella and Steve Knight crossed party lines to support the bill.

"I can't say whether to vote for or against this bill because I want to do both, and that's not the choice on the table," said Sen. Joel Anderson, R-Alpine, who ultimately voted no.

Supporters, including labor groups and some businesses, said the governor's proposal would provide targeted incentives by encouraging businesses to hire people in areas with the highest unemployment rates. Steve Smith, a spokesman for the California Labor Federation, said the current enterprise zone program is flawed because much of the tax credits are going to big corporations or businesses that taxpayers may not want to subsidize.

In Sacramento County, for example, two strip clubs used enterprise zone tax credits to hire waitresses, disc jockeys and security guards.

"Right now, the hiring credits are not targeted at all," Smith said. "They don't really provide incentives to create new jobs."

Instead, he said many of the credits go to large retailers, such as Wal-Mart.

Under the compromise plan approved in the Senate, hiring credits could still be claimed by companies in any of California's 40 enterprise zones and two that have been allowed to expire as long as they can show an increase in jobs.

The compromise also calls for restricting the hiring credits businesses in enterprise zones can claim by limiting them to employers who pay between $12 and $28 an hour. Last-minute changes involved extending the time businesses can use their enterprise zone tax credits for up to 10 years and expanding both the hiring credit and manufacturing sales tax exemption to 7 years.

Opponents of the governor's plan include the League of California Cities and the California Chamber of Commerce. They warned that eliminating local governments' last economic redevelopment program will hurt small businesses, particularly in low-income and minority communities.

The nonpartisan Legislative Analyst's Office gave Brown's plan a mixed assessment. It said that while exempting manufacturing sales tax is encouraging for businesses, it's not clear whether hiring credits will result in measurable job gains.

The analyst estimated that the enterprise zone program will cost the state as much as $1 billion in tax credits in the next few years.