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In the zone: A local look at the effectiveness of enterprise zones

Posted: August 7, 2010 5:57 p.m.
Updated: August 8, 2010 4:30 a.m.

Christina Sears, 20, assembles padlocks at Pacific Locks’ warehouse in Valencia. Pacific Locks co-owner Greg Waugh said being part of an enterprise zone rewards his hiring of additional workers.

 

Terell Lee sat in a black office chair, leaning over a worktable strewn with bronze-colored steel of varying shapes on a recent weekday.

His job since July has been to assemble those bits and pieces into padlocks that will be shipped off to Afghanistan for U.S. troops to use.

Lee, 24, is grateful for the opportunity to work, and his employers at Pacific Lock are hopeful for the potential Santa Clarita Enterprise Zone hiring tax credit they could receive for hiring him.

Enterprise zones are intended to boost business in economically disadvantaged areas by providing tax breaks for hiring workers who meet certain criteria, from laid-off workers to veterans and convicts, and for things like business expansion.

More than 200 Santa Clarita businesses have participated, saving more than $72 million through the hiring tax credit alone, according to city documents.

Since the city received the designation in 2007, 1,937 jobs have been created or retained in its zone, according to Jason Crawford, the city’s economic development director. The local enterprise zone is set to expire in 2022, though it could be renewed.

However, while the state’s 42 enterprise zones are popular among businesses and many politicians, state analysts are split on the issue because there’s no way to measure just how many jobs have been created because of the zones.

In other words, is the state simply giving away tax dollars, or are the zones’ incentives helping employers create jobs?
Reward or incentive?

Pacific Lock represents one of two types of enterprise zone participants: the “reward” side. Pacific Lock likely would have hired Lee regardless, but are getting tax credits for it after the fact.

In other words, they’re getting rewarded for hiring him.

On the other side — the incentive side — is DME Direct, an orthopedic-brace distributor.

The enterprise-zone tax credits have played a key role in the business’ growth over the past two years, owner Andrew Everett said.

“We started this business from our house,” Everett said. “The purchase of our warehouse was directly related to the fact that it was in the enterprise zone.”

Because of the credits, “we can employ more people and grow our business,” Everett said, adding that the tax savings translated to five new employees over the past two years.

Crawford said there was no way for the city to track the number of jobs actually created thanks to the enterprise zone.

“We don’t have any specific data that can show that,” he said. “All we can go off of is whether a business says, ‘I would not have been able to fill this job were it not for the enterprise zone.’ But as far as specifically knowing that that job was created because of the enterprise zone, what we do know is, because of the enterprise zone, it helps folks who are disadvantaged get a job.”

Question of efficacy
The nonprofit California Legislative Analyst’s Office released a report in March stating that the program is both expensive and “not strongly effective.” The office recommended enterprise zones be eliminated or restructured, since the program costs the state about $400 million.

Crawford said that view is shortsighted.

“It’s easy to think about cutting programs to save money in the short term,” he said.

Crawford said tax credits let businesses grow, and that means increased tax revenues.

“As more businesses prosper and start up, those businesses spend more money,” he said.

But the Legislative Analyst’s Office isn’t the only group skeptical about the program’s effectiveness at creating jobs for the downtrodden.

A bill making its way through the California State Senate, authored by state Senate President Pro Tem Darrell Steinberg, D-Sacramento, that proposes to shift some enterprise-zone dollars to vocational education.

The move is supported by several school districts and teachers unions across the state, but opposed by various industrial organizations, chambers of commerce and the Santa Clarita City Council. The bill’s first hearing was set for June 29, but Steinberg canceled it.

Meanwhile, the program is so popular locally that the newly formed Santa Clarita Valley Economic Development Corporation will apply for a new, larger zone that includes major business parks outside city limits, including Valencia Commerce Center and the planned Disney/ABC Studios at The Ranch.

The Santa Clarita City Council pledged support for the new, expanded zone, which would replace the existing one.

On Tuesday, Los Angeles County Supervisors will vote on whether to support the new zone. The corporation is working to raise $100,000 to fast-track the application, which is due Sept. 15.

Value beyond dollars
Pacific Lock is Lee’s key to a better future. Convicted of felony marijuana possession in 2006 and felony gun possession in 2008, he says his employment options were few. Lee said his felonies amounted to bad luck in bad situations.

Lee said he’s glad his bosses at Pacific Lock gave him a second chance after he got out of jail in February, having finished his second eight-month sentence. After his release, the Lancaster resident said he also worked temp jobs to help support his three sons.

A lot of companies wouldn’t look further than the box marked “Yes” next to the felony conviction on his application, he said. And it’s their loss, Lee added.

“I’m a hard worker,” Lee said.

His first day on the job, Lee made 200 padlocks — 100 more than Pacific Lock co-owner Greg Waugh expected out of him.

Waugh said half the reason his company, which employs 20 people, looks to hire enterprise zone-eligible workers is the “intrinsic value, the feel-good feeling.”

“I suspect he will qualify us for additional enterprise-zone tax credits,” Waugh said. “For now, it makes us proud to know that we’re offering people these sorts of chances.”

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