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Officials hope to keep tax breaks

Local business community fears that proposed plan to close state’s budget gap doesn’t leave enough

Posted: May 19, 2011 1:55 a.m.
Updated: May 19, 2011 1:55 a.m.
 

Santa Clarita Valley officials said Wednesday that they’re skeptical of Gov. Jerry Brown’s latest budget proposals that plan to scale back a program that gives tax breaks to local businesses.

Brown proposed in January to do away with the Enterprise Zone program entirely to help balance California’s budget. But Brown eased the hard stance against the program thanks to an unexpected windfall of $6.3 billion in revenue for the state.

Throwing the Enterprise Zone program a lifeline is one of several maneuvers intended to sway four Republicans lawmakers. Brown is seeking a two-thirds majority vote in favor of placing a five-year extension on vehicle licence fees and sales taxes. The tax extensions would raise an estimated $10 billion to help close California’s ongoing budget deficit.

Assemblyman Cameron Smyth, R-Santa Clarita, said he would vote against the tax extensions.

While Brown has been proactive in reducing state spending, Republicans want Brown to reform the state’s pension system and place a cap on state spending, Smyth said. Enterprise zones, meanwhile, help attract firms to California, he said.

“The governor certainly wants to find Republican votes, but he’s going to have to do more than what’s come out of the May revisions,” Smyth said. “Enterprise zones should be left alone.”

Brown has maintained that the Enterprise Zone, as it is currently structured, is too expensive for the state to afford. The tax breaks that companies receive are not substantive enough to encourage firms to relocate from out of the state, he argues.

A 2009 report from the Public Policy Institute of California found that it’s difficult to determine if enterprise zones help the economy. The program cost the state about $533 million in lost tax revenue in 2005.

Currently, businesses eligible for Enterprise Zone tax breaks could get up to $37,000 in tax breaks over the course of five years for hiring qualified employees, said Laura Biery, the city’s administrative analyst.

Under the proposed changes, businesses would get a one-time tax break of $5,000, she said.

Businesses would only be eligible for tax breaks under the new system if employees were being hired to fill a new position, Brown said in a statement. Now, tax breaks can be earned for hiring employees, whether the position they filled was new or not.

The proposed changes to the Enterprise Zone would stymie the program’s effectiveness, said Jason Crawford, the city’s economic development director.

“A business has a huge incentive with $37,000. The incentive with $5,000 — I don’t know,” Crawford said. “To me, any business that is hiring somebody right now is a boon to the economy and is worth incentivizing.”

Enterprise Zone tax breaks give the Santa Clarita Valley an advantage over cities, such as Glendale and Burbank, which are all trying to attract businesses, said Jonas Peterson, executive director for the Santa Clarita Valley Economic Development Corporation.

For years, local business leaders and city officials have praised Santa Clarita’s enterprise zone as a “golden goose” for the local economy. In December, the state awarded the SCV a larger enterprise zone that would give tax breaks to businesses located in unincorporated areas, including Six Flags Magic Mountain, one of the valley’s largest employers. The SCV
Economic Development Corp. applied for the newer, larger zone.

But businesses located in the new enterprise zone won’t be eligible to get the new tax breaks until the state finalizes the zone and gives it the official designation. When that will happen is unknown, Crawford said.

 

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