A Good Place To Start Balancing the Budget

A new report published by the prestigious National Bureau of Economic Research (the folks who get to decide what is and is not a recession), Do Enterprise Zones Create Jobs? Evidence from California’s Enterprise Zone Program, by Public Policy Institute of California researchers David Neumark and Jed Kolko concludes that California’s enterprise zone program doesn’t increase employment and actually leads to a reduction in the number of businesses located within zones. Neumark and Kolko find that, “Our analysis of California’s enterprise zone program fails to find that the program has increased job growth…At the same time, we find some evidence that enterprise zones reduce the number of establishments, which coupled with lack of an employment effect implies that establishments are growing in size.” The study uses new data sources and a long time period (1992 to 2004) that spans ups and downs in the economy. Based on their analysis, the researchers conclude, “that the safest conclusion is that California’s enterprise zone program is ineffective.”

We came to a similar conclusion in our 2006 report California’s Enterprise Zones Miss the Mark, and last year, the Legislative Analyst’s Office recommended phasing out enterprise zone incentives. With California facing a $40 billion plus budget shortfall, one might reasonably ask why neither the Governor’s proposed budget nor the Democratic leadership of the legislature’s alternatives for balancing the budget take on a program that cost the state $361 million in 2007 (the most recent year for which data are available) and that is not only ineffective, but appears to have the unintended consequence of reducing the number of businesses actually located within zones.

Addressing California’s massive budget shortfall will take tough choices. Eliminating ineffective tax breaks is a good place to start.

 – Jean Ross