Enterprise Zones: No Bang for the Buck

The Legislature faces many tough choices to help bring the state’s budget into balance, but eliminating the Enterprise Zone (EZ) Program should be a no brainer. As the Legislative Analyst’s Office (LAO) noted yesterday in a joint hearing before the Assembly Budget Subcommittee on State Administration and the Committee on Revenue and Taxation, this is one of the few proposals before the Legislature that is supported by rigorous, independent research. That research shows that EZs are ineffective, making their elimination a logical place to start balancing the budget. In fact, LAO staff who testified yesterday said that the EZ Program ought to be near the top of the list of programs to eliminate.

Our hot-off-the-press analysis of the EZ Program pulls together facts about the program and shows that:

  • The cost of EZ tax breaks has skyrocketed, increasing by an average of 35 percent per year 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. In contrast, state spending rose by an average of 6 percent per year during that period.
  • Corporations with assets of $1 billion or more are the primary beneficiaries of EZ tax breaks: They claimed seven out of 10 EZ tax break dollars in 2008, even though they represented less than half of 1 percent of California’s corporate tax filers.
  • EZs fail to create jobs or new businesses, according to an extensive study by the Public Policy Institute of California (PPIC), which the LAO called the more reliable of the studies discussed at yesterday’s hearing.

We agree with the assessment of the PPIC researchers, who concluded that “the absence of evidence of a beneficial effect of California’s enterprise zones on job and business creation clearly calls into question whether the state should continue to grant enterprise zone tax incentives. … For a cash-strapped state, it is too costly a program to simply continue with ‘business as usual’ without clearer evidence of the program’s benefits or a well-defined plan to make the program more effective.” When the other options for closing the state’s budget gap include dropping more than 230,000 low-income children from CalWORKs, the state’s highly successful welfare-to-work program, or cutting funding for child care at a time when parents are struggling to find and retain jobs in the aftermath of the Great Recession, eliminating costly tax breaks that fail to deliver on their promises should be one of the easiest choices of all.

— Alissa Anderson