Not Enough Free Taxpayer Money for Corporations to Go Around

Tuesday, June 10, 2014

California’s beleaguered Enterprise Zone Program essentially came to an end on December 31, 2013, for a host of reasons, not the least of which were complaints that channeling taxpayer dollars to prop up businesses was corporate welfare.

The last vestiges of the program and its Hiring Tax Credit should be gone by the end of this year, after spending $4.8 billion since its inception in the 1980s, but the thirst for free money is still strong.

A few weeks ago, the enthusiastically-nicknamed state Office of Business and Economic Development (Go-Biz) announced that 396 applicants had sought $559 million in tax credits as an incentive for them to relocate to California―or just stay put.

However, the first phase of the California Competes Tax Credit program, created as a consolation prize for the demise of the Enterprise Zone, only doled out $30 million to a few lucky winners in the first phase of its debut. One-quarter of the money was targeted at small business. A total of $150 million will be made available for the fiscal year beginning in July.

Enterprise Zones, which cost the state $760 million in 2010, aimed a disproportionate amount of money at the less than one-half of 1% of California businesses with assets of more than $1 billion. Lawmakers liked them for either pro-business ideological reasons or because enterprises in their districts benefited directly from them.

A second phase of California Competes will include a bunch of companies that fell short in Phase I, including those seeking money for just being who they are and not leaving. It’s called “retention,” and Go-Biz is sensitive to accusations that the program isn’t giving enough attention to attracting new business and expansion.

A second phase has 149 qualified applicants asking for $155 million, but again only $30 million will be handed out. EZ Policy Blog, which tracks the program, claimed that applications for retention projects “represent over 60% of the applications accepted in the second round.”

Go-Biz said that number was wrong and told the Sacramento Bee retentions were only 10%. EZ Policy Blog stood by its calculation, kind of. Just 10% of the applications were, indeed, for retentions, but they represented a much larger percentage of the money. But upon reviewing information from Go-Biz, the blog revised its number down to 46% and the state concurred.

In addition to the programs created to mollify folks over the loss of Enterprise Zones, the state also targets the film business with a special program of its own. It is a hot ticket, and the California Film Commission has already stopped accepting any more applications this year from companies in the TV and film industry who really, really want to do their business here.

The commission received a record number of applications, 497, but 23 projects gobbled up the $100 million. The tax-credit program drew 117 more applicants than last year. The Assembly unanimously passed a bill on May 28 that would greatly expand the program and, according to a legislative analyst, would probably cost hundreds of millions of dollars annually.

California has stiff competition to see which state can expend the most public resources to subsidize corporations. A survey by the New York Times estimated that states lose around $80 billion a year in corporate tax revenues alone while also granting cash, free use of public buildings, property tax exemptions and other inventive incentives. Jack Rasmus at Counterpunch contrasted that to the $581 billion in budget shortfalls experience by states between 2008 and 2012.

–Ken Broder


To Learn More:

Demand for California Competes Hiring Credits Outpaces Supply (by Jim Miller, Sacramento Bee)

California Tax Credit Plan Proves Popular with Businesses (by Marc Lifsher, Los Angeles Times)

GO-Biz Received Applications for $559 Million for $30 Million California Competes Round (by Max Shenker, EZ Policy Blog)

$30M in Biz Tax Credits Up for Grabs (by Jonathan Horn, U-T San Diego)

California Sees Record Level of Film Tax Credit Applications (by Richard Verrier, Los Angeles Times)

Dollar for Dollar: California’s Enterprise Zone Program Falls Short  (California Budget Project)

Toyota Leaving California for Texas in Search of a Better Corporate Culture or Something (by Ken Broder, AllGov California)

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