Government Spending

EZ Spirit! Is Reason Unfair to Enterprise Zones?

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Hollywood's Enterprise Zone is there when you need it.

Daniel Fitzgerald, manager of the Calexico Enterprise Zone, says my understanding of the EZ marketplace, which I mentioned in a column from the March issue, is extremely poor:

I am only writing regarding the extremely poor research you did in arguing that Enterprise Zones in California should be eliminated, not regarding RDAs. 

Your research only cites two studies, one from 2005 and another from 2002.  There were a number of reforms enacted in 2006 to the Enterprise Zone program.  The 2005 PPIC study, that you cited from the budget report, itself indicates in its conclusions that the reforms enacted in 2006 may solve the problems they noted using their 2005 and older data.  And, the EZ program has done just that.  In 2010 over 118,000 jobs in Enterprise Zones were created or retained.  These jobs are for people who are coming off unemployment, public assistance, veterans, and even ex-offenders.  Imagine the drain on California's budget if just ½ of these people were back on public rolls.

For a reporter that obviously did some homework on the RDA program in Los Angeles, it is unfortunate you chose to not properly research the EZ program and just blindly follow what was put out in the budget report.  I have the 2010 data reported from businesses to the EZ administrators.  I am happy to share it with you or any member of the media.  This data has been provided to the PR firm Wilson-Miller in Sacramento as well.

The 2010 data [pdf] Fitzgerald refers to.

I will confess that my own experience with enterprise zones has made me more rather than less confused about how the things work. A couple years ago I got a good contract to work as a flack for a company in Pasadena. In the process of doing my paperwork, I was told that I should provide some written proof of residence, and learned to my great pride and delight that my shitbag apartment was not just part of the Hollywood Enterprise Zone [pdf] but part of the Hollywood distressed Targeted Employment Area [pdf]. Thus the Pasadena company would receive some extra government benefit for hiring my distressed self.

What didn't make sense to me was why a Pasadena business would be getting a tax credit for hiring in my neighborhood – especially since, I was told, the credit was only available because the office was itself located in some type of hiring-credit area in the City of Roses. For what it's worth, the Pasadena Enterprise Zone [pdf] does* not seem to include the office where I worked, and vast swaths of California real estate are designated as distressed areas or enterprise zones or business  improvement districts or some other preferred-treatment locale. California is a negative Lake Woebegone where all the children are below average. So I have no doubt that the employer incentive was legitimate and properly executed.

But how did this incentive work? Do you hire from the distressed area, into the distressed area, some combination of the two, or something else? Also, Hollywood and Pasadena are really far apart. Shouldn't there be a carbon emissions codicil attached to these hiring incentives, so the government won't be encouraging poor day laborers like me to drive 21 miles each way? Maybe Californians can pass a ballot initiative requiring carpooling by all incentivized workers? Or maybe the company should be required to relocate to Hollywood, then get another tax credit for relocating?

Times being what they were, I took the job. But even if someday I figure out how the hiring incentive worked, I still don't think I'll understand how everybody involved – I; the company that hired me; and the taxpayers of Pasadena, Los Angeles, and California – wouldn't have been better off putting our time and effort into creating value for our customers rather than pursuing nickel and dime government largesse.

* Correction: An earlier version of this post used a previous map [pdf] of the Pasadena EZ. Thanks to Melissa Alva of the Pasadena Enterprise Zone for the correction, and for explaining the procedure: An employer in one EZ is in fact entitled to a credit for hiring from Target Employment Areas in another EZ. 

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  1. In 2010 over 118,000 jobs in Enterprise Zones were created or retained.

    Hell, just round it up to an even million.

  2. I am only writing regarding the extremely poor research you did in arguing that Enterprise Zones in California should be eliminated, not regarding RDAs.

    For a magazine called Reason?

  3. In 2010 over 118,000 jobs in Enterprise Zones were created or retained

    Oh fuck me sideways he diunt go there… he DIUNT!

  4. I think I saw Bruce Pearl in the background of that video posing for pictures and handing out tickets.

  5. Eew. I always though enterprise zones were just areas where they cut the tax rates and let the free market take over from there.

    I had no idea they were that intricately manipulated. Fuck that shit. Any time you have targeted tax cuts that narrowly defined, it it an invitation to corruption and plotical gladhandling.

    1. political.

      1. Plotical works too.

        1. Especially with gladhandling.

    2. So what you’re saying is, if the government sets up an “Office of Special Favors”, it invites corruption and scandal?

  6. The “created or retained” thing is a hoot. Employers try to harvest these credits for people they are hiring anyway. They don’t hire people just to get the credits, but they do try to collect the credits that they might have inadvertently qualified for.

  7. Does Mr. Fitzgerald care to explain how these jobs would NOT have existed but for Enterpise Zones? Does he care to explain why he feels it is a good idea for local government to play middle man between private enterprise and private citizens with public tax dollars? Does he care to define “job retained” and the criteria established to deem it as such?

    1. No, No, and No.

      Now get back to generating revenue for Uncle Sam.

      1. (*sigh*, and I’d been doing so well with my self-imposed prohibition on joke-handles.)

        1. Don’t forget me!!!

          I thought the handle worked well, theoretical particles and theoretical jobs saved. It’s a win, win!

  8. the credit was only available because the office was itself located in some type of hiring-credit area in the City of Roses.

    The office was in Portland?

  9. The original idea for enterprise zones 30 yrs. ago was primarily deregulatory: an EZ would be a geographic area which would receive relief from some of the regs that impaired the economy, plus they might get some tax breaks. Libertarians promoted the idea. The thought was that they would then serve as demonstration models to prove the regs and taxes themselves were bad everywhere, and even if that demo didn’t result in deregulation and tax reduction across the board, at least the zones would get some people off the hook for the taxes & regs. It was understood that the political influence that got the EZs situated there would probably also result in some direct subsidies and pork being thrown in, but these were anticipated to be a small cost compared to the great advances in laissez faire that would result. What happened?

    1. Sounds like a great story idea!

      Actually, you could fill a whole issue with Great Libertarian Policy Ideas Gone Horribly Wrong…. Help me out here, people!

      1. What’s that Matt, you want Robert to do your work for you? Word on the street is a friend of a friend of my girlfriend is due to be a summer intern here at reason. I’m sure they can help sleuth this out. Until then, I’m quivering in anticipation.

        PS. please wear more bowties, chicks dig the bowtie

      2. Yes, like the insurance mandate. We didn’t anticipate it being paired with community rating, guarenteed issue, AND comprehensive coverage as the mandatory minimum.

      3. I remember Reason did a bit a few years ago about how libertarian type education reforms got steered around into something else in Mich. or maybe Ind., especially by the influence of a certain governor.

        Of course there are lots of ways movements get diverted. It doesn’t happen only to pro-liberty stuff. It even happens to entire political parties. For another libertarian hijacking (of, not by), I was stunned to learn about the rapid turnaround of Fidesz.

        Basically, unless you’re Stalin, you’re going to wind up in the service of Stalin. And even if you are Stalin…you’re Stalin.

    2. Re: Robert,

      The original idea for enterprise zones 30 yrs. ago was primarily deregulatory[…] Libertarians promoted the idea.

      30 years ago I was playing Atari 2600, I would’ve never support such idea.

      What happened?

      Freedom happened. Unless you place a goddamned gun on someone’s head, you’re going to find it difficult to entice someone into putting down good money in a “distressed” area, when they can invest in much safer (and prettier) areas, even if facing higher regulations or taxes.

    3. One thing that happened was that it would just be too simple to draw a line around an Economic Target Area and lift taxes and regulation inside that line – so that was not done.

      “That will just lead to gentrification!”

      Instead, microtargeted initiatives were set up – “You can qualify for a property tax abatement if you create at least 75 jobs, 51% of which must go to current Economic Target Area residents” – blah blah blahdy blah blah.

      As was usually the case in the modern era, instead of reducing complexity, the state made the choice to increase it, in order to “make sure the benefits reach their targets”.

      1. Re: Robert,

        What Fluffy said…

      2. On other words, once politicians realized they could use it to squeeze campaign contributions out of local businesses, and local businesses realized they could use it to get narrowly defined favors in exchange, they began to scratch eachother’s backs.

  10. I lost $200 on that playoff game. Thanks for rubbing it in…

  11. What’s an Enterprise Zone?

    “An Enterprise Zone is a specific geographic area targeted for economic revitalizing. Enterprise Zones encourage economic growth and investment in distressed areas by offering tax advantages and incentives to businesses locating within the zone boundaries.”

    It sure creates jobs of a sort: That of public employee, to handle the EZ requests.

  12. I only wished that it was the Bush administration that foisted the lame ass ‘created or retained’ phrase upon the world so the poor, mindless progressive Obamatrons would be able to get the joke and smirk along about it with the rest of us.

    1. They still wouldn’t get. Humor really isn’t their thing.

      1. Well, they smirk on cue, but it is accompanied by nervous fidgeting as they tell themselves, ‘I don’t get that. I hope no one notices.’

  13. And how many of those jobs created or retained were part of the bureaucracy managing the EZs? Sounds like a mountain of paper work for very little benefit.

  14. When I saw Enterprise zone, I was so hoping for Bill Shatner.

    1. Weren’t we all.

    1. dingdong the witch is dead?
      OR
      who is liz taylor?

      1. Re: pancakes,

        who is liz taylor?

        She’s the gal that stole Eddie Fisher from Debbie Reynolds.

        Oh, and married a loud, British drunk, twice.

  15. http://mises.org/daily/5133/Ditch-the-Planners

    No one so much as suggested such a thing as the US Code in the first hundred years after the US Constitution was enacted. It would have been only a little longer than the Constitution itself. The first attempt to create such a compilation of laws occurred in 1878 but it languished because no one felt the need to update it. Then in 1926, in the midst of Prohibition when the feds became deeply involved in regulating the details of life, Congress made the thing come into existence. It is printed every six years.

    An institution was born, though most people know nothing of it. The next printing will come out in 2012, but the 2006 with annotations was 356 thousand-plus-page volumes that cover every aspect of life as we know it. The next one will add many new sections and probably more than 100,000 pages.

    I can only imagine how many volumes were needed to prevent deregulation from killing the economy back in ’08. I guess it is just one of those hypothetical postulations that we will never know for sure. At least double that, I would imagine. Triple to be on the safe side.

  16. the 2006 with annotations was 356 thousand-plus-page volumes

    Come on, it’s probably double-spaced, which makes it sound worse than it really is.

  17. One more important thing to point out is that about 80 percent of all EZ vouchers issued (hiring tax credits) were approved using the TEA method in 2010. See the data cited by Fitzgerald. They handout vouchers using TEA as a rubber stamp. This program is so full of loopholes that it should be dismantled and/or gutted.

    Also take a look at the program’s proponents. Other than the public agency folks, who probably do have economic development on their minds, the rest are accountants, tax preparers, lobbyists, and consultants who benefit from this cottage industry. They argue you cannot fault them for “abusing” the system if it isn’t illegal.

    Tim – call around to the watchdog groups and get in contact with business owners who “share” a portion of these tax dollars savings with the accountants. Many of these do not even know about EZ credits when they make their investment or hiring decisions. Tax consultants show up and say “Business owner, I can find you money but you pay me a share.” Of course the business says yes.

    You should sit outside the doors of a newly designated enterprise zone. Within one week of getting a zone from the state, the tax people are lining up to get the EZ maps and business listings. In fact, several companies even “help” the zone manager conduct marketing. Gee, I wonder why. These voucher vultures are basically getting kickbacks. Is it illegal? NO. But is it right for taxpaying Californians? Nope.

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