When it comes to dealing with our state budget crisis, California voters are clear on one thing: Let’s eliminate wasteful spending. So you’d think the elimination of a failed program and billion-dollar boondoggle would be a no-brainer. Think again.
An annual billion-dollar giveaway to big, profitable corporations is bad enough. But when the program also fails in its goal of creating jobs, it’s time to say goodbye.
Yet, as soon as Gov. Jerry Brown announced his proposal to end the Enterprise Zone tax credit program, corporate lobbyists and consultants started clamoring to save their golden goose. In theory, there’s nothing wrong with tax credits for businesses to help create jobs. With unemployment hovering at 12.5%, we need all the help we can get. But, in practice, the Enterprise Zone program has failed miserably.
The Public Policy Institute of California released a study in 2009 finding that Enterprise Zones have “no statistically significant effect on either employment levels or employment growth rates.” In addition, the California Legislative Analyst’s Office has issued several reports concluding that the Enterprise Zone program does not create jobs. The LAO found that Enterprise Zone programs are “expensive and not strongly effective.”
While state spending as a whole has been reduced in recent years, a new report by the California Budget Project shows the opposite to be true for Enterprise Zones. Since the program’s inception, the cost of these giveaways has increased by 35% per year, totaling more than $3.6 billion. And the kicker is that these tax credits are going primarily to less than one percent of the state’s corporations, those with assets of a $1 billion or more. Major corporations like Wells Fargo, Nordstrom and Levi Strauss are subsidized by the Enterprise Zone program.
That $3.6 billion could have been spent on our kids’ schools. It could have been used to fix crumbling roads and bridges, putting thousands back to work. It would go a long way to mitigating cuts to programs that are a lifeline for seniors and people with disabilities. If corporate lobbyists and consultants succeed in blocking Brown’s plan to end this failed giveaway, it would likely mean another billion dollars in cuts this year to public safety, education and programs that actually do create jobs.
Worst of all, the Enterprise Zone program subsidizes a race to the bottom. Since companies get tax credits for new “hires” and not for creating new jobs, there is no incentive for stable employment. The Teamsters are seeing first-hand the impacts the Enterprise Zone program has on the state. Teamsters local 853 has represented workers at VWR, a medical distribution company in Brisbane, for 50 years. The company was recently bought by a private equity firm that told the union that they were merging operations and closing the Brisbane operation and moving to Visalia, which happens to be in a Targeted Tax Area, part of the Enterprise Zone program.
VWR refused to allow workers to relocate and offered a pittance for severance. The new jobs in Visalia are low-wage with few benefits. And guess who is subsidizing VWR’s move? That’s right, California taxpayers. We are giving tax credits to VWR for destroying good union jobs, ravaging the tax base of Brisbane and setting up a non-union shop in another part of the state.
Corporate tax credits must be transparent and meet the necessary goal of creating good jobs. Period. If they don’t, it’s just a waste of all of the taxpayer dollars that are being used to subsidize big companies, make lobbyists rich and boost CEO bonuses. The Enterprise Zone system is the poster child for wasteful, inefficient government spending. While the corporate lobbyists may not want to give up their fat checks, the elimination of this boondoggle is vital to the state’s recovery.