This op-ed originally appeared in Steve Frank’s California Political News & Views
Common sense dictates that people as well as employers will act in their own best interest. This is the premise underlying market economies and why they provide more goods, services and improve the lives of all of us, much more so than a command or government manipulated market can. One of the risks associated with beginning or expanding a business (that is unsupported by government largesse) is in fact, government. That is, existing regulations and tax structure as well as anticipated or future regulatory and tax structure. If you are going to invest large amounts of money or throw the dice, you want to be fairly certain of the rules of the game. If the rules change after the dice land, you lose.
Changing rules are stifling our state’s job creators. Investment of capital for equipment and facilities is a long-term commitment and requires long-term certainty to make it worth the risk. Unfortunately with most politicians in Sacramento as well as nationally, if a certain policy doesn’t affect their district, they don’t care. But when it comes to employment and job creation elected officials should care more about the overall implications. Decreasing employment opportunities in one district impact those that commute, as well as those still working, as all buttress the unemployed through provision of government services.
Wholesale and abrupt elimination of tax benefits creates such uncertainty. Enterprise or Economic Development Zones recently received the axe as the Governor and Legislators chose to redistribute the ever shrinking economic pie rather than expand opportunities. Creating islands of lower taxation and hiring credits, the zones attracted businesses to locate and expand in low employment areas, proving that tax policy has implications. Rather than eliminate the zones we should have expanded the tax benefits to the entire state. Click here for my floor speech against the effort to remove Enterprise Zones.
But such was not the case and AB 93 (a budget trailer bill) as passed by the Senate:
- Eliminated all economic development zones including enterprise zones;
- Provided for a manufacturer’s sales tax exemption for purchasing equipment 4.5 years statewide and 7 years in existing enterprise zones;
- Provided a hiring credit for businesses in former enterprise zones and the lowest 25% of census tracts (unemployment/poverty) for wages above $12 but below $28 dollars;
- Created the Governor’s Go biz incentive program, with a fund to favored industries.
Fortunately, despite some fracturing in Republican ranks, our Republican leader was able to negotiate SB 90 which softened the blow to existing enterprise zones, while achieving a much sought sales tax exemption on manufacturing equipment statewide for all industries. SB 90:
- Expands the manufacturing sales tax credit to a statewide manufacturer’s sales tax exemption for 8 years.
- Establishes 5 pilot projects for the hiring credit with a $10 wage base instead of a $12 dollar wage base.
- Changes and/or corrects the sunset dates and other errors in AB 93.
- Ensures that the credits earned by existing economic development zones including enterprise zone through December 2013 are usable for the full 10 years of carry forward.
- Ensures that the expired enterprise zones are able to participate in the hiring credit and job hiring pilot projects.
- Ensure that LAMBRAs (Local Agency Military Base Reuse Areas) are able to participate in the hiring credit and job hiring pilot projects.
While our attempt to make lemonade out of lemons was not perfect, considering that it is oft stated wrongly that Republicans don’t matter in Sacramento, we definitely improved the situation. Imagine what the Legislature could do if we all worked together.