Want to know more about California’s Enterprise Zone program? The below summary is a useful refresher for how Enterprise Zones function.
What is the State Enterprise Zone Program?
The State Enterprise Zone Program is intended to be an economic development tool to encourage hiring and business expansion within disadvantaged areas of California. By statute, up to 42 areas may be designated as Enterprise Zones.
Employers who hire certain hard-to-hire individuals that work within those Zones become eligible for special tax benefits.
The Department of Housing and Community Development (HCD) administers the Enterprise Zone program.
How much does the Enterprise Zone program cost California?
The Enterprise Zone program is structured as a tax expenditure in the California budget. Participating companies receive tax credits that reduce the amount of tax revenue the state would otherwise receive had those companies paid ordinary taxes.
The California Francize Tax Board estimates that the Enterprise Zone program will cost $700 million in the 2013-2014 fiscal year. 95% of the Enterprise Zone program costs are related to a hiring credit.
As the California Budget Project has illustrated in the adjacent graph, the Enterprise Zones’ costs have grown significantly from their humble beginnings.
What are Enterprise Zone tax credits worth to participating businesses?
Businesses that receive hiring credits from the Enterprise Zone program can earn up to $37,440 per qualified employee, over the course of a five year term of employment. Companies can enjoy these credits for as many qualified employees as they hire to work within Enterprise Zones.
How do companies receive an Enterprise Zone tax credit?
Companies can receive a hiring credit for hiring employees that meet one of 14 hard-to-hire qualifications outlined in statute.
The hard-to-hire qualifications range from veteran status, long-term unemployment, past employment as a migrant farm worker, and concurrent qualification for federal or other workforce programs.
Employers submit applications to voucher their qualified employees with individual Enterprise Zones, which are managed by local governments.
How many vouchers are issued each year for the Enterprise Zone program?
The number of vouchers issued for the Enterprise Zone program nearly doubled in the last five years.
Enterprise Zone Voucher Applications Received:
What companies use the Enterprise Zone program?
According to figures from the Francize Tax Board, as of 2010, there were about 5,000 businesses that claimed Enterprise Zone credits on their corporate tax filings.
In 2010, 64% of Enterprise Zone tax credits were claimed by corporate tax filers with more than $1 billion in assets. Only 4% of Enterprise Zone tax credits were claimed by corporate tax filers with less than $10 million in assets.
Where are Enterprise Zones located in California?
There are 40 Zones located throughout California. A list and maps of each Zone are located on HCD’s website.
Enterprise Zones exist in a variety of locations, from rural to urban, up and down California. The Zones have expanded over the years and include the Financial District in San Francisco, two thirds of the City of San Diego, and broad swaths of the City of Los Angeles.
What is the role of HCD and local governments to administer the Enterprise Zone program?
The California Department of Housing and Community Development (HCD) is responsible for selecting Zones, promulgating rules to administer the program, and auditing individual Zones.
Local governments that receive Enterprise Zone designations are responsible for issuing vouchers to eligible companies, consistent with State statutes and the regulations promulgated by HCD. Local governments also sign Memorandums of Understanding with HCD that include other responsibilities like marketing Zone benefits to new businesses looking to relocate to California.
HCD audits Zones to ensure that local governments are issuing vouchers consistent with the relevant statutory and administrative rules.