Enterprising Plan for the Salinas Valley
Will a tax incentive zone bring new business – and dollars – to the county?
Thursday, September 6, 2007
As part of his plan to usher in the Salinas Valley’s second “green gold rush,” Mayor Dennis Donohue is leading an effort to establish a tax incentive zone that would stretch from Salinas to King City. The enterprise zone designation would make businesses eligible for numerous tax breaks. Donohue says it could help diversify the region’s economy, expanding it into pharmaceuticals, biofuels and nanotechnology.
“We are fundamentally an agrarian valley, and we want to hold on to the best of what that represents,” Donohue says. “But we have to diversify. We have to bring in higher paying jobs. We have to take advantage of the opportunities that the new economy is going to present to us.”
But with the state already saturated with 42 enterprise zones, critics say the program may do little to lure new businesses. “It’s not clear that there will be any direct benefit to Monterey County if they have an enterprise zone,” says David Carroll, research director for the California Budget Project.
Enterprise zones are designed to uplift the economy of depressed areas by triggering private investment. The state Department of Housing and Community Development determines eligible areas based primarily on poverty, unemployment and income levels. In Salinas’ case, recent plant closures also make the city a candidate for the designation.
Employers in the zones can earn more than $31,500 in tax credits for each poor person, ex-con or local resident they hire. Companies also qualify for tax cuts on equipment purchases, and the state gives them preference on contracts.
The state is now accepting applications for eight zone designations that will expire in 2008. The deadline is Nov. 16.
Salinas has banded with Gonzales, Greenfield, Soledad, King City and Monterey County to create a regional enterprise zone. On July 10 the Salinas City Council approved a $125,000 contract with a consulting team to submit an application. The exact boundaries of the zone are still being configured.
Michael Lawrence, president of Jack Faucett Associates, the firm leading the application process, says based on income, poverty and unemployment rates, most of the Salinas Valley qualifies as an eligible area. The only exceptions, he says, are wealthier neighborhoods in north Salinas.
Lawrence’s team will also identify specific industrial or commercial land as employment areas in the zone. Likely spots include the agricultural processing hub in south Salinas and segments of the proposed Monterey County wine corridor such as River and Metz roads.
Salinas Valley leaders say the zone will encourage new businesses to relocate to the county and existing firms to hire more workers, but Carroll remains skeptical.
“The large number of zones dilute the effectiveness of the program,” he says. “Right now about one in every eight Californians who work has a job in an enterprise zone. It’s not well targeted.”
The California Budget Project is a nonprofit organization that advocates for fiscal policy that benefits low- and middle-income residents. The group published a report titled “California’s Enterprise Zones Miss the Mark” in April 2006. It came on the heels of a 2003 audit that found most of the employee vouchers in Oakland’s enterprise zone went to companies in different zones. Thus, the tax breaks weren’t really benefiting Oakland businesses. The state has since tightened requirements on transferring credits.
The Budget Project report found that large corporations, especially ones in San Francisco and Los Angeles, reap the most benefits from enterprise zones. Corporations with assets of $100 million or more got about 81 percent of all tax credits claimed by corporations in 2003.
The report also criticizes the hiring credit – the most expensive part of the $300 million (in 2003) program. In 2004, the report says, less than 3 percent of the vouchers went to workers who were participants in or eligible for subsidized income programs. In other words, the program didn’t benefit many poor people or small businesses.
A few months after The California Budget Project published its critical report, a state-sanctioned analysis of enterprise zones painted a brighter picture of the program. During the 1990s, the state’s report found poverty in the zones declined by 7.35 percent more than poverty in the rest of the state, and household incomes increased 7.1 percent more than in other parts of the state.
The nonprofit also hammered the state’s report, arguing that it overstated the effectiveness of the enterprise zones. Local officials, however, remain hopeful that an enterprise zone will be a boon to the Salinas Valley’s economic future.
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Supervisor Simón Salinas says the zone application is a solid step toward a regional approach to economic development. If the state awards the designation, Salinas says, it will create more jobs. “Companies that are here will expand and be able to hire more people,” he says, adding that the program would also help small businesses, and the cities and county would educate them to take advantage of the tax breaks.
While Donohue admits that enterprise zones don’t all perform equally, he says the zone would be an incentive for new businesses to come to Salinas.
“The reality is if in a competitive world you are trying to bring business to your area,” Donohue says, “you want all the tools you can have to attract them.”
And as for the zone being a welcome mat for large corporations, Donohue doesn’t mind. “We are after employers that match the area and match the community’s needs, and if they are big, so be it.”