California’s 40 enterprise zones, which award tax credits to businesses for hiring disadvantaged workers, are typically run by public agencies such as cities, counties or joint powers authorities.
But Anaheim has a unique approach.
The city has put the Anaheim Chamber of Commerce in charge of its zone, which includes responsibility for processing tax credits for local businesses worth up to $37,000 per worker.
Giving a business group authority over tax credits sounds like a conflict of interest to good-government expert Tracy Westen.
Anaheim should outsource to a neutral party, said Westen, CEO of the Center for Governmental Studies.
“You want the decision made by a majority of people who do not have any economic or social interest in the outcome,” he added. “At first brush it sounds like there’s a conflict. It doesn’t sound like they’re an objective party.”
The chamber of commerce, meanwhile, rejected that notion, saying it strictly adheres to "black-and-white" requirements for processing the tax credit applications.
“We follow those prescribed administration functions," said Todd Ament, the chamber’s president and CEO. "There’s no judgement, there’s no variance.”
He added that the process “is a very set mandate” to award the credit for hiring workers who have been unemployed for a certain time, live in certain disadvantaged areas of the city or meet other requirements.
“Because it’s such a ministerial function," said Ament, there is "no room for conflict.” He also pointed to auditing of the zone by the state Department of Housing and Community Development.
Enterprise zones have been a hot-button issue in state politics in recent weeks. Gov. Jerry Brown has been pushing hard to eliminate the zones, saying they’re wasteful and ineffective at spurring development.
That has prompted a vigorous defense from zone supporters, who argue they’re a critical program for spurring development and lowering crime.
“This has been the No. 1 tool we’ve ever had to [help] people who’d have barriers to employment get a job,” said Ament. “It’s creating jobs, creating investment, just as it’s designed to do.”
The state legislative analyst’s office disagrees.
“Most rigorous research has found that EZs [enterprise zones] do not create a net increase in jobs or increase the rate of job creation,” the nonpartisan office wrote in a May report. “Because they are expensive and not shown to be effective, we recommend that the area programs be eliminated.”
The chamber, meanwhile, said the legislative analyst was using the wrong metric. The proper analysis, it argues, is what the program saves the state by helping get people off public assistance.
It’s difficult to measure that independently, given that the total value of tax credits awarded in a zone is considered confidential.
“That’s private information on their tax return,” said Ament, explaining why the chamber doesn’t have an overall figure.
In Anaheim’s case, its wholesale outsourcing of the zone’s administration to a business group appears to be unique. Calls and messages to the state government, other zone administrators and the zones’ main advocacy group couldn’t find any other examples among the 40 zones statewide.
Asked why Anaheim outsourced zone management, city staff cited the 2011 elimination of its economic development manager, who would have administered the program, and the chamber’s extensive contacts in the business community.
“At this time we feel it is in the best interest of the city to continue working with the Chamber to deliver this important program,” city spokeswoman Ruth Ruiz wrote in an email.
The original sole-source contract, which started Feb. 1, 2012, was worth $1.8 million over five years and includes processing tax credit applications, contacting local businesses about the zone and marketing the program at trade shows and other events.
The council then voted last month to increase the contract to $2.9 million after city staff cited a need for the chamber to hire more staff to handle the workload and to assume sponsorship of some community events.
Mayor Tom Tait objected to the contract increase, questioning why his colleagues on the council couldn’t wait a few more weeks for an audit of the zone’s management to be completed.
“We’ve got this audit that we’ve paid for that’s about ready to come back, and now we’re going to extend the contract and increase it?” Tait asked. “It makes no sense to go forward with this at this time.”
City staff told the council that while the audit wouldn’t be finished until June, they had received “initial positive feedback” from the auditor as well as some unspecified “minor observations.”
“There have been some minor observations from the auditor that have been shared with the chamber related to its internal processes, controls and procedures. And the chamber has already initiated changes to its operation in response to these observations,” said city Planning Director Sheri Vander Dussen.
That was enough reassurance for the rest of the council, which voted 4-1, with Tait dissenting, to approve the increase.
A revelation in that discussion also sparked a controversy that made its way into Sacramento’s budget debate.
City staff confirmed that the zone enables the Honda Center to be eligible for millions in tax credits when it lays off and replaces about 500 food workers at the end of June.
The statewide advocacy group for the zones said such a move would be “unconscionable” and vowed to lobby for legislation to close the loophole. The arena’s management has announced it won't seek the credits.
The issue also prompted Assemblyman Tom Daly, D-Anaheim, to introduce legislation that prohibits the Honda Center from seeking the credits if the replacement workers are paid less.
The new legislation, however, appears to apply only to the Honda Center and to allow the arena to claim the credits if the replacement workers are paid the same amount.
Ultimately, the chamber said, the zone is a success story with numerous jobs saved or created.
"The program is working fantastic," said Ament. “It’s doing what it’s supposed to do, which in the end helps keep jobs here in California” and lower crime.
But Westen still questions having a business group oversee tax credit approvals for local companies.
“Normally industry groups like to regulate themselves,” said Westen. “But you have to question sometimes if they’re sufficiently objective.”
The chamber’s contract, which can be cancelled by the city without cause, runs through January 2017.
A statewide ballot measure next year could decide whether enterprise zones are eliminated, according a proposal put forth last week by the head of the California Democratic Party.