How Enterprise Zones Are Killing the California Dream

10:14 am in Enterprise zones by Gary Cohn

The following story is part of California Exposé, an investigative series from Frying Pan News.

John Thomas and Hans Burkhardt have a lot in common. For more than 17 years each man had a good paying union job, with health and pension benefits, near San Francisco Bay. Thomas worked as a warehouseman for VWR International, a medical supply company with a warehouse in Brisbane, south of Candlestick Park. Burkhardt also worked as a warehouseman, for BlueLinx, a building products company with a facility across the bay in Newark.

The similarities don’t end there. Both Thomas and Burkhardt are now collecting unemployment, having lost their $22-an-hour jobs after their employers moved to take advantage of California’s enterprise zone plan, a controversial state program that is supposed to create jobs.

The enterprise program, established in 1984, provides $700 million in tax breaks for companies that set up business or move to one of 40 zones within the state. It is operated by the state but administered by local governments. The program gives companies tax credits of up to $37,440 per person hired in one of the zones, which are intended to create jobs and spark investment in economically distressed areas. Yet interviews and public documents reviewed by Frying Pan News reveal that some of these zones are located in relatively well-off areas, including San Francisco’s Financial District and the city’s hipster-packed SoMa neighborhood, which is home to many software and technology firms. In Southern California, enterprise zone areas encompass parts of Hollywood and the corporate center of downtown Los Angeles.

The program has been under fire for years from critics who say that it simply rewards employers for moving jobs from one location to another — and who echo the charge that several of the so-called enterprise zones aren’t really in economically distressed regions.  According to sources with knowledge of the program, other businesses that have applied for enterprise zone credits include two strip clubs, Gold Club Centerfolds and Déjà Vu Showgirls.

The two gentlemen’s clubs are located in Rancho Cordova, a largely middle-class suburb just east of the state’s capitol, Sacramento. Gold Club Centerfolds advertises itself as “Sacramento’s All Nude Adult Entertainment,” while Déjà Vu Showgirls, which is part of a national chain of clubs, offers “1000’s of Beautiful Girls and 3 Ugly Ones.” It isn’t known whether the applications were approved because, like so much of the program, the names of recipients aren’t public information. (The two clubs have not responded to requests for comment; neither have VWR or BlueLinx.)

[Update, May 28 7:26 p.m.: Documents received by Frying Pan News today show that Gold Club Centerfolds did receive approval of its application.]

In fact, because the program falls under the purview of tax codes, much of its day to day workings, including the names of businesses that receive the enterprise zone tax credits, aren’t publicly available. Overall, 61 percent of enterprise zone tax credits were claimed by corporations with more than $1 billion in assets. People familiar with the program say that recipients include huge retailers such as Walmart. The total amount of enterprise tax credits received by Walmart is one of those facts cloaked in the program’s tax secrecy.

Numerous studies have raised questions about the value of the enterprise zone program. The nonpartisan Public Policy Institute of California concluded in 2009 that enterprise zones had no effect on job creation.

“On average, enterprise zones have no statistically significant effect on either business creation or employment growth rates,” the study said. “The absence of evidence of a beneficial effect of California’s enterprise zones on job and business creation clearly calls into question whether the state should continue to grant enterprise zone tax incentives.”

Other critics say that the worst thing about the program is the human toll it takes on workers. Both John Thomas and Hans arwere willing to move with their companies, but under the provisions of the enterprise zone program the companies cannot take their current workers and still claim the tax credits.

“They should have taken people with them who wanted to go,” says Burkhardt. “I would have gone.”  The union jobs that Burkhardt and Thomas and their fellow workers had at the BlueLinx and VWR locations paid, on average, about $20 an hour, plus benefits. They were replaced with non-union positions that paid about one-half of that, with non-existent or substantially reduced benefits.

“I’ve been up here four years, and this is the most abused program I’ve seen,” says state Senator Jerry Hill, (D-San Mateo), whose district includes Brisbane, where VWR had its warehouse.

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