Aaron Baker recently wrote an article, discussing the importance of the California Enterprise Zone program. Aaron has a unique perspective since he owns a local business that employs hundreds of individuals and contributes heavily to the local economy.

Below are some of the points he made:

State legislators need to understand that there is fierce competition for California companies from other more business-friendly states. A few years ago, when I was considering relocating my business, I was heavily recruited by New Mexico Gov. Bill Richardson, who is very pro-business. I was also recruited by other states such as South Carolina, West Virginia, Texas and Arizona. Most of these states had attractive offers for companies interested in relocating. For example, West Virginia offered to give my company 20 acres of land and also construct a building, which I would later own. Arizona offered to pay my employees’ wages for a year, at the prevailing state wage. In addition, many other states have low state taxes compared to California’s state tax which is 10 percent.

I realize that moving my business would have a devastating impact on the local economy. Cannon Safe employs 200 workers and our 2009 payroll contributed $7.2 million to the local economy. Manufacturing companies like Cannon Safe have a ripple effect on the local economy, because we also employ hundreds of local support businesses.

Cannon Safe also employs 500 vendors who provide trucking, freight, steel, legal and accounting services. Seventy percent of our gross sales goes back to the local economy, and that accounts for millions of dollars.

California enterprise zones also provide a significant economic impact to local communities. According to information from the California Association of Enterprise Zones (CAEZ) website:

• Enterprise zones have generated more than 700,000 jobs in a 10-year period.
• Wages and salaries in enterprise zones grew 3.5 percent more than the rest of the state.
• Poverty decreased 7.35 percent in enterprise zones compared to the rest of the state.

I love California, but I can’t continue to throw my money away.

With soaring unemployment and increased competition from other states around the nation, California needs to make some drastic changes to how it deals with local businesses. Greg O’Sullivan from Redding.com, has proposed three ‘radical’ changes that he believes that California needs to make in order to attract new corporate and job growth:

1. Temporarily lower corporate income tax rates by 50 percent.

Thirty-four states have lower corporate tax rates compared to California. For example, we could lower the rate by half to companies that are willing to invest in new facilities and equipment in California over the next five years. The result would be a staggering increase in personal income taxes, sales and local property taxes. It’s a little like the “Big Box Theory” of merchandising, where profits are derived from volume. The new jobs, investment and increased economic activity are certain to far exceed the unrealized corporate taxes from collecting the full 8.8 percent from our existing employers that are fleeing the state or closing due to out-of-state competition.

2. Exempt manufacturing facilities from prevailing wage rates.

What if just one of our California gubernatorial candidates stood up and said we will suspend the prevailing wage rule to any manufacturing company that invests in new facilities and receives a public investment, inducement or incentive? The way it works presently is that if the city of Redding offers free land at Stillwater Business Park to a manufacturer to build a facility, prevailing wage rates are triggered, increasing labor costs by an estimated 20 percent. Nevermind that the actual manufacturing facility is built with private sector capital and that the Stillwater infrastructure was already subject to prevailing wages. Don’t get me wrong, when it comes to a genuine “public works” project where the majority of the project is tied directly to public funding, the prevailing wage rule should apply. Case in point: stimulus-funded projects.

3. Recognize the value of California enterprise zones.

Forty-two California enterprise zones are located throughout the state. Communities like Shasta County received these designations from the state through a competitive process. While zones have similar goals for improving the economic vitality of their communities, each is unique in the local incentives and special assistance it provides to the businesses located within the zone boundaries. Each year, the Legislature holds hearings on whether to continue the enterprise zone program. Most of us who compete for job-creation projects with other states know that the EZ program is the only real incentive offered by California. I agree that California can ill afford to waste money on programs that do not work. However, the state’s enterprise zone program has proven to deliver measurable benefits. Last year participating local companies hired more than 1,600 employees to receive an estimated $19 million in hiring tax credits. These same companies plow the tax savings back in their businesses in the form of new equipment, facilities and, of course, jobs. Reducing or eliminating the enterprise zone program would be extremely shortsighted. Even discussing it at a state level sends the message of uncertainty to existing or new companies considering California for future business investment.

Although payroll job losses slowed significantly, the state unemployment rate continued to climb in August, rising three-tenths to 12.2 percent, its highest level since 1940’s record 14.7 percent. From a survey of 5500 households, the state Employment Development Dept reported that 14 California counties now have jobless rates of 15 percent or more, and nearly 30 percent of the state’s unemployed workers have been jobless for over six months. However, EDD’s employer payroll survey showed substantial improvement, with 12,300 jobs lost in August, compared to 38,900 in July and an average of 73,700 for the previous six months. California’s trade, transportation & utilities sector and the construction industry suffered the biggest declines last month, down 7100 and 7000 jobs respectively, followed by manufacturing (-2800). Educational and health services added 6000 positions, along with information (3400) and government (2000).

The Business Forecasting Center at the University of the Pacific predicts that California’s unemployment rate will remain above 12 percent for all of 2010, peaking at 12.6 percent next spring. A return to the state’s pre-recession unemployment levels (under 6 percent) may not happen before 2013. UCLA’s Anderson Forecast is slightly more optimistic, projecting a peak of 12.2 percent and double-digit unemployment until sometime in 2011.

The Recession’s Uncounted Casualties

They’re not a factor in the unemployment rate, but they are either out of work or stymied by the recession into working fewer hours than they’d like, often at reduced wages. The Bureau of Labor Statistics reports that California’s underemployment rate – a broader index which includes unemployed people as well as people forced to take part-time or odd jobs, and those who have quit job hunting out of discouragement – is currently at 18.5 percent, up from 11.7 percent one year ago. An estimated 1.7 million Californians are working part time because full-time positions aren’t available, and about 34,000 would-be workers have grown too discouraged to continue job hunting.

California’s Enterprise Zones need to be expanded to create job incentives.