Local entrepreneurs thrive in enterprise zones
Posted: 03/26/2011 12:02:26 PM PDT
Having weathered the Great Recession, the award-winning CEO is now poised for a great expansion - tripling production and jobs at her Chatsworth plant - spurred by tax incentives from a state enterprise zone.
"The enterprise zone will really fuel the enterprise," Skeeter said, walking between panels of shimmering screens, tiles, table tops and cutting-edge recycled and laminated glass. "I couldn't do it without it. I would have had to wait a long time to afford it.
"And I would have missed the timing - which is critical to markets and the value of my business."
But as Skeeter prepares to ramp up business boosted by a newly expanded enterprise zone into the west San Fernando Valley, some in Sacramento aim to kill it.
In order to help plug a $26 billion deficit, Gov. Jerry Brown has proposed abolishing more than $5 billion in subsidies for community redevelopment and enterprise zones.
That would scrap the 42 such enterprise zones created 25 years ago to retain jobs and spur business growth in blighted California communities. Incentives to zone businesses include state and local tax breaks for hiring
and capital investment, city contract preferences, reduced utility bills and more.
Eliminating the enterprise zone tax credits would save California taxpayers nearly $1 billion through fiscal 2012, and $600 a million a year thereafter, state finance officials said, while not impeding economic growth.
"The data indicates that, when you look at what enterprise zones have done, it moves economic activity from one jurisdiction to another, but it doesn't necessarily create new economic development," said H.D. Palmer, spokesman for the state Department of Finance, speaking on behalf of the governor's office
But business leaders in Los Angeles and across the state say the loss of such zones would kill jobs, increase taxes on companies and hurt communities hit by high unemployment. In addition, they say the zones help California compete with other states trying to lure away business with economic incentives of their own.
Critics, meanwhile, say the cost of funding enterprise zones has spiraled - doubling every four years since its inception - without creating jobs or new businesses. In addition, they say the public funds that could go to support basic services like education or fixing roads goes mostly to corporations valued at $1 billion or more.
Both camps cite dueling studies from the University of Southern California and the Public Policy Institute of California that, respectively, either argue in favor or against enterprise zone tax subsidies for business.
In the meantime, there are three bills pending in the Legislature that would reform - rather than gut - the enterprise zone program.
Earlier this month,, the California Republican Party passed a resolution in favor of retaining state enterprise zones.
"We should be looking for ways to expand this program, not eliminate it," said a statement from George Runner, a former Republican Assemblyman and Senator from the Antelope Valley who now sits on the state Board of Equalization representing Ventura and Los Angeles counties.
"Enterprise zones create jobs, employ our returning veterans and save taxpayers hundreds of millions of dollars each year."
Not so, counter critics, who say such zones simply draw jobs from one California city to another or offer tax breaks for hiring workers to fill existing vacancies.
"The most rigorous independent research shows that enterprise zones don't work - they don't create jobs, and they don't generate new ones," said Alissa Anderson, deputy director of the California Budget Project, an advocate for impoverished and middle-class residents.
"The bottom line for us, is that the enterprise zones are very costly, and place a significant strain on our state budget."
In Los Angeles, three enterprise zones known as East L.A., Hollywood and the pending Harbor-Gateway, cover 152 square miles, or 30 percent of the city.
The largest, by far, is the Hollywood zone, which winds from South L.A. to Tinseltown to Sylmar, blanketing much of the northeast Valley.
Last year, the zone was expanded to include parts of Van Nuys, Northridge and Chatsworth. Also swept in were portions of Canoga Park and Woodland Hills that house the Warner Center high-rises and the Westfield malls.
The zone has been credited with wooing BlackLine Systems from Calabasas, a religious programming company from Burbank, and encouraging new Costcos and other businesses in plazas designed for Pacoima and Woodland Hills.
Under the program, benefits to companies include a $37,440 tax credit for each worker hired, sales tax credits for new machinery, a 35 percent cut in city utility rates, reduced requirements for parking.
"That's money that's going to be re-invested into the businesses with additional equipment, hires and money to stay afloat in a terrible economy," said Cliff Weiss, a director of the Community Development Department, which administers the program. "You take that away, and you take away a lifeline."
In Los Angeles, officials said 1,830 companies claimed some $181 million in enterprise zone credits for hiring 23,000 workers, including 500 for newly created jobs.
In the sprawling Hollywood zone, that included nearly 1,300 jobs to the economically disadvantaged and more than 600 jobs to dislocated workers, according to reports. There were no tax vouchers issued for hiring veterans or disabled workers, and only one given for an ex-convict.
In its San Fernando Valley region last year, 344 companies claimed 4,557 hiring vouchers, including 4,460 to fill existing positions and 97 new jobs.
Armando Jamjian, a Los Angeles accountant who specializes in enterprise zones, said he's seen four out of seven failing clients in recent years saved by zone tax incentives, many by filing amended returns.
Without the enterprise zones, he said many of his larger clients of 500 employees or more would have simply left the state.
"Based on our discussions, it doesn't behoove them to stay when there are other states offering more benefits," Jamjian said. "The smaller companies, they would likely slim down, have less equipment or, in some cases, go out of business."
Kenn Phillips of the Valley Economic Alliance and Peter Ruiz of the Los Angeles Economic Development Corp. together offer free consulting to help businesses avoid layoffs in accordance with the economic enterprise zones.
About 40 percent of businesses want loans made more readily available in enterprise zones because of tax breaks to banks, he said. The resulting growth by old and new businesses greatly impacts nearby shops.
"People like to walk during lunch," said Phillips, a vice president at the alliance. "They'll go get something to eat, go to the bank, do their laundry, buy gasoline, food. So the impact is huge."
For Skeeter, who fought for an expanded zone, the impact will be huge as well.
What began as an art studio in Box Canyon in 1973 has blossomed into a 25,000-square-foot UltraGlas, Inc. headquarters in Chatsworth. A pioneer of unleaded colored architectural glass, Skeeter has a patent pending for UltraGlas-e - products from stepping stones to countertops made from 100-percent recycled architectural glass.
But while business had peaked at 36 employees before the recession, it had fallen to 20 workers because of a "trifecta" of economic doldrums in the construction, manufacturing and hospitality industries, Skeeter said.
The state enterprise zone will help support hiring 65 workers over three years, sales tax credits for $1 million in new equipment, and power discounts, while tripling production at the newly expanded plant.
The expansion, funded by a Valley Economic Development Corp. loan, will focus on a new line of "encapsulated," or laminated, glass that can contain energy-producing photovoltaic cells.
"We'll be the only ones in the Valley making this," said Skeeter, a seamstress at 10 who would later fashion a custom dress made of golden glass, which hangs in her office. "I'm thrilled for an addition to our manufacturing technology that expands our creative possibilities.
"Now is the time to ramp up. Be poised for growth ... There's no limit to what we can do with glass. I'm very excited to move forward."
Enterprise zone includes parts of VenturaEarly this year, Los Angeles lured a major financial software company to move from Calabasas into a newly expanded enterprise zone originally designed to combat blight.
The red-carpet treatment - subsidized by publicly funded tax breaks - persuaded BlackLine Systems to relocate 50 employees and hire 40 more at a new headquarters in Warner Center, a swank business district of glassy high rises and upscale condominiums.
"It's not only a land-use decision, but a political compromise between the (City) Council Office and the Mayor's Office," said Cliff Weiss, a regional enterprise zone director for the Los Angeles Community Development Department, which administers the state projects.
"Clearly, there was an interest in maintaining the economic health of the Warner Center, the industrial base of Canoga Park ... Van Nuys Boulevard and Van Nuys Airport."
While the city's two existing and one pending enterprise zones aim to encourage business development and retention in areas that are underserved by business and have underlying poor demographics - meaning high unemployment, high percentage of low-to-immediate income homes, Weiss said the criteria for their expansions are very different.
The 8,000-acre zone expansion last May included industrial sections of Chatsworth, Northridge, Van Nuys and Sylmar, plus a heavily gerrymandered corridor from industrial Canoga Park into the largely white-collar Warner Center.
In addition, the zone included a section of relatively affluent Ventura Boulevard.
The zone would not only benefit commercial property owners with high vacancies, analysts say, but encircle the Westfield Topanga and Promenade malls - and its proposed $500 million mixed-use retail development.
Another zone expansion in November included the Corporate Pointe at West Hills, which includes such offices as Quest Diagnostics and Bank of America, but is beset by high vacancy rates, including the Boeing Co. office that reportedly vacated Thursday.
"We were told by the mayor's and the council offices that there were plans to develop that area and we wanted to assist that," Weiss said.
The expanded zones not only encourage local companies from accepting low-ball incentives from other states, advocates say, but support hiring professional workers hard hit in a down economy.
"The biggest area that everybody's concentrating on is the underemployed," said Vice President Kenn Phillips of the Valley Economic Alliance. "Information technology, anything to do with the Internet, banking, real estate, insurance, finance ... those areas really got hit hard, especially in the Warner Center, where the vacancy rate went up dramatically.
"The Calabasas company is definitely a victory for the city of Los Angeles."
Others said city economic development officials included the Warner Center area because of pressure from commercial property owners hammered by the recession.
"Those areas were getting blighted," said Armando Jamjian, managing director for Encore Tax Consulting Group. "Leases were expiring. Large businesses were moving out. It was about to turn into a ghost town.
"By making it an enterprise zone, it gave property owners an edge."
— Dana Bartholomew