January 9, 2009

Commentary:

Protecting Chula Vista’s Economic Engine

By Vince Vasquez

When the City of Chula Vista began reviewing its budget-balancing options last fall, government officials considered cutting the city coordinator for the “enterprise zone” (EZ) program. A new economic analysis released this week finds cutting this position would be a mistake, as Chula Vista’s participation in the San Diego Regional Enterprise Zone has created hundreds of jobs and developed millions of dollars for potential community benefit.

Enterprise Zones are special packages of tax breaks and other incentives designed to increase jobs and investment opportunities within a limited, economically-distressed area. Invented in Great Britain in the 1970’s, and popularized in the United States under the leadership of President Ronald Reagan, EZs have become a major component of urban renewal strategies across the nation. More than 40 states have established EZ programs tailored to their own unique needs and goals, including the Golden State.

California’s Enterprise Zone program offers four key benefits that increase job opportunities and a attract private investment: 1) credits for sales tax paid on certain machinery equipment; 2) a maximum five-year tax credit for hiring qualified employees; 3) lender interest deductions; and 4) an extended carryover of corporate net operating losses. In addition to state benefits, municipal EZ administrators expedite local permits and provide technical assistance for EZ participants. Combined, these incentives have helped retain businesses in some of the state’s most economically distressed areas through two recessions, spurring greater capital expenditures, and expanding workforce opportunities for at-need, disadvantaged and economically challenged Californians. Since 1986, California’s EZ program has been a net gain for San Diego’s economic climate – assisting in the creation and retention of more than 25,000 area jobs, and spurring nearly $1 billion in private investment.

Chula Vista’s participation in the state EZ program has only been a recent development. The “South Bay Zone” was ultimately established in 1992 to include 6,563 acres in Otay Mesa and San Ysidro, and later expanded in 2000 to include 447 acres in Chula Vista’s bay front area. Many large employers were located in the South Bay Enterprise Zone including Delimex, Sony, Honeywell, Howard Light Industries, Panasonic, Martin Furniture, Raytheon, and Sanyo. From 1990-2000, unemployment dropped in the South Bay EZ, which also saw a significant decrease in the poverty rate (22% to 16%) compared to the City of San Diego, which over the same period experienced an increase (from 13% to 15%).

Moreover, EZ program encourages businesses to hire and retain more low skilled employees, which is vital in today’s economic downturn. These jobs may often be the first opportunities for employment these individuals have after reentering society, such as the case may be with an ex-offender or military veteran, and thus it provides a critical first opportunity to learn new skills that will enable them to reach for higher-paying skilled positions.

In 2006, local lawmakers in the City of San Diego, National City and Chula Vista successfully developed a strategic partnership and applied for the approval of a larger, reorganized “Regional Enterprise Zone” (REZ) that stretches across 36,000 acres in more of the communities that need additional investments and job opportunities. The REZ has since been conditionally approved by the state, and businesses within the REZ began qualifying for benefits in late 2007. Today, approximately 6,400 acres of Chula Vista is covered under the REZ, which is more than a fourteen-fold increase from the covered city land under the South Bay EZ. With hundreds of more local businesses now able to tap into the lucrative program benefits, the Regional Enterprise Zone has been a stunning success for economic development efforts on Chula Vista’s west side.

According to government data from the San Diego EZ administrator’s office, Chula Vista’s first full year participating in the Regional EZ has been a positive economic experience. Approved hiring credit vouchers have more than quadrupled (446%) from 2007’s tally, rising from 96 to an estimated 428. More than 650 hiring credit vouchers have been issued throughout Chula Vista’s participation in the California enterprise zone program, a sum worth more than $3.2 million. EZ benefits in 2008 were concentrated to those most at need – small businesses and local residents. 62% of companies receiving hiring credit vouchers employ 50 or fewer workers, and citywide, 90% of vouchers were received by residents of Chula Vista’s west side. The jobs that have been created or retained with the use of hiring vouchers are good paying positions, and field from a diverse number of industries, including retail, heavy industry, and construction. Wages range from the state minimum to as high as $36 dollars an hour, and the average rate fell at $9.80 an hour, 122% above the hourly minimum wage.

Analyzing the industries which receive vouchers, employment numbers, and average earnings, the San Diego Institute for Policy Research estimates that in 2008, Chula Vista’s participation in the San Diego Regional Enterprise Zone produced a total economic impact of $11.57 million.

The San Diego REZ is still only conditionally approved by the state of California, and is at risk of elimination if Chula Vista decides to forfeit its contractual obligations and cuts funding for the EZ program. The original tri-city partnership calls for Chula Vista to commit to marketing the EZ program, and it has a designated “Principal Economic Specialist” employee at City Hall to manage marketing and promotion responsibilities. However, last December this position was up on the government chopping block for elimination, which would have potentially caused Chula Vista to forfeit its participation in the REZ, and jeopardized the entire program.

Chula Vista’s participation in the EZ program is a critical investment in protecting its local economic future and its unique community character. With a broader regional EZ approach, Chula Vista has gained tremendously, creating jobs and protecting small businesses. But these gains are fragile, and can be quickly lost with the elimination of the city’s economic development specialist position and the loss of the EZ marketing budget. With a long term multi-million dollar gap projected in the city government’s budget, the City Council would be wise to find sustainable solutions to meet its fundamental enterprise zone commitments.

Vince Vasquez is the senior policy analyst at the San Diego Institute for Policy Research.

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