California Targets EZ Program for Elimination

February 15, 2011

Facing a budget hole estimated at

$28 billion

, the administration of California Gov. Jerry Brown has proposed program cuts that have economic development officials panicking.  The Enterprise Zone program, which subsidizes in-zone businesses with hiring tax credits, deductions, and exemptions, is a prime target for revenue-starved California.

The program’s history is controversial.  A host of research has thoroughly debunked the claim that EZs have a significant impact on job creation.  (See the

Public Policy Institute of California

, whose study we covered on

this site

in 2009;  the state Legislative Analyst’s Office in

March 2010

and again

this year

; and most recently, the

California Budget Project

.)  In its February report, the California Budget Project describes a number of troubling aspects of the program:

  • The cost of EZ tax credits and deductions has increased by 35%

    per year

    on average since its inception.
  • 70% of EZ tax credits to go corporations with assets of more than $1 billion.
  • The EZ hiring credit does not require the creation of new jobs (many recipients simply relocate jobs).

Only one study has been released in recent years in defense of the EZ program.  A 2009 study released by USC’s Marshall School of Business reported favorably on the economic effects of the program.  (This study is

not available

online.)  It was rebutted by Robert Tannenwald, then a Senior Fellow at the Center on Budget and Policy Priorities, who stated that the study’s findings “

fly in the face of empirical evidence and economic theory


Whacking the EZ program would save the state $343 million this year.  That figure increases to

$600 million

annually in just two years’ time.   Elimination of a program that has negligible impact should be an easy decision for the state legislature.  These funds would be better spent in an economic development program with a proven track record.