2006 is shaping up as a turning point for the state’s enterprise zone program. Not only are 18 of 42 enterprise zones scheduled to expire later this year, but state lawmakers are considering a number of competing bills that would do everything from maintain the status quo to significantly reform the economic development program.

This spring, Juan Arambula, chairman of the Assembly Committee on Jobs, Economic Development and the Economy, issued a report calling for increased enterprise zone program accountability, new criteria for designating zones and reforming the hiring tax credit. A few weeks later, the California Budget Project (CBP) issued a study that strongly questions the effectiveness of the enterprise zone program and calls for lawmakers to substantially reduce the program’s size.

The report from Arambula (D-Fresno) was the result of hearings regarding the enterprise zone program and includes 45 recommendations. Among other things, Arambula recommended continuing enterprise zone designations through 2008 to give the Department of Housing and Community Development (HCD) — which took over the program in 2003 — time to complete a thorough review. Other recommendations call for more state oversight, an annual “cost per job created” report by HCD, and changing the hiring tax credit to reduce abuses.

In a 14-page response, the California Association of Enterprise Zones (CAEZ) objected to most of Arambula’s recommendations. “The enterprise zone is meant to be a state and local partnership and the state has been absent in providing adequate oversight, marketing of the program nationally and internationally, and assistance/training to the local communities,” CAEZ responded.

The report by the CBP, which frequently questions tax breaks, echoed some of Arambula’s recommendations but went much further. The CBP found that enterprise zone tax breaks cost the state $300 million in 2003. “However, numerous studies have failed to establish a link between EZ tax incentives and increased employment, firm growth, or economic development,” the CBP concluded.

In the Legislature, economic development bills have moved slowly this year. Among the most far-reaching is SB 1268 (Cedillo), which would require cities, counties and redevelopment agencies to submit biannual reports on every economic development subsidy — including EZ tax credits — of at least $25,000.

Arambula’s report and the CAEZ response are available on the CAEZ website, www.caez.org. The CBP report is available at www.cbp.org.

Financial assurances intended to ensure that garbage dumps, hazardous waste facilities and surface mines do not degrade environmental and public health are often inadequate, the Legislative Analyst’s Office (LAO) has concluded. In a new study, the LAO recommended overhauling the financial assurances system to reduce the state’s liability for cleaning up closed waste facilities and mines.

“Our review finds that state agencies, when calculating the required dollar amount of financial assurances, frequently do not include all the costs necessary to prevent adverse impacts to the public and the environment,” the LAO reported. The LAO also found that some of the financial assurance mechanisms – especially corporate guarantees and self-insurance — are not very assured.

The report cites a California Integrated Waste Management Board study that estimated the state faces a liability of $1.8 billion by mid-century for solid waste facilities. The state’s exposure for surface mines could be as much as $1.2 billion. Maintaining only one hazardous waste site — the BKK landfill in West Covina — is costing the state at least $5.5 million annually, according to the LAO.

Coincidentally, the report came out only days after a state appellate court upheld a regulation giving the state Department of Conservation the final say on when local governments may release financial assurances for surface mine reclamation (see Legal Digest).

The LAO recommended:
• Broadening the scope of costs covered by financial assurances;
• Eliminating a corporate guarantee or corporate financial test as a means of providing financial assurance;
• Consolidating all financial assurance functions into one unit at the California Environmental Protection Agency;
• Charging a new fee on currently operating waste facilities and surface mines to provide a state fund for long-term maintenance and cleanup.
The report, “Financial Assurances: Strengthening Public Safety of Waste Facilities and Surface Mines,” is available on the LAO’s website: www.lao.ca.gov.

Affordable housing advocates have sued the City of Mission Viejo over the city’s approval of a 144-unit housing project. Two years ago, the city made clear it would not approve a proposed 168-unit apartment project for low- to moderate-income residents on the same 23-acre site, a stance that was popular with neighbors but not with HCD (see CP&DR Insight, August 2004).

The recently approved project calls for 122 market-rate housing units and 22 affordable units. The Public Law Center, the Legal Aid Society and the California Housing Law Project sued, saying the city had not identified where it would provide its fair share of low- and moderate-income housing.

The Carpinteria City Council has adopted in-lieu affordable housing fees that may set a record. The city on the Santa Barbara County coast has an inclusionary zoning ordinance that requires 12%of new housing units to be designated for moderate-income residents. Under the new fee structure, developers that do not provide the affordable units may pay an in-lieu fee of $493,500 per single-family house or $254,330 per condominium. The fee is based on the difference between median market rate prices and the amount that a median-income family can afford. No one has applied to pay the in-lieu fee since the city established it at more than $200,000 per unit in 2004.