Enterprise Zones Fall Short of Promises : Business: Gov. Wilson praises the program. But critics say the tax breaks are too small and that the state’s claims have been inflated.

SACRAMENTO — To hear Gov. Pete Wilson and other state officials describe it, the state’s 5-year-old enterprise zone program has been an unqualified success.

“We know enterprise zones work,” the governor said in his June 6 radio address, referring to the state’s attempt to lure businesses to Watts and South Los Angeles with tax breaks in specific areas.

“We’ve already seen enterprise zones on the state level fuel investment and create new jobs,” Wilson said. “In fact, we’ll soon be announcing some new state enterprise zones.”

But not everyone in Sacramento--or in the zones--is impressed with the purported results of the state program, which is scheduled to expand from 29 to 34 zones scattered from the Mexican border to Eureka.

Leading lawmakers from both major parties said last week they were less than thrilled--in part because the breaks that are offered by the state are too small to make a dent in economically depressed areas.

And an enterprise zone expert from Pennsylvania State University says state officials have been making inflated claims about California’s program as a “national model” based on an erroneous reading of his 1989 study.

The fascination with enterprise zones has peaked as politicians scramble for low-budget ways to spur urban recovery after the Los Angeles riots. President Bush seized upon the concept, long idle on the federal level, as a response to the nation’s inner-city ills.

On the state level, however, the benefits of enterprise zones are unclear despite the governor’s enthusiasm. Although Department of Commerce officials in charge of state-administered zones can make generalizations and tell anecdotes, they do not have the information to prove that the program is working.

The department recently missed a legislative deadline to produce a five-year progress report on the zones. The statistics that the department was able to produce were incomplete.

In March, Commerce Director Julie Meier Wright testified before an Assembly committee that 499 businesses either moved in or expanded in 19 enterprise zones from 1986 to 1990. Those firms added 27,237 jobs and $1.7 billion in investments.

But she also said that there is no way to identify which firms were taking advantage of the state tax breaks, what they were paying their new employees--or whether, as officials had hoped, the new businesses were moving from another state.

In a recent interview, Wright also agreed that the statistics she gave to the committee were lacking in other ways: They do not take into consideration how many companies may have left during the five years. And they do not determine if similar neighborhoods, without enterprise zones, did just as well.

Answering those questions would require a $100,000 study. “If we had the money, I would certainly like to know,” she said.

Even Wright’s use of other people’s figures have come under fire.

In her Assembly testimony, she told lawmakers that the state’s zones had been “rated as the country’s most attractive program to business, according to a study by Pennsylvania State’s Center for Regional Business Analysis. California was ranked No. 1 out of 35 states.”

Rodney A. Erickson, co-author of the study, said Wright is wrong. Although California data was included in some charts, it was not one of the 17 state programs explored in depth by his analysis.

“If somebody has said that, they’re totally misinterpreting what’s in the report,” he said.

Erickson and other academics examining enterprise zones strike a much more moderate tone, calling the approach only a tool for business growth that will take some time to work.

“I can’t refute a lot of people who say they feel it is not working fast enough,” said Waddell Herron, a UC San Diego professor who has studied the state’s enterprise zones. “However, there is an effort being done and I don’t think this can be discounted.”

Established in 1986, California’s enterprise zone program became one of dozens adopted by legislatures during the Ronald Reagan Administration. The bottom-up approach to urban renewal shunned the traditional--and expensive--government projects in lieu of tax breaks to stimulate business development. In all, 35 states established more than 2,000 zones during the 1980s and early 1990s.

Under the California plan, the state designates geographic areas where existing or new businesses can claim state corporate tax credits depending on the number of people they hire from high unemployment neighborhoods or from government job training programs. The firms can also write off any sales tax and take accelerated depreciation on equipment purchased for use in the zones.

In all, these benefits translated into more than $3.2 million in write-offs and credits for about 670 businesses in 1990, the latest years for which the figures are available, said a state Franchise Tax Board spokesman.

But the amorphous way the program is run--the state designates the zones but local administrators run them--has produced some uneven results.

Los Angeles has five zones: Watts, Central City, the Eastside, Wilmington-San Pedro and Pacoima.

Brad Bluth, manager of B & B Packaging on East 58th Street in the Watts zone, said his only regret about the program was that he did not find out about it sooner. Last year, he earned a $25,000 income tax credit by hiring people who lived in the neighborhood.

“The city isn’t promoting it,” said Bluth, adding that he heard about the zones by word-of-mouth. “I think if the information were made available to everyone, it would make the program boom.”

In contrast, Department of Commerce officials say one of the most ambitious programs exists in San Diego, where the city has assigned three staff members to promote the benefits to about 2,000 firms. In the last five years, they have encouraged firms to hire at least 1,630 people from various government-run training programs.

The enterprise zone approach has been a boon to at least one major employer there: National Steel & Shipbuilding Co., or Nassco. The ship builder has hired about 1,000 people as welders, electricians and pipe-fitters. In return, Nassco has accrued more than $1 million in income credits--or about 10% of its yearly income bill.

Many employers, however, have mixed feelings, either about the skills of the people they must hire or whether the state incentives are enough to make a difference.

“I’ve signed up to work with the program but the city of Los Angeles is killing us in so many other ways, it’s a moot point,” said Frank Gleason, president of Arrow Plating on East 61st Street in the Watts zone.

Among the problems: A new $9,000 annual industrial user fee and double the charge to dump in the sewers. “My own personal view is you can’t give people enough money to do business in such a hostile economic environment,” he said.

Those kind of stories have left some state lawmakers either ambivalent or skeptical about the usefulness of the California program praised by Wilson. Without extending enterprise zones to the federal level, where the tax breaks would be much bigger, little is being done, they say.

“We have enterprise zones in California . . . and have produced absolutely nothing--100 jobs in L.A. or something like that because tax credits at the state level . . . don’t mean anything to the businessman who has to deal with other realities,” said Senate Republican Leader Ken Maddy (R-Fresno).

Senate President Pro Tem David A. Roberti (D-Van Nuys) said:

“I basically favor the concept of enterprise zones,” he said. “But we have to look at the ones we have right now because they haven’t really created as many jobs as we had hoped for.”

* BENEFITS UNPROVEN: The value of L.A.’s program remains unproven. A39