Tax credit program fails California

In theory, tax credits for businesses to create jobs are positive. They can help businesses stay competitive and strengthen communities. But what tax breaks do in practice is another story entirely, as we in California know well.

There are many similarities between Georgia’s opportunity zone program and California’s enterprise zone program.

Both programs were designed to boost jobs in low-income, high-unemployment areas. To Georgia’s credit, the opportunity zone program has some standards California’s lacks, like a requirement that companies create net new jobs to obtain the credit. Without proper accountability, wage standards and transparency, these types of tax credits can become wasteful government spending that does little to nothing to lift up economically disadvantaged communities.

Politicians love tax credits that go to their districts. That doesn’t mean those tax credits are good for constituents or for the state. California’s enterprise zone program is a $700 million annual drain on taxpayers that provides little if any positive impact to the economy.

In 2009, the Public Policy Institute of California found our enterprise zones have “no statistically significant effect on either employment levels or employment growth rates.” The California Legislative Analyst’s Office says the program is “expensive and not strongly effective.”

The California program is ballooning by more than 35 percent annually, placing our budget in jeopardy in future years. Enterprise zones simply aren’t a good return on the investment taxpayers are making. These types of tax credit programs should include strict accountability measures to require that not only are net new jobs created, but that those jobs have wage standards to ensure employers aren’t being rewarded for creating minimum-wage jobs. We call it the “jobs test.” If a tax break program like opportunity zones passes the test, it’s likely a worthwhile investment. However, if it fails that test, taxpayers are on the hook for millions. That’s a boondoggle, which is exactly what California’s program has morphed into.

California, with the support of Gov. Jerry Brown, is considering changes to the enterprise zone program that make it more transparent and accountable. But these changes can’t undo the more-than $3.6 billion in subsidies companies — mostly big corporations with more than $1 billion in assets — have received since the inception of the program.

That’s $3.6 billion that could have gone toward keeping teachers in the classroom, repairing our crumbling infrastructure or programs that provide incentives for middle-class jobs. Instead, it was wasted subsidizing wealthy, mega-corporations like Wal-Mart and McDonald’s. Many of those low-wage companies pay employees so little that they end up on public assistance.

Tax credits can be a powerful tool to create jobs, if done properly. We hope Georgia learns from the mistakes of California by requiring the opportunity zone program to adhere to strict oversight and high standards. Otherwise, your program is destined to be a miserable failure that weakens the economy instead of bolsters it.

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Art Pulaski is executive secretary-treasurer of the California Labor Federation.