HomeMy WebLinkAbout2013/02/26 Item 12CITY COUNCIL
AGENDA STATEMENT
~V~ `~~~ CIIY OF
:~ CHULAVISTA
FEBRUARY 26, 2013, Item
ITEM TITLE: RESOLUTION OF THE CITY COUNCIL OF THE CITY OF
CHULA VISTA SUPPORTING THE CALIFORNIA
ENTERPRISE ZONE PROGRAM
SUBMITTED BY: ECONOMIC DEVEL ENT DIRECTOR
REVIEWED BY: CITY MANAGE
4/STHS VOTE: YES ~ NO
SUMMARY
In 1992, the City of San Diego received approval for the South Bay Enterprise Zone. In
2000 and again in 2004, the South Bay Enterprise Zone was expanded to include
properties along the redevelopment areas of the cities of Chula Vista and National City.
In 2006, the City of Chula Vista, in partnership with the cities of San Diego, National
City and the San Diego Unified Port District, received approval of the San Diego
Regional Enterprise Zone (SDREZ). The Enterprise Zone (EZ) is valid for a period of l 5
years, expiring in October 2021.
The State Department of Housing and Community Development, at the direction of the
Governor of California, has introduced regulatory reforms that would significantly reduce
the effectiveness of the EZ program. The League of California Cities has asked all cities
with an EZ to adopt a resolution of support for the EZ program.
ENVIRONMENTAL REVIEW
The Environmental Review Coordinator has reviewed the proposed activity for
compliance with the California Environmental Quality Act (CEQA) and has determined
that the activity is not a "Project" as defined under Section 15378 of the State CEQA
Guidelines, therefore, pursuant to Section 15060(c)(3) of the State CEQA Guidelines the
activity is not subject to CEQA. Thus, no environmental review is necessary.
RECOMMENDATION
That City Council adopt the resolution as proposed.
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Item No.: (~~
Meeting Date: 02/26/13
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BOARDS/COMMISSION RECOMMENDATION
N/A
DISCUSSION
Benefits of the SDREZ Program
The primary goals of the EZ program are to help attract business and industry to the
State, to help retain and expand existing State business and industry, and to create
increased job opportunities for all Californians. Businesses located within the SDREZ
may receive individual or corporate State tax incentives/credits to reduce a company's
State tax liability dollar per dollar by hiring qualified employees and purchasing
manufacturing equipment. Any unused tax credits may be carried forward to reduce
future tax year's liabilities. Exhibit 2 (SDREZ Fact Sheet) provides a brief description of
the State tax benefits available to SDREZ businesses.
The EZ program has made a significant positive impact on the local economy and the 41
Enterprise Zones throughout the State. From 2008 through 2012, over 4,000 jobs were
created or retained in the City of Chula Vista's Enterprise Zone, representing a total
employment tax credit value of over $60 million for local businesses that consistently
reinvest in capital improvements and additional employment In 2010, more than 118,000
EZ jobs were created or retained state-wide. The State does not provide data on the value
of the local capital and lending credits invested through the Zone program.
Proposed Regulatory Reform
In 2011, Governor Jerry Brown proposed the elimination of the EZ program citing the
program's ineffectiveness and the need for budget savings: In January 2013, under the
direction of the Govemor, the Department of Housing & Community Development began
the process to establish regulatory reforms to the program. These reforms would reduce
the effectiveness of the program and are estimated to save the State General Fund over
$300 million over the next five years. The presentation of these proposed savings have
not reflected the General Fund revenue benefits produced by the Zone's successes or the
affect the proposed "program reforms," would have on those revenues.
The reforms are currently undergoing a 45-day Public Review Period. The review period
ends February 28, 2013. The City has been asked by the League of California Cities to
adopt a Resolution of Support for the EZ program.
The HCD 20] 3 Enterprise Zone Administrative Reform Impact Statement (Attachment 1)
provides details on the reforms that will have the greatest impact on the SDREZ. In
general, the proposed reforms will make it harder for employers to document a job
seekers' program eligibility. The proposed new audit and reporting guidelines will make
it harder for the City and our partners to measure our program success, while failing to
clearly define measurable goals and objectives. Furthermore, many of the State's
proposed "progran7 reforms" would place more cost and time burdens on employers to
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Item No.• F~
Meeting Date: 02/26/13
Page 3 of 4
collect data that other State Department's already collect rather than streamline the
process to help employers create more quality jobs and invest in the infrastructure that
facilitates those jobs.
Conclusion:
The City has had a significant increase in EZ program participation. The proposed
regulatory reforms will have significant negative impacts on both businesses and their
employees.
The SDREZ is a special opportunity for the City to continue to implement economic
development and job creation program incentives in areas within the region with
significantly high levels of unemployment. The Zone targets employment program
assistance to residents of low and moderate income census tract communities. Further,
because economic development is regional in nature, continuing the collaborative
relations with other local cities and the State to offer business incentives increases the
South County region's ability to compete with other State's, create new jobs and increase
investment in our County and State. The SDREZ program offers tremendous business
incentives that assist existing employers and attracts new ones while targeting the
employment needs of the region's most vulnerable unemployed including but not limited
to; Veterans, dislocated workers, those receiving public assistance and disabled citizens.
DECISION MAKER CONFLICT
Staff has reviewed the property holdings of the City Council members and has found that
Councilmembers Bensoussan, Salas and Ramirez have property holdings within 500 feet
of the boundaries of the Enterprise Zone. However, this decision will also affect a
significant segment of the population in the City (at least ten percent of residential
property owners) in substantially the same manner. Accordingly, pursuant to California
Code of Regulations Section 18707.1, the economic effect on the public official is
considered indistinguishable from that of the public generally; thus, no disqualifying
conflict exists.
CURRENT YEAR FISCAL IMPACT
The City of San Diego administers the SDREZ on behalf of the Partnership. In addition,
Chula Vista Economic Development staff expends time marketing and promoting the
program to local businesses. The Partners shared the administrative costs for San Diego's
staff time required to administer the program, during this fiscal year. The Operating
MOU requires the City to pay annually its proportionate share for the City of San Diego's
administrative costs. The Economic Development Department's Fiscal Year 2012 budget
includes $48,500 for its proportional share of the costs for the current program year.
Staff is working on better data collection that accurately enumerates the State, regional
acid local value that creating and maintaining 4,000 jobs and the additional local purchase
of equipment contributes to the economy.
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Item No.: 12
Meeting Date: 02/26/13
Page 4 of 4
ONGOING FISCAL IMPACT
The operating agreement between the Partners requires re-examining the administrative
costs of the program every five years. It is anticipated that the administrative costs to the
City will be $30,000 per year starting in Fiscal Year 2013-14, thus reducing the impact to
the City's General Fund in future years. The work done by Staff and Zone partners has
increased the Zone hiring by 40% over the past two years. As referenced above, staff is
working on collecting additional data that will enumerate the status on the Zone's goals
and objectives.
ATTACHMENTS
1. HCD 2013 Enterprise Zone Administrative Reform Impact Statement
2. Enterprise Zone Fact Sheet
Prepared byc Craig Ruiz, Prirtci~al Economic Development Specialist,
Administration /Economic Development Department
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SAN DIEGO
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ZONE
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HCD 2013 Enterprise Zone Administrative Reform
Impact Statement
Reform: Elimination of income verification as supporting documentation for the Economically
Disadvantaged Individual Category for the Enterprise Zone Hiring Credit
The elimination of income verification to substantiate eligibility for the Economically
Disadvantage Individual Category raises serious concerns. The elimination of income levels for
determining employee eligibility for this category completely eliminates the "low income" as a
stand-alone category.
Revising the Economically Disadvantaged categories and documentation so that the only way
to establish if an individual is from a low income household is by verifying the family receives
some form of public assistance will eliminate the "working poor' from eligibility. Not all low
income families receive public subsidies even though they may qualify, as such; the suggested
reform removes an important "targeted disadvantaged group" from the EZ Program which is a
significant workforce population in the San Diego region.
In 2012, San Diego approved nearly 11,000 vouchers, of these, 10,163 were for TEA and 285
were for Economically Disadvantaged "low income", the second highest category of vouchers
issued.
SuRRested Revisions to the Reform:
1) Do not eliminate paychecks or income statements as an acceptable document to prove
eligibility for the Economically Disadvantaged category.
2) Revise Enterprise Zone Hiring Tax Credit Income Verification Statement (Form: Voucher
WS 10-07) to provide clear direction on how to determine "household low income"
status and correct the conflicting section of the form, Section V, Table C, Part 5.
3) HCD to request that access to the HUD Enterprise Income Verification System is granted
to Enterprise Zone Managers or Vouchering Agents. This system provides information
on income and types of public subsidy for individuals. Agencies currently using this
system include public housing agencies and workforce agencies.
4) Accept copy of federal or state income tax return for previous year as an acceptable
form of documentation to determine household income levels.
February 2013 Page 1
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REC31 O NAL
ENTERPRISE
ZONE
Reform: One-Year Retroactivity Provision for Submitting Hiring Credit Voucher Applications
The SDREZ Partnership is not opposed to limiting retroactivity. However, we recommend
allowing Enterprize Zone (EZ) businesses 18 months to 24 months from the date of hire to
submit Hiring Credit Voucher Applications for two reasons:
A) Due to the fact that the Employment Development Department (EDD) processing time
to provide of approval of a Work Opportunity Tax Credit (WOTC) certificate can at times
take more than 12 months, it is not feasible for EZ employers to submit the required
documentation for WOTC eligible employees within 12 months from the date of hire.
The time for processing WOTC certificates is not controlled necessarily by EDD but due
to numerous variables.
B) Small and medium size businesses that do not contract with third party consultants to
complete Hiring Credit Voucher Applications would be the most impacted by the
limitation of one year. These businesses try to collect the required documentation, and
submit the applications once a year in order to handle the day to day operations of
running a business.
SuPaested Revisions to the Reform:
1) Allow EZ businesses 18 months to 24 months from the date of hire to submit all Hiring
Credit Voucher Applications. The suggested additional months would give small and
medium size business owners/managers the time necessary to submit applications in a
timely manner.
2) Make an exception for all applications for the WOTC category to be submitted One-year
from the date the WOTC certificate is issued.
Reform: Documentation for Eligibility of Targeted Employment Area (TEA) Category for the
Enterprise Zone Hiring Credit
The change to the TEA category eliminates the use of W-4's, I-9's, and lease or rental
agreements as acceptable documents to determine residency. Acceptable forms of
documentation include a driver's license or other local, State of Federal identification card
issued within the past five (5) years, utility bill, mortgage statement, County property tax
statement and credit card bill or statement. All of the acceptable forms of documentation are
valid documents for individuals who live in a TEA and are property owners and or renters with
utility accounts in their name.
February 2013 Page 2
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SAN DIEGQ o
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REGIONAL
ENTERPRISE
ZONE
However for low income individuals who reside in a rented home or apartment with an
extended family and share living expenses, do not have any utilities in the EZ employee's name,
and do not have credit cards, proving residency with the limited documentation for TEA is
problematic. There are numerous communities in the San Diego region where several families
share a dwelling unit and living expenses in order to make ends meet. Several family members
may no longer qualify due to the limited acceptable documentation.
Additionally with the elimination of some documents, Economically Disadvantaged (low
income) individuals who reside in a TEA and meet the above profile will not qualify under any
category. These individuals will no longer qualify because: they do not have any of the
acceptable documents to prove eligibility of TEA; and household income verification will no
longer be acceptable to prove Economically Disadvantaged (low income).
Sugeested Revision to the Reform:
1) Continue to accept W-4 and lease and rental agreements as acceptable forms of
documentation to prove eligibility of TEA.
Reform: Creation of Various Categories for Veterans for the Enterprise Zone Hiring Credit
The reforms create several Veteran eligibility categories. For example, there is a proposed WIA
Veteran Category, a Vietnam Veteran or veteran recently separated Category, and a sub-
category called Active member of the armed forces or National Guard as of September 30, 1990
under the Dislocated Worker category. However, it appears that the documentation required
as verification for the above categories is similar.
Suggested Revision to Reform:
1) Group the Veteran categories in the same section of the new voucher regulations as one
Veteran category with subcategories for each type of Veteran. List the acceptable
documentation for all categories together, and list documentation unique to any
subcategory withthatsubcategory.
Reform: Auditing & Reporting Requirements
The reforms propose regulations to outline how Zones are to be graded through an audit,
establish a standard for Zone auditing, and ensure that each Biennial Report contains
information that the Department needs to evaluate Zone progress and success.
February 2013
Page 3
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SAN DIEGO O
zene
REGIONAL.
ENTERPRISE
ZONE
Having specific and uniform key measures for Zones to report biennially and performing
standardized audits can justify the effectiveness and success of Enterprise Zones as an
economic development tool in California. However, the data mandated by the reforms must be
meaningful information, and the intended use of the data needs to be clarified. It is very
important that the data HCD requests from Zones provides significant information to measure
Zone performance, and is not information that does not provide value or contribute to
adequately measure Zone performance.
Suggested Revision to the Reform:
Provide clarity in the reforms and the Initial Statement of Reasons on what performance
measure and/or objective the data will support and help evaluate. Eliminate all requirements
that clearly do not provide value to determine success of a Zone/Program or performance
measure or objective.
February 2013 Page 4
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5AN DIEGO
zone
REGIONAL
ENTERPRISE
ZONE
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A total of $1.7 billion worth of investment has been made in San Diego-area Enterprise
Zones. More than 20,000 jobs have been generated, and hundreds of businesses have
received expedited permit applications. Thousands nwre have received technical or ftnancial
assistance.
An Enterprise Zone is a geographically designated area in which businesses can receive
substantial state tax breaks and other benefits. Enterprise Zones were created in California to
stimulate business investments and to increase job opportunities in areas of high
unemployment. San Diego is home to one of 42 Enterprise Zones statewide.
San Diego Regional Enterprise Zone: Established in 2006, the One Zone is a regional
economic development program incorporating portions of the City of San Diego, significant
portions of the City of Chula Vista and the City of National City.
Advantages of the Enterprise Zone Program are the tax savings and other incentives
including:
• Sales or Use Tax Credit: A tax credit against the purchase of new manufacturing,
assembly, data processing or communications equipment equivalent to the amount of
sales or use tax, or up to $1.55 million annually.
• Hiring Credit: A tax credit on the wages to qualified new employees over afive-year
period (up to 50 percent in the first year, 40 percent in the second year, etc.) This credit
could exceed $37,000 per eligible employee.
• Accelerated Depreciation Deduction: The option to accelerate depreciation on business
property. A business may treat 40 percent of the cost of qualified property as a business l~l/f,
expense in the first year it is placed into service for a maximum deduction of $20,000 per ~_+_!!~_~
year, whichever is smaller. `~""'
CH L L1 VISIA
• Net Interest Deduction for Lenders: Allows lenders a deduction on the net interest
earned from loans made to Enterprise Zone businesses, including business loans,
mortgages and loans from noncommercial sources.
Other advantages include: ,„~ ~,,, ~„ s~~ ~,«p
• No-costjob referral service used to find qualified employees whose wages can be
claimed as tax credits.
• Development permit expediting and assistance.
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• Tax savings for Enterprise Zone employees. n
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• Access to specialized technical and financial assistance programs. "'"~ '
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Contact Craig Ruiz at crui~~ch~lavistac2.eo~~ or 619-691-5248 for further information nrt
Uuifi
of San I)icf,o
,Y
RESOLUTION NO.
RESOLUTION OF THE CITY COUNCIL OF THE CITY OF
CHULA VISTA IN SUPPORT OF THE CALIFORNIA
ENTERPRISE ZONE PROGRAM
WHEREAS, in 1992 the State of California approved the South Bay Enterprise Zone; and
WHEREAS, in 2000 and again in 2004, the South Bay Enterprise Zone was expanded to
include properties along the redevelopment area of the City of Chula Vista; and
WHEREAS, on November 3, 2006 the State of California Housing and Community
Development Department (Deparment) conditionally approved the new San Diego Regional
Enterprise Zone (SDREZ) designation, within the cities of Chula Vista,_ S_an Diego and National
City (Partnership); and
WHEREAS, on April 3, 2012, the Department concluded that the Cities of Chula Vista,
National City and San Diego satisfied all of the conditions required to obtain final designation
for its conditionally approved Enterprise Zone. As a result, the Department granted final
designation to the San Diego Regional Enterprise Zone, effective October I5, 2006; and
WHEREAS, during the past three years, over 300 Chula Vista Enterprise Zone
businesses hired and retained 3,500 local workers; and
WHEREAS, the SDREZ has proven to provide a positive economic impact to the region
by assisting 920 SDREZ companies hire and retain over 31,600 local workers over the past 5
years; and
WHEREAS, of the over 31,000 workers, 4,100 of those employees hired or retained were
Veterans, public-assistance recipients, ex-offenders, dislocated workers, and/or economically
disadvantage individuals; and
WHEREAS, Enterprise Zones create and retain jobs. According to the California
Association of Enterprise Zones, in 2010, more than 118,000 jobs were created while California
experienced unprecedented unemployment; and
WHEREAS, California's Enterprise Zone program was established in 1984 by the
Legislature to stimulate business investment in depressed areas of the State and create job
opportunities fox Californians; and
WHEREAS, according to the findings and declarations of the Enterprise Zone Act, it is in
the economic interest of the State to have one strong, combined, and business-friendly incentive
program to help attract business and industry to the State, to help retain and expand existing
State business and industry, and to create increased job opportunities for all Californians; and
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Resolution No.
Page 2
WHEREAS, Enterprise Zones attract businesses to California and retain them. Once a
zone is approved, businesses construct facilities, purchase equipment, hire workers and make
other investments that contribute significantly to the local, regional and State economy; and
WHEREAS, Enterprise Zones provide a geographically targeted economic development
tool designed to improve poor and blighted neighborhoods.
NOW THEREFORE, BE IT RESOLVED by the City Council of the City of Chula
Vista, as follows:
1. The City of Chula Vista formally supports the positive benefits of the Enterprise Zone
program in local communities and on a statewide economic level; and
2. The City of Chula authorizes its Council and city staff to communicate its support for
Enterprise Zones and opposition to any proposal that would threaten their existence.
Presented by
James D. Sandoval
City Manager
Approved as to form by
~~~ />~/~
Glen R. Googins
City Attorney
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