HomeMy WebLinkAboutR03-Redevelopment Agency
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. . R~T AGENCYe~EST FOR cO..ISSION/COUNCIL AcQc.
From: Glenda Saul. Executive Director
Subject: ENTERPRISE ZONE
Dept: Redevelopment Agency
Date: February 21. 1985
Synopsis of Previous Commission/Council action:
NONE
Recommended motion:
KAY<Il. AND COUNCIL ACTION
COMMUNITY DEVELOPMENT COMMISSION ACTION
a. Move that the City apply under AS 40 and direct staff to prepare necessary
docwaentB for final approval.
b. Move approval of the boundaries for the Enterprise Zone Be proposed by etaff.
c. Move approval of boundaries for the commercial and industrial areas within the
Enterprise Zone.
d. Refer the matter of local incentives to Legielative Review and Ways and Means
Committee.
e. Authorize etaff
Impact Report.
FUNDING REQUIREMENTS:
Amount: $
N/A
Signature
Phone: 383-5081
Ward: 1.2.3.6
N/A
Project:
March 19. 1985
Date:
GLENDA SAUL
Contact person:
Supporting data attached:
YES
No adverse Impact on City:
Council Notes:
810J/OJ
Agenda Item No,
'7
" ~
" r-.
I . S:ATf ~AtIJOPNIA-BU~""'ES~.
TRANS'OR1AtlON AND HcOa AGfNCY
o
GlORGE DfUl.MfJIAN. ",0
..1.
DEPARTMENT OF~ONOMIC AND BUSINESS DEVELOPMENT
1030 13th 51RH1. SUITE 200 .
SACRAMEN10, CALIFORNIA 95814
~
DEPARMNT 0( ECIONClOII C AND BUS I NESS DEYELOf'IoENT
ENTERPRISE ZONE LEGISLATION
CHAPTER 44 11\8 5141 AND OlAPTER 45 lAB 40'
STATUTES Of 1984
'.
ITEM
Chep"t.r 45 - 1\8 40 ..
OIf1nltlon
o EnterprIse Zon.
TI....fr.ooe
OIslgn.tlons established for
f Iftoen ,..r per lod.
Number
DEBO ..y des I gn.... not '""'"
thin iO.n"t.rpr,.. iones. of
"lllch noteore tnen 2 ..y lot
.... ,,-"
d9slgn.ted .s ~I'lah"'chnology
enterpr'.. '~s. ",
"L
. '
SpecIfic Crlterl.
Enterprl.. IOfteI
.. f"';nd' 40 be a .depr....d
.r... such th.t the deslgn.-
.-tlon .s .n en"t.rprlse zone
Is ...,~~.ry In order to
.sslst ln .ttr.ctlng prIvate
*tor 'n..;;..~t ,,,. the '
.......
Appllc.tlon prIorIty given ~
.ppllc.tlons whIch: "
- propose the eost .ffectlv.
comprehensive and Innovltl.e
regul.tory tax progr.. .nd
other incentIves In
.ttr.ctlng pr Iv.te ..ctor
InvesfMnt
- gre."t.st IIk.llhood of being
des I gn."t.d . f~der.1 zone
. .
Chep"t.r 44 - AB 514
o N.lghborhood Econ..lc OI..I_nt
Areas lNED'sl
o T.rge"t.d Econ..lc OI..lop....nt Are.s
ITED's'
An .re. MY be deslg~~"d . TED without
concurrant deslgn.tl~ .s . NED; how-
ev.r, .ny NED .ust .Iso;be deslgn.ted .
TED.
Deslgn.tlons .st.bllshed for fl..-y..r
perIod which Is re...v.bl. for two flve-
y..r perIods for . ....tel ot 15 ,..r..
DEBD ,",y deslgn."t. not .,re th.n 9 TEDi.
.nd Nliiis. The.. .reas wIll be ph...eI:-
I n-6...per ye.r oyor . tti..-ye.r period!
NED's:
- wIthIn hl~h densIty un..ploy..nt .r.,.
- primary UII Is _rcl.1 ,.
- bounder!.~' ~tln~us
- .ufflclent .Iz. to sup~rt . dlv.rse
.,X" of bust..s_s ~,' . :'" .
~ 5'.rt of ..... .""11 be !!f Jurlscflctlon
of .pp II cent .
- not:..n .g/'lcultur.1 .....
- restrlctlO!' on. ~... of ""sldentl.1
. . ,. " . ~
. .a1'rllctur.. ;;
, _ fi.~
..'
Tm'sl ...... r\"'.
- ..ybe withIn hIgh densIty I!ft",ploy-...
_nt .r.. or .h.1I be wIthin coaIIvtlng
: -
dl.tence
- 'prleery use Is IndustrIal or other
COlIOIIrc Ie I
- boundertes continuous
, ,.
'.
,.
o
ITEM
r.der.1 OIsl gnetlons
Crl"t.rl. for
OIslgn.tlon
Gon.r.1 Progr..
o
Ch.p"t.r 15 - AB 10
Prcwldes th.t .ny c1eslgnetlon
of . progr.. ..... s"'ll be
_d .pproprl."t. stete
deslgn.tlon of .n ..... of pur-
pos.s of qu.llfylng the .r..
es an .n"t.rpr II. zone under
federal I...
In deslgn.tlng .re.s, DEBD
....11 ..I.ct fr.. _g those
.ppllcatlons whIch. .... the
.rlent posslbl., _t the
followIng crlterl.1
111 IndIcate the eost .ff.c-
tlve .nd cooaprehenslve
...gul......" tex, progr.'
.nd other In;tlv.s for
.ttr.ctlng prly.te ..c.....
Invest.nt
121 IndIcate the eost Innova-
tlv. .pprOlch In ...tlng
SlId IncentIves
131 off.r the sr.."t.st likeli-
hood of beIng deslgn."t.d
.s f.der.' .nterprls.
zon.s
141 confores .... UDAG crl"t.rl.
or the .r.. of the zone
...s .xp.rl.nced pl.nt
closur.s wIthIn the pest
two y..rs .ff.ctlng eor.
th.n I DO workers
DEBD ....1 II
- deslgn."t. .nterprlse zones
- desIgn. develop .nd ..k.
.v.ll.bl. the IPpllc.tlons
.nd the crlterl. for sel.c-
tlon of progr.. ...... .nd
sh.11 .dopt the ftlcess.ry
regu I.tlons .... carry out
the.. r.qulrenents
-2-
"III ,.,
o
o
C"'pter 44 - AB "4
ProvIdes th.t any desl,,".tlon of .
progr.. ..... .hell be __d IPproprl."t.
sta"t. deslgn.tlon Df .n .re. ..... pur-
poses of quellfylng the .re. .s .n
.n"t.rpr lse zone under f.cIer.1 I...
In coapetltlv.ly ev.lu.tlng appllc.tlons
for progr.. c1eslgnetlon, DEBD s"'" glv.
p...f....nce .... .ppllc.tlons whIch
Include:
III the strongest .nd hIghest quellty
oontr Ibutlons, .nd
121 pro.lde . local pl.n for reducIng
I_dl..nts .... _...Ic devel_nt
.nd ..Intalnlng the qu.llty of life
for the _unIty, IncludIng:
- . p'.n .... .ncourege the ...tentlon
.nd .xp.nslon of .xlstlng
buslne'Ms
- . str.tegy for the recrult.nt of
_ busln.ss Into the pro",.. .....
- . ....llstlc proJection of _ Job
opportunItIes th.t .r. sult.bl. to
the needs of progre. .....
resIdents
- . pl.n .... Improve CDlIIIIunlty
ser"V I ces
- . pl.n .... provIde Insur.nce .nd .
loon bank or fund for quellfl.d
busln.s..s In the progro. .....
- . pl.n ..... reh.blllta"t. existing
abandoned siructures
DEBO shell:
- deslgn.te TED's .nd NED's
- IdentIfy hIgh densIty unemployooent
...... In e st.te.lde ..p .nd dlstrlb-
u"t. .... countl.s
- desIgn, de.. lop ..nd ..k. av.lI.bl. the
.ppllcatlons, the crlterl. for III.c-
tlon .nd .11 ..gul.tlons
o
o
ITEM
Chepter 45 - AS 40
LOCI I Entltl.s
Indlvldu.ls relldlng withIn .n
.nterprlse zon.~.stebIISh
. non-proflt NeIghborhood
EnterprIse AssocIation
Corpor.tlon for the purpose of
provIdIng technlce' end
fln.ncl.1 esslstanCl to
prlv."t.sector Investors wIth-
In en .nterp~t.. zone.
The Incorpor.tlng resIdents
sh.11 draft ertlcles of Incor-
por.tlon and byl.ws for . 1lOIl-
profIt corpor.tlon whIch Ih.11
provIde the followlngl
III descrIbe the geogr.phlc
neIghborhood .re. .... whIch
the Incorpor.tlng .ssocl.-
tlon eppll.s
121 descrIbe the ..nner In
whIch e eemberlhlp Inter-
ast In th.t corpor.tlon
she II be off.red .... each
resIdent
131 conteln provisIons for the
...ndoent of the .rtlcl.s
.nd byl.ws by a ..Jorlty
of .lIbers
141 .uthorlze the corpor.tlon
.... engage In busIness only
wIthIn the pertlcul.r zone
In whIch the neIghborhood
.re. of the corpor.tlon Is
loco"t.d
The Incorpor.tlng ...sld.nts
lhell send.... .11 eligIble
resIdents of the corporetlon'l
...1 ghborhood ..... each of the
followIng,
III .n .xplan.tlon of the pr....
posed new corpor.tlon .nd
theIr rIghts
121 . copy of the corpor.te
ertlcl.. .nd byl.ws
1" en offer of . ..bershlp
In"t....st .... whIch ..ch
pertlcul.r resIdent Is
entltl.d
-)-
,m ... ..
o
o
Chepter 44 - AS 514
The p...pose of the C-Un I ty AIIv tsor,
Council Is .... allow _unIty Involve-
_nt In the progre.. The _rs of
...he CouncIl shell be appoln"t.d by the
loc.1 govern I ng body .nd ahe II -.slst
of .t I.ast one reDr...nt.tlve fr...
cSof the followIng sroups:
III progr.. .r.. resIdents
121 hIgh densIty _Io_nt ere.
resIdents
131 buslnes..s
141 local gover....n... repr.sentatlves
151 prlwa"t. Industry council _rs
161 dep.rteent officI. Is, when IlICIssery
171 urben end rur.1 devel_nt corpor.-
tlons
181 =-unlty-t>.sed orgonlzetlons
The AdvIsory Council shelll
III _.t et la.st onOl . eonth during
the f.....ul.tlon of the ooapr.henslve
econ...lc develop_nt pl.n for the
appllcetlon
121 ..t It I.ast onOl .very thr_
eonth. throughout the durltlon of
the progr.. .... eon I tor the progr.ss
of the progr.. .nd to..ld .nd .sslst
the .gent wIth pl.n 11Ip1_ntatlon
1" Inltlote or coordln.te ooaaunlty
progr..s whIch ..y Include progr...
provIdIng the following:
- n.lghborhood al_ pr.ventlon
- r.ae.tlon
- he. I th cere
- senior cltlz.ns outrltlon
- chIld cere
- Job tr.lnlng
o
ITEM
o
Chep"t.r 45 - AS 40
Loc.1 Entltl.s - tontd. The _rd of dIrectors of the
corporltlon lhell eppl, .... the,
Secretary of Sta"t. for CIIrtl-
flc.tlon of Its .~tlcl.s of
Inc:or-por.tlon. The Secr.tary
of stete shell pr"Dvlde
"t.chnlc.1 ...Istenoe .... zone
~.sldents .t1weptlng.... .
Inc:or-por."t..
Mester Envlronll8ntel
IIlJ'.ct Sts_nt
Subsldlz.d Le.slng
Any cIty, county, or cIty end
county whIch propous the
deslgn.tlon of en .re. wIthIn
Its JurisdIctIon es en .n1er-
prl.. zone shell, followIng
the Dep.rteent's deslgn.tlon
Df thet .rel es en .n"t.~prl..
zon., develop an .nvlr_ntel
I.p.ct repo~t which sets forth
the potentl.1 .nvl~onll8nt.1
lap.cts of .ny end .11 dev.l-
opll8nts wIthIn the .nterprlse
Zone. TM envlron.nt.t
lep.ct report shell _t the
r.qul~_nts of the Cellfornh
Envlr_ntel Qu.llty Act, .nd
80 further .nvlron_nt.1
IIIIp.ct report she II be
r.qul~.d for any oth.r project
within the .nterprlse zon., If
the OIp.rteent deteraln.s th.t
the .ff.cts of the prDject
w.re .Itlgated as . result of
the ErR or the ErR .n.bl.s
Iltlgstlon wIth revisIon or
other condItIons of the
specIfIc sl"t.s.
All property own.d by the
state or loce I governll8nt
wIthIn the neIghborhood .re.
of . oertlf I.d corpor.tlon
whIch I. not In curr.nt u..
.nd Is IIOt nece...ry for .
purpose of the state or loca I
elllncy ownIng the pr_rty,
uy be I....d .... the oorpor.-
tlon It 1e..... .... be speclfl.d.
ThIs I.... .gr_nt sh.1I
-4-
... ..
o
o
Chep"t.r 44 - AS 514
Any cIty, county, or cIty .nd county
lhell, followIng the OIp.rteent'.
des Ignition of thet .re. .s e TED,
develop en .nvlr_nt.1 IIIp.ct report
whIch sets forth the potentlel
.nvlr_nt.1 IIp.cts of .ny .nd .11
.velopeent wIthIn the en"t.rprl.. zone.
The .nvlr_ntel ".p.ct report shell
_t the requlr_nts of the Cellfornl.
Envlron.nt.1 Qu.llty Act, .nd 110
further .nvlron.nta I IIIP.ct report
shell be required for .ny other project,
If the OIp.rteent c1e"t.noln.s th.t the
.ff.cts of the project wer. Iltlgoted
IS . result of the ErR or the EIR
.n.blas Iltlg.tlon wIth revIsIon or
other condItions of the specifIc sIte.
. Notwlthst.ndlng .ny other provIsIon of
I.w, ste"t. .nd local .gencl.s er.
.uthorlz.d 10 I.... I.nd 10 qu.llfl.d
busln.s..s In . TED or NED .t . prlc.
below f.lr ..rk.t niue, provIded It
..rves . publiC purpo.. .... I.... .t
below blr ..rk.t ..IUI.
These provisIons confore .... lJUldelln.s
for the ..I. of public I.nd purchos.d
wIth F.der.1 funds
c
ITEM
Subsldlz.d L..slng -
Contd.
Seell BusIness Loon
Preference
En.rgy Loon Pr.f.r.nce
T.rgeted Industrl.1
OIvelop..nt Bonds
o
Chap"t.r 45 - AS 40
per.1t the __.......tlon 10 aub-
I.... Dr ..sIgn Its le.se-hold
Inter.st 10 prlv.te entltl.s
conductIng or Intending ....
conduct busIness oper.tlons
withIn the zone.
These proylslon. confor. ....
guIdelines for the s.l. of
publIc I.od purch...d wIth
Feder. I f...ds.
NotwIthstandIng .ny other
proyl.lon of I.w, -the Office
of Seall Busl..... OIv.l_nt
10SBlll shell .stebllsh
r.gul.tlons for loons and loon
gu.r.ntees .delnlstered by the
offIce whIch glv. hIgh prIorI-
ty to qu.llfl.d busln.s..s In
a TED, NED, or .n"t.rprls.
zo..., but only If the own.rs
of the buslne...s .re
r.sldents of . hIgh den.lty
unemploy..nt area or enter-
prl.. zone Dr the busln.ss Is
. joInt ..ntur. between
r.sldents of the hIgh c1enslty
un_loy_nt ..... .nd an
.xl.tlng busIness.
Notwlthstendlng specifIed
.xlstlng I.., . hIgh prIorIty
In r.nklog loon eppllc.tlons
by the Stete Asslstence Fund
for Energy, Collfornla
Busl...ss .nd OIv.lop..nt
Corpor.tlon, she II be glv.n ....
qualIfIed busln.s..s
purch.slng or provIdIng
alternat'v. energy system~.
NotwIthstandIng exIstIng I.w,
the Collfornla Industrl.1
Develop_nt FInancIng Adylsory
CaInIlsslon shell .uthorlz. .n
.nnu.1 _xh.ue Z;,ft+ of ;;;1-
Ifylng bonds 0 5.llllon
Th I s .uthor tz.tlon sh.11 be
-5-
1111 I 'I L "
o
o
Chep"t.r 44 - AS 514
NotwIthstandIng .ny other provisIon of
I.w, the Office of Seell Business
OIv.l_nt IOSBOI shell .stebllsh regu-
lotIons for loons 8nd loon gu.r.ntoes
....Inls"t.red by the office which glv.
hIgh prIorIty 10 quallfl.d bu.l...s..s In
a TED, NED, or enterprl.. zone, but only
If the own.r. of the buslnes..s are
r.sldents of a hIgh densIty. ......ployeent
.r.. or .nterprl.. zone or -the busIness
I. a joInt venture betw..n ....Idents of
the hIgh den.lty ....lIIPloy_nt are. and
.n exIsting busl..s..
Notwlthstendlng speclfl.d .xl.tlng I.w,
. hIgh prIorIty In r.nklng loon .ppllc.-
tlons by the Sta"t. As.lstence Fund for
En.rgy. Cellfornl. Busl..ss .nd Dev.lap-
_nt Corpor.tlon, shell be gIven ....
qu.IHI.d buslne...s purchasIng or
provIdIng .Itern.tlve ....rgy systems.
Notwlth.t.ndlng .xlstlng I.., the
Collfornl. Industrl.1 OIvelop..nt
Fln.nclng AdvIsory Coealsslon shell
authorize en annual ..~I.u. -.aunt of
q.uallfylng bonds of t[75.11 IIc!ib This
.uthorlzetlon ahell be u..d fqr provId-
Ing funds.... busl......s In thIs bIll or
eny other .n"t.rprl.. zone.
.
o
ITEM
T.rgeted Industrl.'
OIv.lop_n' Bonds -
Contd.
T~.lnlng Pr.f.r.nce
Crlmln.I JustIce
Progr.. Pr.f....nce
St.te Contr.ct
Preference
o
Chepter 45 - 1\8 40
used for provIding funds ....
buslne.ses In thIs bIll or .ny
other enterprIse zone.
Notolth.t.ndlng other proyl-
slons of I.., [DO .nd SDE
.h.11 give high prIorIty ....
tr.lnlng unecploy.d Indlvldu-
els who ...slde In hIgh c1enslty
unetlploy_nt .rel.
Notolthstandlng eny other
provIsIon of I.., the Office
of CrI.ln.1 Justice PI.nnlng
sh.11 gIve hIgh prIority ....
p~ogr.a .reas In the
.1 I ocetl on of Its prove.
resourees.
Whenever the state pr.p....s .n
Invlt.tlon for bId for e
contr.ct for goods In ~xces.
of 5100,000, the .tete sh.1I
ew.rd speclfl.d pr.f.r.nces to
busIness blddrrs ope~.tlng In
hIgh densIty uneooployaent
arees tJI'" .n....rprlse zone. The
..xlau. pref.rence . bIdder
..y be ewarded would be no
eore th.n 15S.
The OIp.rt.int of Genere'
Se~vlces, In cooper.tlon wIth
the Ellployaent OIvelopaent
OIp.rt.int, the OIp.r_nt of
Indu.trl.1 Rel.tlona, the
OffIce of PI.nnlng .nd .
Research. end under tfw dl rec-
tlon of the St."t. end Cons.....r
ServIces Agency, .hell .dopt
the .pproprl.te rul.s,
~.gul.tlons .nd guIdelInes to
lapl_nt the.. proylslons.
In .ddltlon, the sta"t. bIdder
pref.r.nce IOU I d be e,,"t.nded
to worhltes wIthIn .......utlng
dIstance of . dl.tressed ......
-6-
. m .._.. ,
o
o
Chep"t.r 44 - A8 514
Notolthstendlng other provisIon. of ...,
EOO end SDE .h.11 glv. hIgh prIority to
tr.lnlng un_loyed lndlvldu.lswho ,...
sIde In hIgh c1en.lty _Ioyaent ......
Notolthst.ndlng .ny crther provIsIon of
I.w, the OffIce of Crlaln.1 Ju.tlce
PI.nnlng shell gIve hIgh priorIty to
progr.. .....s In the elloc.tlon of Its
prOF.. resources.
Whenever the state pr.pa...s en InvIta-
tIon for bId for e OOIltr.ct for goods
In IXceSS of 5100,000, the state shell
...rd speclfl.d pref.rences to busIness
bIdder. ope~.tlng In hIgh densIty --
ployaent ....as or enterprIse zone. The
.."Iaua pr.ference . bIdder aey be
.w.rded would be no eor. than 15S.
The Depar_nt of Gener.1 Se~Ylces, In
cooper.tlon wIth the Ellployaent OIvel-
o_nt OIp.rtaent, the OIp.rtaent of
Industrial R.I.tlons, the Office of
Planning end R....rch. .nd under 1he
direction of the Sta"t. .nd Con......r
ServIces Agency. sh.1I .dopt the .ppro-
prl.te rul.s, regul.tlons .nd guIde-
lines.... 11Ip1.aent the.. provisIons.
In .ddltlon, the st.te bIdder pr.f.r.nce
would be e"tended .... worbltes wIthIn
cOIIOIutlng distance of e dl.tr.s..d .re..
..
o
ITDI
BusIness T.. CredIt -
EIop loyer ".ges
BusIness Te. Cr.dlt -
Sales Ta.
Inves_nt Incoee
ExclusIon
o
Chepter 45 - AS 40
Allows. te. credIt for qua 11-
fl.d .eges paId.... speclfl.d
dlsadv.nt.gad Indlvldu.ls who
.r. htr-ed .... __k In an .nter-
prlse zone. The credIt would
be:
- 5llJ of .agas In the 1st re.r
- 40J of w.ges In the 2nd rear
- 30S of .agas In the 3rd re.r
- 20J of ..gas In the 4th ,.ar
- 10J of .agas In the 5th ,..r
The ....tel credIt would not
......d 150J of the alnlallll
..ga for eny .., loyee.
The credIt would be In lI.u of
the terga"t.d Job. credIt, and
wagas upon whIch the cr.dlt Is
b.sed cou I d not be deduc"t.d e.
. busIness _nse. The .tete
t.x credl tis.... be r.duced by
.ny ccep.rebl. feder.1 credIt
so th.t the stete .nd feder.1
cred I t. do not ......d the
ebove lIalts.
The credIts ..y be cerrl.d
forw.rd .... the longer of 15
y..rs or the length of the
enterprIse zone's desIgnatIon.
Not speclfl.d.
~pts fr.. gross InCOlOl of
a ta"".y.r any InCOlOl c1er I ved
fr.. en Invest.lnt In . devel-
op_nt or project loco"t.d
.Ithln .n .nterprlse zone.
Te""ayer .doe. not Include the
ectual c1evelopor or op.r.tor
of the devel_nts or
projects.
-7-
1..111 11.11 I'
o
o
Chlp"t.r 44 - AS 514
Allow. . 1'1. credIt for hIrIng
u_loyed r..ldents of hlllh den.lty
u_loyeent ...... who hive _n
u_loyed for It 1.lSt .1. eonth.. The
t.. credIt .1 low.:
- S60D credIt for the first 6 _ths
- 1600 credit for.the second 61lOnths
- 1700 credIt for the second ,.ar
If the _ploy" hi. _n .....,Ioy.d
betoeen , IlOIlth. end 6 IlOIlths pr lor....
..ploy_nt, the tex credit IlIows:
- 1500 credIt for the first rear
- 1700 cr.dl t for the second rear
The cr.dlts ..y be carrIed forward ....
.uc....dl nil toxeb Ie ,.ars.
Allows. to. credIt .qulval.nt to the
.al.. tox paId for ..chlnary and
..chlnery ports used for fabricating.
processIng, e..eMbllng and eanuf.cturlng
on such each I nary .nd perts up .... .
v.lue of $I all lion. The cr.dlt MY be
cerrl.d forward to subsequent ,..rs.
If the credit Is tak.n. . deduction for
.al.s toxes paid ..y not be cl.l_d.
E_pts ken gross InCOlOl any In"",""
derIved by . te""eyer for Inves",-nt In
. quallfl.d buslftlss loco"t.d In . TED or .n NED. T'""ly.r does not Include the
owner or op.rator of I quallfl.d
busl,.....
. ,
. .
,
.
o
ITEM
Oper.tlng Loss
Car"YDver OIductlon
Eeployee CredIt for
""geS Eer...d
Exp.nslng Depr.cllble
Property
Un I to..y Method
,. ProhibItions
o
Chep"t.r 45 - AS 40
Allows I texplyer engeged In
the concluct of bu. I..... wIthIn
en en"t.rprlse zone .... c1educt
lIet operltlng 10.. cer..yovers
to that ,.Ir, ..... up .... 15
t.xabl. ,.Ir.. For I fln.n-
cl.I InstItution the 1I.lt Is
5 ,..rs. If th Is credl t was
elected, the existIng _II
busIness net operotlng loss
carry-forwlrd would IlOt be
II lowed.
Allows 0 5 percent InCD118 flIx
c..edlt .... quallfl.d .ploye.s
ogllnst nges e.r...d In an
enterprIse zone for one yelr
.nd IlOt .... .xceed SOD per
.ploy... The credIt Is
..educed by S.D' for e.ch
dolllr of Inccee .....Iv.d by
the texplyer In ...ce.. of
SlI,09O.
AI lows . taxplyer .... uk.
deductions whIch conf..... ....
F.derll Ilw on accel.rlted
cost recov.ry on carteln
property.
A busIness doIng busIness
wIthIn ond without the .....
who elects the tax cr.dlts .nd
net operltlllg loss Ilf anyl
eust use the .pportlon..nt
..thod.
Property wIthIn In .nterprlse
zone whIch Is Included In 0
feder.1 .ccelerlted CDSt
..ecovery syst.e would be
excluded f.... the Inste II..nt
s.l. reportIng provl.lon.
Also. existIng sfllte tex Ilw
-e-
'" "
o
o
Chapter 44 - AS 514
Allow. I texp.yer IIlgellld .In the conduct
of bual...sa III I NED or TED .... c1educt
...t operatIng loss cer..yovera .... that
ye.r, ..... up .... three texable ,..rs,
following the ta'Qbl. ,.Ir of loss.
NDt II lowed.
Al lows.... expense 40S of the CDSt of
property ellglbl. for the proposed seles
tex credIt In 2 .hove. The CDSt of the
property Is lIal"t.d .... S5,OOD In the
fIrst yelr .nd gr.dultlllg to SID,OOD
If"t.r the fourth ,.Ir. If this Is
elected the property MY IlOt be caplt.l-
Ized .nd the Instell..nt ..thod of
reportIng 91 In Clnnot be used when the
property Is sold.
A busln.ss doIng business .Ithln .nd
without the .rea who .Iect. the tax
credits .nd net op.r.tlng loss Ilf .nyl
eust use the Ipportlonoent ..thod.
..
P..operty wIthin In .n"t.rprls. zone whIch
Is Included In I fede,,"1 Iccel.r."t.d
cost recovery syst.e would be .xcluded
fr.. the Install..nt sel. reportIng
provIsIon. AlsD, exlstlllg state tax II.
delllng wIth conde.notlon of re.1 prop-
e..ty would Include outdoor .dve..tlslng
.
.... 0
ITEM
PrDhlbltlons - Contd.
Funds
Urgency
OpereflYl Da"t.
Doub Ie JDlftld
JS:15A
-
CIlep"t.r 45 - AS 40
dealing wIth -._nltlon of
r.al pr_rty would Inclucle
out_ .dvertlslng If thlt
WIre Included In e federll
Iccel.rl"t.d cost recovery
sys_ If It WlS ......n..d.
S2D,ooo Is eppropr Ilted fr...
the llenerel Fund .... DEBD
through June 30, 1985 for the
purposes of th Is ect.
ThIs Is en orlllncy bIll Ind
would go In10 I_dla"t.
.ff.ct.
All of the ..ctlons of this
Ict whIch relate 10 specIfIc
fox IncentlYls shell epply
for toxeb Ie or Inc.... ,.Irs
_nclng on or efter the
desIgnation of en erea es en
.n.....rpr I.. zone.
ThIs bill would not go In....
.ffect un less AS "4 Is .chap-
tered Ind tekes .ffect.
-9-
J.dll. 11,'11
-
o
Chep"t.r 44 - AS 514
If that Wire Inclucled In e federll
eccelerl"t.d oost recoYlry. sys_ If It'
... eqenHd.
S85,OOO Is IPproprleted fr... the llenerel
Fund.... DEBD through Junl 30, 1985 for
the purposes of thIs net.
This Is en orlllncy bIll end would go.
In.... I_dlat. effect.
All of the ..ctlons of this ect whIch
rela"t. .... specIfic tex IncentIves
shell be eppllcable In the OOIIIputatlon
of to...s for texlble or In..... years
begInnIng on or Ifter Jlnuery I, 1984.
This bIll would not go In10 effect
unl.ss AB 40 Is cheptered end tokes
effect.
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CITY OF SAN BERNARDINO
Census Tracts
1980
-.. r.:~l__-;J
~ ----\. 1:
. tot
~
41
w:.=
tOt
r---.
I I
I I
I .
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0 0 0 0
"
CENSUS TOTAL LABOR NMBR UN- ... UN- MEDIAN INCOME POP BELOW ... POP
TRACTS POP FORCE EMPLOYED EMPLOYED 1.1 POVERTY BELOW
1969 1979 LEVEL POV LVL
--------------
41 2,721 822 127 15.5 5,267 11,435 2,71lJ2 99
42 8,665 2,791 453 16.2 7,21lJ8 11lJ,548 8,422 97
44 6,131lJ 2,265 21lJ4 9.1lJ 8,279 12,645 6,IlJ74 99
47 4,651lJ 1,611 239 14.8 6,651lJ 9,652 4,61lJ8 99
48 2,764 823 115 14.1lJ 5,781 8,919 2,743 99
49 4.619 1,619 21lJ5 12.7 6,221 8,235 4.613 99
51lJ 1,532 618 53 8.6 8,737 15,241lJ 1,524 99
54 4,IlJ21lJ 1,714 213 12.4 3,283 11,IlJ72 596 15
55 4,999 2,IlJ99 176 8.4 6,688 8,931 4,977 99
56 4,853 1,828 21lJ3 11. 1 5.527 8,539 4,823 99
57 871lJ 276 43 15.6 4,625 5,51lJ5 925 11lJ1lJ
58 2,417 884 11lJ7 12.1 5,331lJ 8,377 2,369 98
59 l,IlJ26 322 92 28.6 6,391 8,462 961lJ 93
61lJ 387 168 23 13.7 5.269 8,641 358 92
64 2,IlJ27 576 97 16.8 3,958 7,291 2,IlJ93 11lJ1lJ
65 926 147 28 19.1lJ 6,461lJ 19,659 418 45
72 1.111lJ 1,174 53 14.6 4,286 12.398 272 24
CENSUS DATA FOR
ENTERPRISE ZONE
",'" "" ,
-----------------------------------
0 0 0 0
.
CENSUS TOTAL LABOR NMBR UN- Yo UN- MEDIAN INCOME POP BELOW % POP
TRACTS POP FORCE EMPLOYED EMPLOYED (., POVERTY BELOW
1969 1979 LEVEL POV LVL
--------------
42 8,665 2,791 453 16.2 7,2"8 1",548 8,422 97
44 6,13" 2,265 2"4 9." 8,279 12,645 6,"74 99
55 4,999 2,"99 176 8.4 6,688 8,931 4,977 99
56 4,853 1,828 2"3 11. 1 5,527 8,539 4,823 99
47 4,65" 1,611 239 14.8 6,65" 9,652 4,6"8 99
49 4,619 1,619 2"5 12.7 6,221 8,235 4,613 99
54 4,"2" 1,714 213 12,4 3,283 11,"72 596 15
48 2,764 823 115 14." 5,781 8,919 2,743 99
41 2,721 822 127 15.5 5.267 11.435 2,7"2 99
58 2,417 884 1"7 12.1 5,33" 8,377 2,369 98
64 2,"27 576 97 16.8 3,958 7,291 2,"93 1""
5" 1,532 618 53 8.6 8,737 15,24" 1,524 99
72 1,11" 1.174 53 14.6 4,286 12,398 272 24
59 1, "26 322 92 28.6 6,391 8,462 96" 93
65 926 147 28 19." 6,46" 19,659 418 45
57 87" 276 43 15.6 4,625 5,5"5 <;>25 1""
6" 387 168 23 13.7 5,269 8,641 358 92
CENSUS DATA FOR
ENTERPRISE ZONE
(SORTED BY TOTAL POPULATION)
0 0 0 :>
,j
CENSUS TOTAL LABOR NMBR UN- % UN- MEDIAN INCOME POP BELOW % POP
TRACTS POP FORCE EMPLOYED EMPLOYED ) (., POVERTY BELOW
1969 1979 LEVEL POV LVL
--------------
42 8,665 2,791 453 16.2 7,2"8 1",548 8,422 97
44 6,13" 2,265 2"4 9." 8,279 12.645 6,"74 99
55 4,999 2,"99 176 8.4 6,688 8,931 4.977 99
56 4,853 1,828 2"3 11. 1 5,527 8,539 4,823 99
54 4,"2" 1,714 213 12.4 3,283 11,"72 596 15
49 4,619 1,619 2"5 12.7 6.221 8,235 4,613 99
47 4,65" 1,611 239 14,8 6,65" 9,652 4,6"8 99
72 1,11" 1,174 53 14.6 4,286 12,398 272 24
58 2,417 884 1"7 12.1 5,33" 8.,377 2,369 98
48 2,764 823 115 14." 5,781 8,919 2.743 99
41 2,721 822 127 15.5 5,267 11,435 2,7"2 99
5" 1,532 618 53 8.6 8,737 15,24" 1,524 99
64 2,"27 576 97 16.8 3,958 7.291 2,"93 1""
59 1 , "26 322 92 28.6 6,391 8,462 96" 93
57 87" 276 43 15.6 4,625 5,5"5 925 1""
6" 387 168 23 13.7 5,269 8,641 358 92
65 926 147 28 19." 6,46" 19,659 418 45
CENSUS DATA FOR
ENTERPRISE ZONE
(SORTED BY LABOR FORCEI
""...' ,.,
"-----------. -----------------------------------
0 0 0 0
v
CENSUS TOTAL LABOR NMBR UN- Yo UN- MEDIAN INCOME POP BELOW Yo POP
TRACTS POP FORCE EMPLOYED EMPLOYED C.I POVERTY BELOW
1969 1979 LEVEL POV LVL
--------------
42 8,665 2,791 453 16.2 7,2"8 1",548 8,422 97
47 4,65" 1,611 239 14.8 6,65" 9,652 4,6"8 99
54 4,"2" 1,714 213 12.4 3,283 11,"72 596 15
49 4,619 1,619 2"5 12.7 6,221 8,235 4,613 99
44 6,13" 2,265 2"4 9." 8,279 12,645 6,"74 99
56 4,853 1,828 2"3 11.1 5,527 8,539 4,823 99
55 4,999 2,"99 176 8.4 6,688 8,931 4,977 99
41 2,721 822 127 15.5 5,267 11,435 2,7"2 99
48 2,764 823 115 14." 5,781 8,919 2,743 99
58 2,417 884 1"7 12.1 5,33" 8,377 2,369 98
64 2,"27 576 97 16.8 3,958 7,291 2,"93 1""
59 1,"26 322 92 28.6 6.391 8,462 96" 93
5" 1,532 618 53 8.6 8,737 15,24" 1 , 524 99
72 1,11" 1,174 53 14.6 4.286 12,398 272 24
57 87" 276 43 15.6 4,625 5,5"5 925 1""
65 926 147 28 19." 6,46" 19,659 418 45
6" 387 168 23 13.7 5,269 8,641 358 92
CENSUS DATA FOR
ENTERPRISE ZONE
(SORTED BY NUMBER OF UNEMPLOYED I
CENSUS DATA FOR
ENTERPRISE ZONE
(SORTED BY 1969 MEDIAN INCOME)
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CENSUS TOTAL LABOR NMBR UN- ~ UN- MEDIAN INCOME POP BELOW ~ POP
TRACTS POP FORCE EMPLOYED EMPLOYED (S) POVERTY BELOW
1969 1979 LEVEL POV LVL
--------------
65 926 147 28 19." 6,46" 19,6~9 418 45
~" 1,532 618 53 8.6 8,737 15,24" 1,524 99
44 6,13" 2,26~ 2"4 9." 8,279 12,645 6,"74 99
72 I,ll" 1,174 53 14.6 4,286 12,398 272 24
41 2,721 822 127 1~.~ ~,267 11,435 2,7"2 99
54 4,"2" 1,714 213 12.4 3,283 11,"72 ~96 15
42 8,665 2,791 453 16.2 7,2"8 1",548 8,422 97
47 4,65" 1,611 239 14.8 6,65" 9,6~2 4,6"8 99
~5 4,999 2,"99 176 8.4 6,688 8,931 4,977 99
48 2,764 823 115 14." 5,781 8,919 2,743 99
6" 387 168 23 13.7 ~,269 8,641 358 92
56 4,8~3 1,828 2"3 11.1 5,527 8,539 4,823 99
59 1 , "26 322 92 28.6 6,391 8,462 96" 93
~8 2,417 884 1"7 12.1 5,33" 8,377 2,369 98
49 4,619 1,619 2"5 12.7 6,221 8,235 4,613 99
64 2,"27 576 97 16.8 3,958 7,291 2,"93 1""
~7 87/11 276 43 15.6 4,625 5,~"5 925 1""
CENSUS DATA FOR
ENTERPRISE ZONE
(SORTED BY 1979 MEDIAN INCOME)
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CENSUS TOTAL LABOR NMBR UN- ~ UN- MEDIAN INCOME POP BELOW ~ POP
TRACTS POP FORCE EMPLOYED EMPLOYED (S) POVERTY BELOW
1969 1979 LEVEL POV LVL
--------------
42 8,665 2,791 453 16.2 7,2"8 1",548 8,422 97
44 6,13" 2,265 2/114 9." 8,279 12,645 6,"74 99
55 4,999 2,/1199 176 8.4 6,688 8,931 4,977 99
56 4,853 1,828 2/113 11.1 ~,~27 8,539 4,823 99
49 4,619 1,619 2"5 12.7 6,221 8,235 4,613 99
47 4,6~" 1,611 239 14.8 6,65" 9,652 4,6/118 99
48 2,764 823 115 14./11 5,781 8,919 2,743 99
41 2,721 822 127 1~.~ 5,267 11,43~ 2,7/112 99
~8 2,417 884 1/117 12.1 ~,33" 8,377 2,369 98
64 2,"27 576 97 16.8 3,9~8 7,291 2,"93 1""
5" 1,~32 618 53 8.6 8,737 15,24" 1,524 99
~9 1,/1126 322 92 28.6 6,391 8,462 96" 93
57 87/11 276 43 15.6 4,625 5,~/II5 925 1"/11
~4 4,/112" 1,714 213 12.4 3,283 11,"72 596 15
6~ 926 147 28 19./11 6,46" 19,659 418 45
6" 387 168 23 13.7 5,269 8,641 358 92
72 1,11" 1,174 ~3 14.6 4,286 12,398 272 24
CENSUS DATA FOR
ENTERPRISE ZONE
(SORTED BY POPULATION BELOW POVERTY LEVEL)
"'III I "II
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CENSUS TOTAL LABOR NMBR UN- ~ UN- MEDIAN INCOME POP BELOW ~ POP
TRACTS POP FORCE EMPLOYED EMPLOYED ) (S) POVERTY BELOW
1969 1979 LEVEL POV LVL
--------------
64 2,"27 576 97 16.8 3,958 7,291 2,/1193 1""
57 87" 276 43 1~.6 4,625 5,5/11~ 92~ 1""
55 4,999 2,"99 176 8.4 6,688 8,931 4,977 99
56 4,853 1,828 2"3 11.1 5,527 8,539 4,823 99
49 4,619 1,619 2"5 12.7 6,221 8,235 4,613 99
47 4,65/11 1,611 239 14.8 6,65" 9,652 4,6"8 99
48 2,764 823 11~ 14." 5,781 8,919 2,743 99
41 2,721 822 127 1~.~ ~,267 11,435 2,7"2 99
~" 1,532 618 ~3 8.6 8,737 15,24" 1,524 99
44 6,13" 2,26~ 2"4 9." 8,279 12,645 6,"74 99
~8 2,417 884 1"7 12.1 5,33" 8,377 2,369 98
42 8,665 2,791 453 16.2 7,2"8 1",~48 8,422 97
~9 1,"26 322 92 28.6 6,391 8,462 96" 93
6" 387 168 23 13.7 5,269 8,641 358 92
65 926 147 28' 19." 6,46" 19,659 418 45
72 1,11" 1,174 ~3 14.6 4,286 12,398 272 24
54 4,/112/11 1,714 213 12.4 3,283 11,"72 ~96 15
CENSUS DATA FOR
ENTERPRISE ZONE
(SORTED BY % POPULATION BELOW POVERTY LEVEL)
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ANALYSIS OF
CALIFORNIA'S ENTERPRISE ZONE LEGISLATION
by Gerald H. Bonetto
-----------------------
-----------------
BACKGROUND
--------
In March, 1984, California became the 22nd state to pass
legislation creating Enterprise Zones-~designated areas where
tax breaks and other incentives are used to stimulate economic
development. The California legislation, however, is unique.
It is the result of the inability of the state legislature to
agree upon a bipartisan proposal. As a consequence, the
legislation consists of &wo separately aponsored bills--AB 40
(Nolan) and AB 514 (Waters)--which were "double-Joined" to
assure bipartisan support for each bill. In being "double-
jointed," both bills had to be enacted or neither could &ake
effect and an Enterprise Zone could only be designated under
either AB 40 or AB 514, but not under both bills.
This legislative "compromise" was struck because Governor
Deukmejian and the authors of the competing proposals thought
that a national bill, with its own set of incentives, would soon
pass. The national bill, they knew, authorized only 75 zones
(50 urban and 25 rural) to be picked competitively from among
Communities already receiving local and state zone benefits.
They moved to guarantee California's place in the national
competition.
While national legislation has yet to pass, California
cities and counties should not be wholly discouraged. For the
word from states with operating zones is encouraging: Enterprise
Zones are working, even Without a national package of incentives.
In the year or so of their existence, operating zone in
nine states have created or saved nearly 31,000 jobs, sparked
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the opening of 200 businesses, and stimulate private sector
investment of $460 million.
Moreover, operating zones have had a strong impact on the
alleged deteriorating manufacturing sector. In the economy as a
whole, firms engaged in manufacturing account for less than 21
percent of business activity. In Enteprise Zones, 29 percent of
start-up business is in manufacturing industries. This is
important because manufacturing creates the labor-intensive jobs
on which unemployed youths and disadvantaged individuals are
likely to be hired.
Finally, based on a sample of zone hiring practices, 9,000
jobs (approximately 30 percent) have gone to previously unemployed
or individuals dependent upon means-tested transfer payments. If
we multiply this number of jobs by the average cost savings to the
public for employing each worker, state zones can be credited with
overall governmental savings of $36,486,000. Assuming that state
and local governments bear two-thirds of the cost of support
services, the average savings for the nine states surveyed comes
to $2,642,000.
.
This !!S~~!!_!dvi!~I presents a comparative analysis of the
Enterprise Zone Act (AB 40, Chapter 45, Statutes of 1984, Pat
Nolan) and the Employment and Economic Incentive Act (AB 514,
Chapter 44, Statutes of 1984, Haxine Waters). The analysis
centers on the three major themes of the two bills: program
structure, application and selection process, and economic
incentives. The analysis shows that both programs offer many
similar economic incentives for private investment in designated
distressed areas--although the dollar value of similar incentives
sometimes differs substantially. The analysis also shows that the
program structure and application and selection process are
redically different, reflecting the different notions of economic
growth in the two bills.
COMPARATIVE ANALYSIS OF AB 40 AND AB 514
----------------------------
I. PROGRAN STRUCTURE
AB 40. The Department of Commerce (formerly Department of
Economic and Business Development) may designate as many as
10 Enterprise Zones, of which not more than 2 may be
high-technology zones (computer, biological engineering,
electronics, and telecommunications industries). All
high-technology zones must be situated in close proximity to
a university or college so as to permit industry the
opportunity to foster a working relationship with them.
The Department of Commerce, using the most recent census data,
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has identified all eligible areas (census tracts) that meet
at least three of the following Urban Development Ac;ion
Grant (UDAG) criteria:
1. Net increase in median family income between 1969 and 1979
must be $8,427 or less.
2. The average rate of unemployment for 1980 must have been
5.64 percent or more.
3. The percent of persons below the poverty level must be
12.4 percent or more.
4. A minimum of 70 percent of the households must have income
below 80 percent of median county household income.
Moreover, a city or county or city and county may petition that
an area (census tract(s)) is eligible for filing a preliminary
application. There are four categories under which a petition
may be made:
1. A special census that shows an area now meets the
eligibility criteria even though it did not at the time of
the 1980 census.
2. A plant closure of at least 100 employees has occurred
during the past two years.
3. An area is proven to be distressed by using criteria
similar to those UDAG criteria initially used to determine
eligibility.
4. Historic neighborhood/community boundaries, which do not
correspond to the designated eligible area, should be
followed.
Each eligible area must contain a commercial area within the
area boundaries, and, or an industrial area with the area
boundaries or adjacent to the area.
AB 514. The Department of Commerce may designate as many as
9 program areas to receive special economic development and
employment development incentives. In complying with this
mandate, the Department may designate not more than 3 areas
by the end of 1984, not more than 6 by the end of 1985, and
not more than 9 by the end of 1986.
Applying the most recent census data (at the block level), the
Department of Commerce has identified all areas High Density
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Unemployment Areas (HDUAs) that meet the following criteria:
1. The average rate of unemployment in the past 12 months was
at least 1\ times the average national rate.
2. The average poverty rate in the past 12 months was at
least 1\ times the average national rate.
3. At least 70 percent of the household earnings in the past
12 months was a maximum of 80 percent of the average state
household earnings for the same period.
Moreover, a local agency not qualifying based on this criteria
can petition for identification as a distressed area on the
basis of:
.
1. A special census showing that the area now meets the
eligibility criteria even though id did not at the time
of the decennial census.
2. The area has experienced major economic dislocation caused
by closure of a plant or federal installation with 12
months prior to the petition.
3. The area qualifies as a "pocket of poverty" under federal
UDAG standards.
Cities or counties that have communities within or near a
High Density Unemployment Area (HDUA) may apply for
participation in the program.
The program itself consists of neighborhood economic
development areas (NEDs) and targeted economic development
are~s (TEDs). A NED is a commercial area within a High
Density Unemployment Area. A TED consists of vacant or
sparsely developed land, near, but not necessarily in, an
High Density Unemployment Area and is intended for light
industry or mixed business use.
The designation of a NED must concurrently approve a TED
serving the same High Density Unemployment Area. The TED
does not require a complimentary NED.
Designations are valid for five
twice for up to ten more years.
be designated for up to fifteen
years and may be renewed
Thus a TED/NED area could
years.
II. APPLICATION AID SELECTION PROCESS
AB 40. The governing body of a city or county may submit
a preliminary application for designation of an eligible area
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or areas within its respective jurisdiction as an Enterprise
Zone. The Department of Commerce shall award 20 preliminary
applicants final applicant status, based upon competitive
evaluation, and then select 10 final applicants as Enterprise
Zones.
In designating the Enterprise Zones, the Department shall
select the applicants that best fulfill the following
criteria:
1. Propose the most effective and comprehensive regulatory,
tax, program and other incentives in attracting private
aector investment in the proposed zone. For example,
a. Regulatory Incentives--the suspension or relaxation
of local building codes, zoning laws, general
development plans or rent controls; the elimination
or reduction of fees for applicants, permits, and
local government services; and the establishment of
a streamlined permit process.
,
b. Tax incentives--elimination or reduction of business
license taxes and construction taxes.
c. Other incentives--the provision or expansion of
infrastructure, the targeting of federal block grant
monies, the targeting of economic development grants
and loans, UDAG and FDA grants, privatization of
local government services, targeting federal Job
Partnership Training Act funds, targeting federal or
state transportation grants, targeting of federal or
state low-income housing and rental assistance money.
2. Present the most innovative approach in establishing
incentives.
3. Offer the greatest likelihood of being designated as a
federal Enterprise Zone.
4. Meet the guidelines for the federal UDAG program or the
area with the proposed zone has experienced plant closure
within the past two years affecting more than 100 workers.
5. Develop an environmental impact report that sets forth
the potential environmental impacts of any and all
development within the zone.
6. Fulfill all further requirements as established and
presented in the official Enterprise Zone regulations as
established by the Department of Commerce.
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AB 514. A city or county may file a preliminary application
with the Department of Commerce. ,The Department then selects
20 applicants annually to complete a final applica~ion. The
Department may designate not more than 3 areas by the end of
1984, not more than 6 by the end of 1985, and not more than,
by the end of 1986.
In designating program areas, the Department shall select
those areas that best address the following major components
of the application.
1. A comprehensive economic development strategy.
2. A marketing plan for the recruitment of businesses to the
program area.
3. A description of current economic development activities,
including funding from the federal, state, and local
governments devoted to these activities.
4. An estimate of the number of new jobs that will result
from the program based on an employment needs assessment
of the locality.
5. A plan of actions to reduce, remove, Simplify, or
streamline local requirementa and the local permit process
within the program area which does not endanger the public
health, safety, and welfare of the community.
6. Involvement in the program by private entities, organiza_
tions, and neighborhood groups which may make contributions
to the project.
Furthermore, the bill requires the applicant to designate an
agent who will be the prime facilitator of all activities
relating to the zone program. This facilitator may be a
community-based nonprofit organization, a jOint venture between
the public and private sector, or an agency of the applicant.
The program facilitator shall preside over a community
advisory council. The members of the Council shall consist
of at least one representative from each of the following
groups: program area residents, businesses located in the
area, local government, private industry council, small
business development corporations, and communmity-based
organizations.
The advisory council shall 1) meet at least once a month
during formulation of the economic development plan, 2) meet
at least every three months to monitor progress, 3) initiate
or coordinate community programs (e.g., neighborhood crime
prevention, health and child care and job training).
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III. ECONOKIC IRCENTIYES
Both AS 40 and AB 514 offer a number of tax credits to
eligible businesses within the program area. The tax benefits
are designed to promote two kinds of activity: busiqess
development within the zone, and job creation for unemployed
zone residents.
A. Tax Credit For Imployor
g~!!!!!!~_!~!oyee
AB 40. This bill
zone which hire a
is any individual
categories:
provides tax credits
qualified employee.
who falls within one
to businesses in the
A qualified employee
of the following
1. A vocational rehabilitation referral.
2. An economically disadvantaged individual (180 days).
3. A Social Security Income (SSI) recipient (30 days).
4. A general assistance recipient (30 days).
5. An eligible foster child.
6. An eligible handicapped individual.
7. An eligible Aid To Family With Dependent Children (AFDC)
recipient (90 days).
As indicated in the above list, an individual has often to
fall Within a category designation for a specific length of
time to be considered a qualified employee in that category.
AB S14. This bill defines a qualified employee differently
than AB 40. Under AB 514, a qualified employee 1s an
individual who has been an unemployed resident of a High
Density Unemployment Area (HDUA) prior to being employed.
Moreover, the individual must have been unemployed for at
least three months prior to being employed to fall under the
rubric of qualified employee.
!!~~~!~!_!!!_~~!_Of!~
AB 40. Under this bill, the amount of credit against "net
tax" for the taxable year is an amount equal to the sum of
each of the following:
1. 50\ of the employee's wages in year 1.
.... . .
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2. 40\ of the employee's wages in year 2.
3. 30\ of the employee's wages in year 3.
4. 20\ of the employee's wages in year 4.
5. 10\ of the employee's wages in year 5.
These credits against "net tax" are applicable for any
qualified employee in the zone whole earnings do not exceed
1\ times the minimum wage.
There are, moreover, two other conditions which limit the
use of this tax incentive. First, wages paid to a qualified
employee are reduced by the amount of any federally funded
payment the employer receives for on-the-job training of
that individual. Second, if a federal Enterprise Zone bill
passes having an income tax credit for hiring disadvantaged
individuals, the state credit provided in AB 40 is reduced
so that the combined effect will not exceed the percentage
of tax credit set forth in AB 40 (listed above).
,
AB S14. This bill offers a different amount of tax credit
than AB 40 to qualified businesses which hire a qualified
disadvantaged worker. The amount of credit against "net tax"
for the taxable year is determined by the length of time the
employee has been previously unemployed. The tax credits
are set as follows:
!!!~~OY!D BET~!!!-3 AND 6 MONTHS
1. $500 for the first year of employment
2. $700 for the second year of employment
UNEMPLOYED FOR AT LEAST SIX MONTHS
-------------- ------
1. $600 for the first six months of employment
2. $600 for the second six months of employment
3. $700 for the second year of employment
!!!~~~L~L!!~!L!!!.!L!~_!!!!f~I!!_!!~!Lf~f!!! e in t hL!~!
AB 40. Under the provision of this bill, a qualified employee
must
1. perform at least 90\ of his work for the taxpayer's
business or trade which is located in the program area, and
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2. perform at least 50~ of the work within the Enterprise
Zone itself.
AB S14. There are no provisions in this bill defining how
much work an employee must perform in the program area.
g~!!!!d Busin!!!
AB 40. Any active business or trade located in an Enterprise
Zone can take advantage of the employee tax credit for hiring
qualified employees.
AB 514. In contrast to Ab 40, AB 514 has a much stricter
definition of qualified business. According to AB 514, a
qualified business is defined as a business that
1. Has at least 50 percent of its employees who are residents
of a High Density Unemployment Area (program area).
2. Has at least 30 percent of its employees who are residents
of a High Density Unemployment Area, and bas set up
community programs approved by the local governmental
body and the community advisory council which oversees
the program's implementation.
3. Is a joint venture between an existing business and a
business owned by residents of the Higb Density
Unemployment Area.
These eligibility criteria will limit the number of firms that
qualify for program benefits. Altbough no actual figures are
available, it is doubtful that very many firms in the program
area have at least 50 percent of area residents on the payroll.
A firm could, of course, qualify for the credits if it has
30 percent of its employees from the program area, but it must
then provide community service (e.g., police services or
adopt-a-school programs). It is doubtful that more than a
handful of businesses will undertake such projects.
New small firms would have a particularly hard time qualifying
for the benefits offered in AB 514. A small start-up firm
of 8 employees, for example, would have to have at least 4
of its employees be residents of the program area. It could
qualify if 3 of the employees are residents and the firm
participates in some sort of community service. But most
small, start-up businesses lack the capital, employee time,
and management expertise needed to juggle business activity
and community service.
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!!!_!!~!!!!-!~r Hirinl~~alified Individuals
On pase. 11 and 12 is an application of the credits of the
two bills in similar situations. The comparison allow us
to see the extent (in dollars) of the tax credit for hiring
qualified individuals in AB 40 and AB 514.
In the comparison, it is clear that AB 40 is superior to AB 514
on two accounts. First, AB 40 provides greater tax credits (in
actual dollars) to be applied against "net tax" than AB 514.
Second, the eligibility criteria for business is much broader
in AB 40 than in AB 514, thereby allowing a greater number of
firms to take advantage of the tax benefits. Since cities
and counties applying for program designation already have
ongoing business (without many residents of the program area
as employees), AB 40 offers these busineases the added :
incentive to remain and expand their operations within the
program area. Moreover, new start-up businesses with the area
are immediately eligible for the employee tax credit regardless
of what percentage of zone residents are on the payroll.
B. Tax Credit For Employee.
AB 40. AB 40 Provides a non-refundable tax credit to qualified
employees. The credit equals 5 percent of the employee's wage
earned in ~nterprise Zone emPl.oyment. The maximum credit
amount is~450 per employee; and the amount declines as a
percentage of total income as the employee'. income rises.
Furthermore, when an employee's income is over 1\ times the
minimum wage ($14,000). he is no longer eligible for the
credit. Federal, state, and local government employees are
also. not eligible for the tax credit.
AB 514. Under this bill, there is no tax credit for qualified
employees who are working for a qualified business in the
program area.
C. Depreciation of Plant and Equipaent
Both AB 40 and AB 514 offer methods to accelerate the write-off
time of newly purchased property and allow for greater recovery
in the earlier years.
AB 40. This bill allows the taxpayer to use the accelerated
cost recovery system method (ACRS) to depreciate any property
which is Section 38 property under terms of the Internal
Revenue Code. ACRS is applicable to any taxable year beginning
in the year in which the property is placed in service.
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-13-
ACRS is a depreciation method which allows business~s to
depreciate assets in an eztremely rapid manner for income
tax purposes. By claiming large deductions for depreciation
expense in the early years of an asset's life, the business
is able to reduce it curreDt income tax burden. Therefore,
ACRS is intended to create a powerful incentive for businesses
to invest in new plant and equipment. This investment, in
turn, should create new jobs and stimulate the entire economy
through higher levels of production.
ACRS speeds up the write~off of the cost of an asset in two
ways. First, ACRS designates four "recovery periods" over
which the cost of various types of assets are written off.
In most cases, these recovery periods are substantially
shorter than the useful life of the assets.
The table that follows shows the percentages of an asset's
total cost that may be written off in each year of the
recovery period.
TABLE I II
ACRS DEPRECIATION RATES
-------
-----
-----------
Recovery
Year
3-year
!!:operty
5-year
Property
10-year
~f!!lI
15-year
Pr~.!!lI
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
25~
38
37
15~
22
21
21
21
8~
14
12
10
10
10
9
9
9
9
12X
10
9
8
7
6
6
6
6
5
5
5
5
5
5
rOO~
roo~
roo~
roo~
-------------------
-----------------
Three-year property class consists of automobiles, light trucks,
and machinery and equipment used in research and development.
Five-year property class includes all other types of machinery
and equipment, single purpose agriculture structures, and
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-14-
petrolium storage facilities. Ten-year property class includes
railroad tank cars, public utility property, recreational park
facilities and structures, and manufactured homes. -Fifteen-
year property consists of real property.
How advantageous (or disadvantageious) is the ACRS method in
comparison with alternative depreciation methods--for example,
double declining balance. sum-of-the-years' digits, straight-
line?
To compare the ACRS and alternative depreciation methods,
us consider the example of equipment costing $50,000 that
an estimated useful life of eight year and a zero salvage
value.
let
has
TABLE IV
-
DEDUCTIONS USING ACRS METHOD AND DOUBLE DECLINING BALANCE METHOD
---- ---------- ---------------
DDB* ACRS Difference
Year Method Method i!f!U!!LQ~!l
---- ------
1 $15720 $ 7500 $-8220
2 9790 11000 +1210
3 7000 10500 +3500
4 5000 10500 +5500
5 35i70 10500 +6930
6 2980** -2980
7 2970 -2970
8 2970 -2970
$50000 $50000 $0--
-------------------
------------------
*This method consists of doubling the straight-line depreciation
rate and applying this double rate to the undepreciated cost of
the asset.
**Switched to straight-line method.
In TABLE IV, we see that the first year depreciation amount
under ACRS is less than under the double declining balance
method. But this disadvantage is quickly overcome where the
entire $50,000 cost is recovered by the end of the fifth year
under the ACRS method.
A similar pattern results when we compare ACRS With sum-of-the
years' digits method.
"". . .
o
o
-15-
o
o
TABLE V
DEDUCTIONS USING SUM-OF-YEARS' DIGITS AND ACRS METHODS
----------
--------------
x!!!.
Sum-of-Years'
!!!!~~~*
ACRS
Method
---
Difference
i!f!L!!!!_!=!l
1
2
3
4
S
6
7
8
$11112
9723
8334
694S
SSS6
4167
2778
-.SOOOO
$ 7S00
11000
10SOO
10SOO
10SOO
$-3612
+1277
+2166
+3SSS
+4944
-4167
-2778
-1389
. 0
$50000
----------------------
-------------
*The depreciation rate used is a
is the remaining years of useful
sum of the years of useful life.
fraction, of which the numerator
life and the denominator is the
Finally, an even more dramatic difference is aeen when we
compare ACRS with the striaght-line method, which is the
simplist and most often used method of computing depreciation.
TABLE VI
DEDUCTIONS USING STRAIGHT-LINE AND ACRS METHODS
-----------------
-------
------------------
Year
Straight-line
!!lliod*
ACRS
!!.!!~
Difference
i!CRL!!!! S-L)
1
2
3
4
S
6
7
8
$62S0
62S0
62S0
62S0
62S0
6250
62S0
62S0
$50000
$ 7S00
11000
10SOO
10SOO
10SOO
$+12S0
..4750
+4250
+42S0
+42S0
-6250
-6250
-6250
$"--0-
$50000
------------------------------
*An equal portion of the cost of the asset is allocated to
each period of use.
----------------
What real difference does the ACRS method make? Let us, for
instance, assume a SO percent tax bracket. Additional income
will be sheltered, and taxes will be aff~ted under the DDB
. no .'_~__'~"__ I_'___,~'
o
o
-16-
o
o
and straight-line as shown in TABLES YII and YIII.
TABLE YII
COMPARISON OF TAX EFFECT OF DDB AND ACRS
-----------------------
-----
Ye!!
ACRS
lli!ll! e d
TAX EFFECT
=ill lla te
1
2
3
4
5
6
7
8
$-8220
+1210
+:)500
+5500
+6930
-2980
-2970
-2970
$ 0-
$-4110
+ 605
+1750
+2750
+3465
-1490
-1485
-1485
.--0--
----------
------------------------
TABLE YI II
COMPARISON OF TAX EFFECT OF STRAIGHT-LINE AND ACRS
----------------
!!.!!
ACRS
!he lter
TAX EFFECT
-50'1. Rate
1
.2
3
4
5
6
7
8
$+1250
+4750
+4250
+4250
+4250
-6250
-6250
-6250
$a-
$+ 625
+2375
+2125
+2125
+2125
-3125
-3125
-3125
.--0-
------------------------
------
It is necessary to take these figures a step further to
spot the advantages or disadvantages of the ACRS over
the DDB and straight-line methods. We begin With the
question, under which method does a business have the
most attractive "loan balance." TABLES IX and X compare
the "laon balance" of ACRS with DDB and Striaght-line,
respectively.
lUI I Jill" II
o
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-17-
TABLE IX
CULMULATIVE DEFERRED TAX BALANCE (LOAN): ACRS AND DDB
---------
---------
1
2
3
4
5
6
7
8
Cumulative Deferred
!.!!-!! la nc e
Year
$-4110
-3505
-1755
+ 995
+4460
+2790
+1485
-0-
------------
-------------
TABLE X
CUMULATIVE DEFERRED TAX BALANCE (LOAN): ACRS AND STRAIGHT-LINE
----------
--------------
1
2
3
4
5
6
7
8
Cumulative Deferred
Tax Balance
Year
$+ 625
+3000
+5125
+7250
+9375
+6250
+3125
-0-
---------------------------------------
In TABLES VII and IX, we lee that the ACRS method offers no
advantage over the DDB method. In fact, in terms of "loan
balance," the DDB method is more advantageous, giving business
a more attractive "loan balance" in the years immediately
following the purchase of equipment. On the other hand, ACRS
is more advantageous than straight-line. The taxes saved in
the first five years give the business an attractive "loan
balance" through the s~venth',ear.
This additional annual capital can be viewed in two ways.
First, it can reduce the amount of borrowed funds that the
business uses and thereby save the pre-tax interest expense.
'Ill '.,.",
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-18-
Second, it can also represent capi~al beyond debt requirements
that C.n be invested in tbe growth of the business~
AB 514. This bill allows for the t.xpayer to expense 40 percent
of the cost of eligible property as . deduction for the taxable
ye.r in which the property is pl.ced in service.
~!!!!!~_!!~ferty. Elig~ble property includes machinery and
m.chinery p.rts used for tbe fabric.ting, processing, .ssemb.~_
ing, .nd m.nufacturing m.chinery and m.chinery parts used for
the production of renew.ble energy resources or .ir or water
pollution control mechanisms. It .lso includes property used
.s an "integral part" of a qualified business witbin the
program area.
Extent of T.x Credit. The .ggregate cost which may be taken
Into-acco;n~xpe;Sed) for any taxable year shall not exceed
the following applicable amount for the taxable year of the
designation of a progr.m .rea and taxable year thereafter:
the applicable
amount is:
Taxable ye.r of design.tion............$5000
1st taxa~le year thereafter............$5000
2nd taxable year there.fter............$7500
3rd taxable year thereafter............$7500
Each taxable year thereafter...........$IOOOO
To illustrate the use of this t.x credit, .Ssume th.t . business
purchases equipment for $10,000 with a life of 5 ye.rs .nd no
salvage value. The expensing election would be $2000
(40~ x $5000). Moreover, the lost depreciation of the purchase
is not recoverable in subsequent years.
A comparison of the tax effect of the expensing and ACRS
methods is seen in TABLE XI. We see that in the first year
is greater under expensing than under ACRS. This g~ves
business a favor.ble "lo.~ bal.nce" through the third ~ear--even
though the advantage of expensing is overcome by the third
year.
Furthermore, if the annual deferred tax .ccumulation (the loan
balance) under the two metbod was invested at 10 percent
compounded yield, the earnings over the five year period
would be $2013 and $2717 from expensing .nd ACRS t.x
methods, respectively.
.m ',a,
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-19-
TABLE XI
COMPARISON OF EXPENSING AND ACRS: TAX EFFECT AND COMPOUND
YIELD AT 101
------------
-------
---
1
2
3
4
S
Differenc.e
ll!.:.::!f!ll
$+1250
-1100
-IOSO
-IOSO
-lOSO
::)000
Tax Effect
=!.:.!_Rate
$+1130
- 994
- 949
-949
- 949
=2"711-
Year
-----
-----
------
D. Sales Tax Credit
-
AB 40. There is no provision in this bill for a sales tax
credit.
AB 514. Under this bill, there is a sales tax credit equal
to the amount of sales tax paid by the taxpayer on purchases
of qualified property. Qualified property consists of
machinery parts used in fabricating, processing, assembling,
and machinery parts used for the production of renewable
energy resources or air or water pollution control machanisms.
To illustrate the potential tax effect of this credit, let
us review the following example:
Purchase Price of Property
Sales Tax ($SOOOO x 6.S1)
Deduc.tion Lost
(6S00 x 9.61--state corporate rate
$SOOOO
6500
--
624
-----
Sales Tax Credit
$.S876
We can see from the sample calculations that the amount that
the amount that can be added to a companies income is
substantial. The drawback of the incentive is that the
category of eligible property is so narrow that few
businesses--especially small start-up businesses--will be able
to take advantage of this credit.
"Ill ","
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-20-
D. Sales Tax Cradit
AB 40. There is no provision in this bill for a sales tax
credit.
AB 514. Under this bill, there is a sales tax credit equal
to the amount of sales tax paid by the taxpayer on purchase
of qualified property. Such property consists of machinery
and machinery parts used in fabricating, processing,
assembling, and machinery parts used for the production of
renewable energy resources or air or water pollution
control mechanisms.
To illustrate the potential tax effect of this credit, let us
review the following example.
Purchase Price of Property
Sales Tax ($50000 x 6.5~)
$50000
6500
---
Deduction Lost
(6500 x 9.6~--corporate tax rate)
624
--
Sales Tax Credit
$ 5876
We can see that the amount added to company income can be
aubstantial. The drawback is seemingly obvious. The
incentive is apparently restrictive in the kinds of property
that qualifies for the credit. Thus few businesses. will be
able to take advantage of it. Yet the legislation ia so
obtuse that, upon our reading, that much manufacturing
production machinery also qualifies.
E. OPERATING LOSS CARRYOYER
AI 40~ A net operating loss is allowed a taxpayer engaged
in the conduct ~f business or trade within an Enterprise
Zone. The operating loss carryover provision is applicable
for up to 15 years (5 years for financial institutions).
(See AB 514 Section for an analysis of this credit).
AB 514. A net operating loss for any taxable year beginning
on or after the date that the taxpayer becomes a qualified
business shall be eligible for a net operating loss carryover
to each of the three taxable years following the taxable
year of loss. The handling of operating loss carryover is
seen in TABLE XII.
"'" I."',
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-21-
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-22-
As seen ~n TABLE XII, a aet operating loss carryover enables
a business to reduce tax disbursements in future years. Under
the provisions of AB Sl4, the net operating loss carryover is
restricted to three consecutive years (years 1-4). Thus the
loss in year S is not eltcible for carryover. On the other
hand, since AB 40 permits operating loss carryover for IS
nonconsecutive years, the loss in year S may be carried
forward. Thus AB 40 gives small (start-up) business a
greater opportunity to succeed--since many of these firms
over a considerable period of time often have a positive cash
flow but. net income loss.
P. Inyest.ent IDco.e EzemptioD
AB 40. Exempts from the cross income of a taxpayer any income
derived from an investment in a development or project located
within an Enterprise Zone. This provision is applicable to
investors but not to developers or operators .of developments
or projects in enterprise areas.
AB S14. Exempts from the gross income of a taxpayer income
earned from an investment in a NED/TED program area. A
business owner or operator of the business cannot claim the
exemption.
~. ~overnmeDt LaDd Lease
AB 40 and AB S14 have similar provisions. All property which
is owned by the state or local government within the program
area and is not in current use by that government and which is
not necessary for a public purpose of the state. or. local
agency may be leased to a Deighborhood association (and NED
or TED area agent) at ter.s to be specified. Any lease
agreement so executed shall permit the corporation (or
NED/TED agent) the freedo. to sublease or assign its leasehold
interest to private entities conducting or intending to
conduct business operations iwthin the area.
B. PrefereDce Points on State Contracts
This provision is in AB S14, which authorizes the contract
preference to business in an Enterprise Zone. The bill
provides preference points to a bidder on a state contract
for goods in excess of $100,000 who conducts at least
SO\ of the labor at a worksite located in a High Density
Unemployment Area or Enterprise Zone. Further preference
points (up to IS) would be awarded if the bidder agrees to
hire persons living with the area.
... . ...
,
.0
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-23-
I. Iadustrial Developmeat Boads
AS 514 makes this authorization applicable to NEDs/TEDs and
Enterprise Zones (in AB 40). The provision is operative
only until December 1986. and specifies the California
Industrial Development Financing Advisory Commission to
authorize an annual maximum amount of qualifying bonds of
$75,000,000.
The principal incentive provided by development bonds is
the tax exempt status of the interest paid to the bondholders,
which translates into lower borrowing costs and, therefore,
reduced debt service or lease payments to the business
against whose revenues the bonds are secured.
This provision is made more attractive since the passage
of the Tax Reform Act of 1984. This law places several
sdditional restrictions on the use of tax exempt private
activity bonds, among which ia a ceiling on the amount of
bond that can be issued by governmental units with a atate
during any year.
It is assumed thst this ceiling will not apply to program
areas of AB 514 and AB 40.
J. Job Traiaiag Priority
AB 514 allows for program areas under both AB 514 and AB 40
receive ~!~_friori!I in training unemployed area residents.
The bill calls for the Employment Development Department and
the Department of Education to give this priority. The
Department of Economic and Business Development mal also
aasist local agents in designating local bUSiness, labor,
and education consortia to borker activities between the
employment community and educational and training institutions.
Any available discretionary funds may be used to assist the
creation of those consortia.
K. Business Development Loans
AB 514 requires that the Office of Small Business Development
establish regulations which !!!!_f!!!!!~ for their existing
loan guarantee program to qualified businesses in the
program areas under either AB 514 or AB 40.
Two stipulations, however, further limit the application of
this preference: the owners of the business must he
residents of the program area, or the business must be a
joint venture between residents of the program area and an
existing business.
,
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-24-
L. EDerlY LoaD PrefereDce
'.'U L ".".'
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AB 514 calls for a ~h_prioritt in ranking loan applications
by the State Assistance Fund for Energy, California Business
and Development Corporation,'be given to qualifed businesses
in a NED/TED. This preference is also applicable to any
business located within an Enterprise Zone. This loan, of
course, would go toward the purchasing or providing
alternative energy systems.