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Sunday, Oct 6, 2024

Stunned Officials Regroup as Enterprise Zone is Declined

What went wrong? That was the question business leaders from the San Fernando Valley asked themselves following the state’s rejection of renewing the Northeast Valley Enterprise Zone, an area that allows for businesses to receive financial assistance for hiring local residents. The Nov. 3 announcement from the Department of Housing and Community Development that the zone had been eliminated took many by surprise. “Here’s the Valley, the seat of manufacturing in the L.A. economy and we can’t qualify as an enterprise zone,” said Bruce Ackerman, of the Economic Alliance of the San Fernando Valley. “There’s something ludicrous about that.” The zone was created in 1986 and renewed in 2001. The boundaries included much of Pacoima and portions of Sun Valley and Panorama City. Businesses within the boundaries were eligible for local tax incentives, the most popular being an employee tax credit of $31,000 per employee over a five-year period. About 165 businesses use that tax credit. Others include a rebate on sales tax for certain equipment and parts purchases; a business expense deduction capped at $20,000; and a five-year subsidy from the L.A. Department of Water and Power. Businesses did express an interest in wanting to re-locate within the enterprise zone, particularly those that were hiring and wanted to take advantage of the employee tax credit, said Ken Hitts, director of business assistance with the Economic Alliance. The state’s decision to not renew the enterprise zone takes away “a carrot” to attract business, Hitts said. “When a company says what are the incentives for coming into the area that was one of the few tools available to us,” Hitts said. Three months ago there were indications the zone could be in jeopardy by failing to meet the requirement to include 51 percent or more of industrial and commercially-zoned land. ‘Not competitive’ The Los Angeles Community Development Department, the agency submitting the renewal application, knew the zoning mix couldn’t be met but banked on other factors to compensate the success of the zone over 20 years, the overall impact in terms of the number of businesses taking advantage of the incentives, and what the zone means to economic development activity. “We thought we had submitted a strong application,” said Cliff Weiss, a senior management analyst with the department. “I was very surprised that this one was not competitive.” The application includes such information as the number of low- to moderate-income residents, unemployed residents, and those below the poverty line; vacancy rates; an overview of business conditions; and future plans for the area. The Valley enterprise zone application was one of three submitted by Los Angeles. Enterprise zones in the South Central and Hollywood areas were approved by the state. The department had not yet sat down with state officials to discuss why the application was turned down, Weiss said. As one of the lead Valley agencies seeking the zone’s renewal, the Economic Alliance supported the application but never saw what was submitted to the state. “I don’t know how good it was or how incomplete it was or whether it didn’t meet the requirements,” Ackerman said. The Valley Industry and Commerce Association and the Valley Economic Development Center also backed the renewal. VEDC President Roberto Barragan said he wished the city had used the resources necessary to keep the designation and that the state in its selection process had taken into more consideration the needs of the zone’s residents as opposed to other categories not relevant to the underemployed and unemployed. Loss of the designation, however, does not spell doom for companies already using the tax incentives. Businesses continuing to employ workers hired before the enterprise zone designation expired can still apply for the employee tax credits. Additional help could be on the horizon for the Valley through legislation signed into law in September by Gov. Schwarzenegger that made changes to the enterprise zone regulations. The CDD is waiting to hear from the state its interpretation of those changes and whether the city would be allowed to extend the boundaries of its two enterprise zones to include the Pacoima area, Weiss said. The new law includes language that enterprise zone can extend their boundaries to include non-contiguous areas. For the present time, loss of the enterprise zone designation is not necessarily a deal breaker when it comes to businesses looking to relocate, Hitts said. Where a company relocates depends on what is important to them and with a vacancy rate for industrial property hovering in the 3 percent range a location in the former zone remains suitable if it keep the company in business, Hitts said.

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