Some area companies that could be getting a tax break from the state to grow their business and hire additional employees — because they’re located in an enterprise zone — are missing out. Part of the reason for this, according to some local real estate and accounting professionals, is many agents and brokers aren’t educating their clients about enterprise zones and the incentives that apply there. They say area real estate professionals often fail to notify clients because they lack familiarity with the areas they represent or do not understand how the zones work. Others say they are so frustrated with the time-consuming process of applying for the benefits — and the complexities of qualifying for them — that they don’t want to promote the zones to their clients. California’s enterprise zone program provides tax credits, tax deductions, utility discounts and other incentives to attract new businesses, grow existing businesses and increase hiring within economically challenged areas. Los Angeles has two of these zones, one of which includes parts of the San Fernando Valley and has expanded in the past year, creating greater savings opportunities for local companies. Enterprise zones can be a selling point for certain properties, but they have gotten a mixed level of attention from agents and brokers, said Mike Zugsmith, chairman of brokerage firm NAI Capital in Encino. “There are some (brokers) that are trying and others that ignore it,” Zugsmith said. Meanwhile, the future of enterprise zones has been uncertain. Gov. Jerry Brown at one point proposed eliminating enterprise zone tax breaks. They recently survived the budget chopping block, but there is legislation that aims to reform the zones to operate more efficiently and with more accountability. In Santa Clarita, an anticipated zone expansion is still awaiting final approval from the governor’s office. Michael Kaplan, partner at Miller, Kaplan, Arase & Co., LLP in North Hollywood, said enterprise zones help stimulate business and industrial growth in depressed areas. However, there is still work to be done in getting the word out. In some instances, companies move just outside the border of an enterprise zone only to later find out about the missed opportunities due to a lack of knowledge about the zone and its borders, he said. “When people are potentially moving their businesses or thinking about leasing a space, they should find out whether they are moving into an enterprise zone,” Kaplan said. Last year, the local enterprise zone was expanded to include the Warner Center portion of Woodland Hills, the Canoga Park, Chatsworth and Northridge industrial areas, the area surrounding Van Nuys Airport and other areas in Van Nuys and Sylmar, according to the Los Angeles Community Development Department. The city of Santa Clarita also has an enterprise zone. Mike Tingus, president of Lee & Associates-LA North/Ventura Inc., said there are many agents and brokers at his firm that are still not well-versed in the enterprise zones. The company didn’t start aggressively educating its workforce about enterprise zones until about four months ago, following the expansion announcement, he said. Tingus estimates that about 25 percent of the company’s local brokers are now truly up to speed with the zone’s incentives and requirements, compared to about 10 percent before the workshops started. “It’s relatively complex,” he said. “You have to understand what they do, what their payroll looks like, where they qualify. It’s also something you need to reapply for every year.” Brett Warner, a principal for the company who works in Sherman Oaks, said he often has clients who have missed out on zone incentives because they weren’t properly informed by real estate professionals they worked with previously from other companies. “It happens all the time,” he said. While many brokers and agents will mention that a property is in an enterprise zone, they won’t take the extra step to help clients determine how it affects their business, Warner said. Stacy Vierheilig, senior managing director of the Charles Dunn Company in Sherman Oaks said she identifies from the start when a property is located in an enterprise zone. “I definitely put it on my flyers and put it in all the computer systems,” she said. Dave O’Connell, director of the Valley division for Centers Business Management in Encino, said brokers at his company usually provide their client with basic enterprise zone information and then refer them to city offices for more in-depth details. In the zone Others in the industry are hesitant to even bring up the issue of enterprise zones. Rickey Gelb, managing general partner of the Gelb Group in Encino, said his property management company does not use enterprise zones as a selling point. That’s because the company had its own problems with qualifying for zone incentives, he said. “They just seem to be too complicated and too timely for the benefits you think you might get,” Gelb said. “We don’t even mention it,.” Suzy Margolin, property manager with the company, said she had spent about 10 hours doing paperwork so to qualify for Los Angeles Department of Water and Power discounts for two of Gelb Group’s properties in Van Nuys and one in Canoga Park. In the end, the company ended up not qualifying for the credits, she said. Gelb said the company does not generally get inquiries about the enterprise zones from its clients, who are usually seeking smaller retail and office spaces. Kaplan said larger companies tend to reap the highest level of benefits from the zone incentives. Woodland Hills-based insurer Health Net Inc. said it has recognized the benefit of being located in an enterprise zone. “As a major valley employer, our inclusion in the enterprise zone was definitely an influential factor during our lease renewal process,” said Brad Kieffer, the company’s spokesman. Kieffer said the Health Net renewed the lease in March for its office on Burbank Boulevard for several more years. The company employs about 2,000 people in that facility, he said. Health Net has particularly made use of the zone’s hiring credits and certain parking incentives that allowed the company enhance rewards it gives its employees for carpooling and using public transportation, Kieffer said. Animal Medical Center in Van Nuys was able to claim a tax credit for a new ultrasound machine it bought late last year after the zone was expanded to its area, said Dr. Lloyd Pilch, co-owner of the company. “It helps push the decision on buying new equipment because you’re able to get an additional tax write-off,” Pilch said. The company also expects a tax savings next year when it makes claims credits for two new employees it hired, he said. In April, financial software provider BlackLine Systems moved its headquarters from Calabasas to the Warner Center in Woodland Hills. The company announced it would take advantage of the zone’s hiring tax credits and hire 50 more employees within the next year. The tax credit is expected to equate to about $350,000 in savings over a three-year period, said Mario Spanicciati, BlackLine’s executive vice president of operations, earlier this year. Meanwhile, the Valley Economic Alliance is continuing to educate businesses about Valley’s enterprise zone expansions. The organization has already held 11 workshops over the past year, said Kenn Phillips, the group’s vice president of workforce initiative. The organization plans to hold several more between September and April 2012, he said. Bill Proposes Changes Enterprise zones were not cut in the recently signed state budget. However, there are proposals to change the way the zones operate. Assembly Bill 1411, introduced in March by Assemblyman V. Manuel Pérez, proposes reducing the program’s cost and size and increasing accountability through new reporting regulations. The bill follows calls to end the program and claims that the zones do not stimulate the economy as much as they should. One report released by the Public Policy Institute of California in 2009 stated that enterprise zones on average have had no effect on business creation or job growth. The bill, if passed, would set up a process for de-designating zones that have poor performance in meeting their goals. It would require the tracking of new information, which includes the types of businesses being serviced in the zones, the amount of capital investment being made by zone businesses and wage rates of employees that that are claimed on hiring credits. AB 1411 also proposes limiting the zones solely to low-income areas, as opposed to existing law that allows several different economic distress factors to be included as criteria. The bill passed in the Senate’s Transportation & Housing Committee on July 5 and is scheduled for a hearing in the Senate’s Appropriations Committee on Aug. 15. While the future of enterprise zones is still being determined, one local community is stuck in zone limbo. Gov. Brown has yet to clear the way for paperwork that would allow Santa Clarita to officially expand its zone, said Josh Mann, manager of business retention and marketing for the Santa Clarita Valley Economic Development Corporation. The city received conditional approval in December to expand its zone beyond city limits to also include businesses in nearby unincorporated areas. “We would have thought we would have been using the expanded zone in early 2011,” Mann said. He said the city’s current zone has been a success so far. Since the zone’s inception in 2007, the city has retained 3,656 jobs and has made about $137 million in tax credits available to businesses, he said. Mann said there have been a number of reform bills that have proposed changing the way the program operates, which he said could be a concern if not done right. “If you make the process too arduous, or you make the benefits too hard to obtain … that’s really going to make the program less successful,” he said.
Enterprise Zone or Dead Zone?
