CA, NC Govs Propose Bold Reforms to State Economic Development Efforts

Avoiding redundancy and enhancing the efficiency and effectiveness of outdated programs are some of the major goals for governors in California and North Carolina seeking a new approach to job creation. Both proposals involve an overhaul to established economic development efforts.

As part of his May revision to the FY14 budget, California Gov. Jerry Brown proposed redirecting $750 million annually from the state's decades-old Enterprise Zone program to establish three new tax incentive programs to be administered by the Governor's Office of Business and Economic Development:

• A statewide sales tax exemption on manufacturing equipment or R&D equipment purchases by firms engaged in manufacturing or biotech R&D;
• A hiring credit for businesses in areas with the highest unemployment rate and poverty, the credit would be available to hire long-term, unemployed veterans and people receiving the federal earned income tax credit; and,
• A California Competes tax credit program based on specific criteria, including the numbers of jobs to be created or retained during a certain time frame.

If approved, two of the new programs would apply statewide, allowing for wider distribution of benefits. Gov. Brown says in its current form, the program “fails to encourage the creation of new jobs and instead rewards moving jobs from one place to another within the state.” Currently, 42 zones designated as economically distressed areas receive incentives, such as hiring credits and sales tax credits to encourage business investment. The governor maintains the program is in need of comprehensive reform, pointing to several studies, including a report from the Legislative Analyst's Office concluding the zones “are expensive and not strongly effective.”

The Senate passed a compromise version of the bill, AB 93, this week. Last-minute changes involved extending the time businesses can use their enterprise zone tax credits for up to 10 years and expanding both the hiring credit and manufacturing sales tax exemption to 7 years, reports Bloomberg Business Week. The measure now heads to the Assembly.

In North Carolina, Gov. Pat McCrory offered a “Partnership for Prosperity” blueprint that outlines a plan for dividing the state into seven prosperity zones that would develop regionally-focused economic development strategies. A bill introduced in the legislature earlier this year calls for the creation of a separate nonprofit corporation to administer all economic development functions for the state and leverage public funds to attract more private-sector involvement.

The bill eliminates $4.5 million currently awarded to the state's seven regional economic development commissions, which would be reallocated to the Department of Commerce and used in part to contract for services under the new economic development strategy, reports the Business Journal. In the article, Department of Commerce Secretary Sharon Decker said the zones do not replace the partnerships; rather, the partnerships will collaborate and participate to be a part of the new zones. In a separate article, Decker said the establishment of a state venture capital fund also is on the governor's agenda for revamping the state's economic development approach, but offered few other details. A major component of the remake involves co-locating other state agencies within the zones to avoid redundancy.