Department Director
Date
Board Position:
S
SA
N


NA
O
OUA


NP
NAR
X PENDING
Gerald H. Goldberg
3/14/05


SUMMARY
This bill would expand the number of enterprise zones (EZs) that may be designated from 42 to 52.
PURPOSE OF THE BILL
According to the author’s office, the purpose of the bill is to assist economically disadvantaged areas
by encouraging businesses to locate in the new zones that would be created by this bill.
EFFECTIVE/OPERATIVE DATE
This bill would be effective and operative January 1, 2006.
POSITION
Pending.
ANALYSIS
FEDERAL/STATE LAW
Existing federal law provides for the existence of empowerment zones and enterprise communities to
provide economic revitalization of distressed urban and rural areas.
Under the Government Code, existing state law allows the governing body of a city or county or a city
and county to apply for designation as an EZ. Using specified criteria, the Department of Housing
and Community Development (DHCD) designates EZs from the applications received from the
governing bodies. EZs are designated for 15 years. Currently, 39 of the authorized 42 EZs have
been designated.
Under the Revenue & Taxation Code, existing state law provides special tax incentives for taxpayers
conducting business activities within the EZ. These incentives include a sales or use tax credit, a
hiring credit, a business expense deduction, a net interest deduction, and a tax credit for employees
working in an EZ.
THIS BILL

This bill would authorize DHCD to designate an additional 10 EZs, thereby increasing the maximum
total of EZs to 52.


Franchise Tax Board

ANALYSIS OF ORIGINAL BILL

Author:
Tran
Analyst:
Nicole Kwon
Bill Number:
AB 199
Related Bills:
See Legislative
History
Telephone:
845-7800
Introduced Date:
1/31/2005


Attorney:
Patrick Kusiak
Sponsor:


SUBJECT:
Enterprise Zones/No More Than 52 Enterprise Zones May Be Designated At Any One
Time

Assembly Bill 199 (Tran)
Introduced January 31, 2005
Page 2

IMPLEMENTATION CONSIDERATIONS
Implementing this bill would not significantly impact the department’s programs and operations.
LEGISLATIVE HISTORY
SB 1029 (Ashburn, 2003/2004) and AB 2342 (Salinas, 2001/2002) would have expanded the number
of EZs from 42 to 44. Both bills failed to pass out of the house of origin.
AB 46 (Washington, Stat. 2001, Ch. 587) expanded the maximum number of EZs from 39 to 42.
AB 523 (Vargas, 2001/2002) would have required Technology, Trade, and Commerce Agency
(TTCA) to designate an EZ within Imperial County (that included the cities of Brawley and Calexico)
that was previously designated as a Manufacturing Enhancement Area, upon the request of the
county’s board of supervisors. The Governor vetoed this bill.
OTHER STATES’ INFORMATION
Florida has 51 state enterprise zones that are designated until December 31, 2005. The Florida
Legislature will determine at that time if the program should continue as is, continue with modifications,
or be completely repealed.
Illinois has 93 enterprise zones, Michigan has 33 Renaissance Zones, and New York has 71 Empire
Zones. Each of these states' designated zones does not appear to have an expiration date.
The laws of these states were reviewed because their tax laws are similar to California’s
income tax laws.
FISCAL IMPACT
This bill would not significantly impact the department’s costs.
ECONOMIC IMPACT
Revenue Estimate
Based on data and assumptions discussed below, the Personal Income Tax (PIT) and Corporation
Tax revenue loss from this bill would be as follows:
Estimated Revenue Impact of AB 199
Effective January 1, 2006; Enacted After June 2005
($ Millions)
2005-06 2006-07 2007-08 2008-09 2009-10
No impact
-$6
-$18
-$38
-$52
This bill does not consider the possible changes in employment, personal income or gross state
product that could result from this measure.
Revenue Discussion
Revenue losses for EZs under the personal income and the corporation tax laws would largely
depend on the amount of qualifying property purchased subject to the sales tax, the amount of wages
paid to qualifying employees, and the apportioned state tax liabilities of businesses claiming these tax
benefits.

Assembly Bill 199 (Tran)
Introduced January 31, 2005
Page 3

Personal communication with staff at DHCD indicates that no new EZs authorized by this bill would
be designated in 2005. Therefore, assuming that new EZs are designated starting in tax year 2006,
there would be no impact from this bill in fiscal year 2005-06.

There presently are 42 EZs authorized of which 39 EZs have been designated. Total revenue losses
for the existing 39 designated EZs were estimated to be approximately $240 million for tax year 2002,
the last full year for which data are available. About a third of the total is for PIT credits. This
represents a rounded average of $6 million per zone ($240 million/39 zones=$6 million).

It is assumed that three of the 10 EZs authorized by this bill will be designated in the 2006 tax year,
resulting in the first revenue impact in the 2006-07 fiscal year. Subsequent fiscal years would show
increasing revenue losses as more EZs are designated. It takes about three years before the full
impact of a new EZ is achieved.

The table below illustrates the assumed rate of designation of the 10 EZs authorized by this bill.

Tax Year
# of EZs
2005-06 2006-07 2007-08 2008-09 2009-10
2006 3

-$6 -$12 -$18 -$18
2007 3

-$6
-$12
-$18
2008 4


-$8
-$16
Total
No
impact
-$6 -$18 -$38 -$52

At the current rate of credit usage, in fiscal year 2010-11, the revenue impact would be $60 million
($6 million x 10 EZs).


LEGISLATIVE STAFF CONTACT

Nicole
Kwon
Brian
Putler
Franchise Tax Board

Franchise Tax Board
845-7800
845-6333
haeyoung.kwon@ftb.ca.gov

brian.putler@ftb.ca.gov