SAN FRANCISCO, California, June 10, 2009 — The enterprise zone program, the state’s largest economic development effort, has failed to achieve its key goal: increasing jobs. That is the main finding of a report released today by the Public Policy Institute of California (PPIC).
The PPIC report contrasts employment growth in enterprise zones with comparison areas and concludes that the program, on average, has no effect on job or business creation. The report recommends a re-examination of the program, which offers tax credits and incentives to businesses in 42 designated zones throughout the state. The program’s cost in the next fiscal year is estimated at nearly half a billion dollars.
“The state can ill afford to continue the enterprise zone program without clearer evidence of its benefits or a well-defined plan to make it more effective,” says Jed Kolko, PPIC associate director of research, who co-authored the report with David Neumark, PPIC senior fellow and professor of economics at the University of California, Irvine.
The state’s budget crisis has spurred debate over the effectiveness of the enterprise zone program, which began in 1986 as an effort to boost business investment in economically depressed areas and create jobs for disadvantaged workers. Last year, the state Legislative Analyst’s Office recommended scaling it back, citing uncertain economic benefits. The California Association for Local Economic Development, whose members come from both public and private sectors, proposed expanding it to help stimulate the state’s economy.
The PPIC researchers reached their conclusions after building street-by-street maps of the enterprise zones and surrounding areas, which they matched to data on nearly every business in the state. They compared employment growth inside the zones to growth in control areas, then did a similar analysis of changes in the number of businesses. They supplemented these efforts with a survey of local enterprise zone administrators.
While the report’s main conclusion is that the enterprise zone program has been ineffective overall in creating jobs or businesses, the authors found that some zones have been more successful than others. They recommend further critical evaluation of the program’s effectiveness in individual zones to determine which ones should expire and which should be extended, if the program continues.
The Public Policy Institute of California is dedicated to informing and improving public policy in California through independent, objective, nonpartisan research. The institute was established in 1994 with an endowment from William R. Hewlett. As a private operating foundation, PPIC does not take or support positions on any ballot measure or on any local, state, or federal legislation, nor does it endorse, support, or oppose any political parties or candidates for public office.