Manufacturing jobs are fleeing the region and never coming back, according to a study that suggests creative industries are taking over Los Angeles employment. Creative jobs also are transforming the city's neighborhoods, as evidenced by the past decade's rebirth of downtown L.A.'s Old Bank district and the Fashion District's transition.
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Enterprise Zone Benefits Jeopardized By Governor’s Budget Proposal
By Carla Pineda
Tax incentives for businesses located in targeted regions of California could be revoked as part of Gov. Jerry Brown’s budget proposal.
The Housing and Community Development Department announced in December the designation of Harbor Gateway, Anaheim, and Santa Clarita Valley as three additions to its existing Enterprise Zone program. The program has provided numerous state tax credits for companies that hire local workers in targeted areas that can prove economic distress.
But legislative opposition that has tried to alter or shrink the program since its 1984 inception has come to a head with a top-down proposal to eliminate it.
“The program is in real danger,” said Scott Smith, partner at tax consulting firm Downey Smith Fier. “Each year there’s [anti-Enterprise Zone] legislation out there, but Gov. Brown is pushing forward because he has a very strong and personal agenda and he doesn’t seem to care who’s on his side or not.”
Brown’s goal to shift the financial responsibility of economic development to local jurisdictions has motivated proposed changes in how Enterprise Zone programs and redevelopment funds are handled statewide.
“Tax increases and the elimination of these important economic development programs will only worsen California’s unemployment rate and cause more businesses to flee to states with healthier economies and friendlier business policies,” said Craig Johnson, president of the California Association of Enterprise Zones.
Municipalities that choose to continue such programs would be responsible for finding the funding. The administration estimates the state would save $343 million in the remainder of the 2010-11 fiscal year and $581 million in the following year if the proposal moves forward.
“This is a declaration of war against business in California,” said Rob Campbell, Enterprise Zone manager at tax consulting firm KPKG. “The impact will be far reaching because it sends a message that California is not a friendly place for business.”
Campbell said Brown likely is “swinging for everything and planning to give something up in the end” in his sweeping cuts to balance the state’s massive budget deficit.
“Because the primary benefit of these zones is to shift economic activity from one geographic region within California to another geographic region within California, they are not of statewide interest,” Brown’s budget proposal stated.
The plan also referred to studies that discredited the effectiveness of state Enterprise Zone programs in increasing economic activity, such as those by the state Legislative Analyst’s Office, the W.E. Upjohn Institute of Employment Research and the Public Policy Institute of California.
“Most research indicates that area programs have little if any impact on the creation of new employment and thus would not have a strong positive impact on the economic base of the state overall,” the state Legislative Analyst’s Office said in a report analyzing the program.
There are 41 Enterprise Zones in the state. The Anaheim zone is new. The Harbor Gateway, which consists of a corridor from the Port of Los Angeles through Huntington Park, was expanded from a smaller zone that expired in 2009. The existing Santa Clarita zone was renewed and expanded as well.
The Los Angeles area has an additional Enterprise Zone that spans from the San Fernando Valley through Hollywood and down to the southern tip of the city, as well as a separate zone in East Los Angeles.
The primary Enterprise Zone benefits are hiring tax credits and sales and use tax credits. Firms can earn more than $37,000 for each new qualified employee hired. Companies can receive credit of up to $1 million for sales and use taxes paid for the purchase of qualified equipment that is purchased and used exclusively within the zone’s boundaries.
According to Enterprise Zone experts, the program has the largest impact on small businesses.
“The business I’ve seen benefiting from this is Joe’s auto shop down the street. It’s not a big corporate gimmick,” Campbell said.
For those small firms that know about the program and have remained profitable through the recession, the program could have a significant impact on whether the company stays in business, observers say.
“The financial incentive helped our company to grow,” said Clive Forrester of All Access Staging Productions, a Torrance-based company specializing in staging for entertainment and corporate events.
“We’re in the city of Los Angeles and the city of Los Angeles isn’t necessarily a fabulous place for a business and this incentivized us to stay,” Forrester said.
All Access Staging Production’s work for concerts and reality television helped it remain financially healthy during the recession and if the Enterprise Zone program is cut, it will slow the company down but “we’ll live with it,” Forrester said.
“When times get bad and crime goes up and it’s more challenging to do business in these areas, it’s incentives like this that make a company think twice [about relocating],” Smith said.
Prior to the governor’s budget announcement, the Housing and Community Development Department put out a call for proposals to fill the two Enterprise Zones expiring in early 2012. Conditional designations would have been awarded in August 2011 with a strong emphasis on companies that demonstrate a commitment to renewable energy.
carla_pineda@dailyjournal.com
Real Estate Industry Waiting on Jobs Recovery
By Carla Pineda
LOS ANGELES — Jobs bring people to office buildings and employed people bring their spending dollars to retail stores, which use manufacturing and distribution space to keep up with consumer demand.These fundamental economic drivers have the real estate industry banking on a jobs recovery to lead all property sectors out of the recession.
Even the most skeptical economists expressed a relatively sunny disposition at the inaugural VantageForum conference in Los Angeles. The Urban Land Institute of Los Angeles and the UCLA Ziman Center for Real Estate hosted public officials and private industry executives who expect moderate to significant improvement in the economy and investment, financing and performance of all real estate property types.
“The American jobs machine will begin to gear up,” said David Shulman, senior economist of the UCLA Anderson Forecast.
Shulman predicted federal unemployment estimates will be revised down and job estimates will be revised up, which will help drive demand for multifamily and office space.
Job growth will emerge in sectors other than the already burgeoning restaurant, hotel and health service industries, Shulman said.
The state Employment Development Department’s latest jobs statistics reported gains in the construction, information, professional and business services, educational and health services, leisure and hospitality and government job categories for a total of 22,400 new jobs in November. The financial sector, however, shed 2,900 jobs for the month.
Inflation probably will rise, Shulman said, because commodity prices and rents are rising more than current economic indicators show.
Consumer prices, one of the U.S. Bureau of Labor Statistics’ inflation measurements, rose a half percent in December from a year before. Average residential rents rose 0.2 percent across the U.S. in 2009.
In the Los Angeles-Riverside-Orange County area, overall consumer prices rose 1.6 percent from December 2009 to December 2010 and posted a 0.4 percent increase from November to December.
Many homebuyers are waiting for improved economic conditions and job security to come into the market, said members of the event’s housing panel.
“Homeownership continues to be the American Dream,” said Henry Cisneros, executive chairman of CityView.
Analyzing historic homeownership levels, Cisneros said that the current 65 percent to 66 percent of U.S. residents who own a home is not far from the 70 percent all-time peak seen during the housing boom, and it is in line with the previous peak during the 1950s. He expects homeownership levels will not change much but he does anticipate a dramatic shift in ownership demographics.
Ownership among minorities was in the 40 percent range during the boom and he expects this level to increase during the housing recovery. Also, he said that interest in more dense urban housing will grow. Sales of downtown Los Angeles lofts are indicative of this demand, he said.
Location is a basic yet extremely important housing decision, said Heidi M. Green, vice president of multifamily for Fannie Mae.
She hopes buyers are realistic about what they can afford coming out of this recession. Home loan availability will remain slim for some time and “perhaps that’s a good thing,” she said.
Constance B. Moore, president and chief executive officer of BRE Properties Inc., a California-based apartment real estate investment trust, noticed a change in the psychology of homeownership.
In the past, people looked forward to a 30-year job, a 30-year mortgage and a 30-year marriage; now, not so much, she said. Lasting decisions, such as housing, are more fluid now, she said.
The recession had the same effect on business, said Gadi Kaufmann, managing director and chief executive of real estate consultancy firm Robert Charles Lesser & Co.
“American business is not comfortable with making a long-term commitment,” he said.
However the issue of rising home demand in California is a matter of when, not if, the panelists said.
Moore is uncertain of what exactly will trigger a surge in California housing demand but she is sure it will happen. Her company has a seven-year supply of entitled land and 200,000 to 250,000 square feet of apartment space in its development pipeline.
“It doesn’t take much job stimulation to stimulate economic development in Southern California,” she said.
Kenneth Campbell, president of Standard Pacific Corp., has an even brighter — and aggressive — outlook. His company recently refinanced its debt from $665 million to $89 million. Campbell plans to buy more than $1 billion of land in the next 18 months or sooner.
With estimates of the company’s business at least tripling in the near future, he said he would buy even more land if the company had certainty that the jobs outlook will improve significantly.
“California will have a shortage of entitled land,” he said.
While many panelists were confident that a residential recovery will occur though unsure of how it will happen, AVP Advisors Chairman Richard Ziman said that an upturn will be on standby until the big elephant in the room is addressed.
“The state still has to shed 65,000 jobs to put Humpty-Dumpty back together,” he said.
carla_pineda@dailyjournal.com
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