State might cut enterprise zones, including Merced County's

Program has led to hiring of 2,866 new workers in area

rgiwargis@mercedsunstar.comMay 18, 2013 

— A statewide program aimed at spurring job growth in Merced County may soon be on the chopping block.

The Enterprise Zone Program, which offers tax incentives to businesses that hire disadvantaged employees within a designated area, might be reformed under a state Senate bill that's on the table.

Among other things, Senate Bill 434 would cap the cost of the program and revise the percentage of qualified wages allowed per year of employment.

There are 42 enterprise zones in California, selected based on criteria such as residential income, unemployment and poverty levels.

Jennifer Krumm, chief operating officer of the Greater Merced Chamber of Commerce, along with 50 others, spoke to legislators in Sacramento recently about saving the program.

"This is a tool for us to create jobs, and it's very important that we don't let it go away," Krumm said.

In Merced County, the enterprise zone spans 43,000 acres — covering the six cities and all unincorporated communities. Not included are the county's farmland, wetlands and foothills.

Businesses located in the zone get a tax credit when they hire people with certain barriers to employment. These include disabled workers, unemployed veterans, released convicts or those receiving public assistance.

Employers can earn up to $37,440 per qualified worker, if they're making $12 an hour and working full-time over a five-year period. They also qualify for credits for part-time employees with lower compensation.

The program has created 2,866 new jobs in Merced County and retained 13,185 positions since December 2006, according to David Heyer, Merced County's enterprise zone manager.

About 648 companies have participated in the program, he said.

"Word is getting out about the program, but sometimes people think it's too good to be true," said Heyer, who spends many hours a day talking to business owners about it. "They might know about it, but they're not convinced they can benefit from it."

Ryan Kalmbach, 35, co-owner of Johnstone Supply, a wholesale heating and air conditioning supply company, said he knew about the program, but was hesitant use it because he thought it might be "too complicated."

After trying it six months ago, Kalmbach said it's simple and has helped his company save money. His firm expanded to Merced in 2007 and employs 30 people at five locations. Six of those workers qualified for the program.

"We've been able to get tax breaks for several employees we've hired and it's allowed us to invest that money back into the business to help us grow," Kalmbach said.

"The state of doing business in California is very challenging because of the number of regulations, fees and taxes," he added. "So having some kind of incentive is important to attract and retain businesses."

However, a 2009 study by the Public Policy Institute of California found that the program had no effect on business creation or job growth. The report concluded no difference between zoned and comparable unzoned areas.

Dean Sparks, 30, former owner of BrightDart, a design, print, direct mailing company, said the program didn't help his business much because of its size.

Since opening its doors in 2007, the business hasn't employed more than eight people. Sparks said he has only had one employee qualify for the program since starting the company.

"For me, it just didn't make a lot of difference," Sparks said. "I think it would work better and does work better for bigger businesses. When you don't have a lot of tax liability, it doesn't mean so much."

Heyer said he's worked with smaller companies at which cost-savings have helped make a profit at the end of the year.

"Once they sit down and hear about how it can offset their tax liability at the end of the year, that's when it starts making sense," he said.

Mark Hendrickson, director of commerce, aviation and economic development for Merced County, views the enterprise zone program as a way to bring new businesses to California and the county.

"The program has served as a valuable tool over a long period of time, not only to retain positions in our county, but as an important attraction tool that we need to have in our toolbelt," Hendrickson said.

For example, Glen Canyon Corp., which manufactures smart meters, has expressed interest in moving to the former Castle Air Force Base because of the program, according to Krumm.

The company would employ more than 140, she said.

Reporter Ramona Giwargis can be reached at(209) 385-2477 or rgiwargis@mercedsunstar.com.


To learn more about the Merced County Regional Enterprise Zone, visit https://www.co.merced.ca.us/index.aspx?nid=1691

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