What’s the Deal, Governor?

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Let’s say you and I make a deal. If you agree to move into my not-so-great neighborhood and be a good citizen, I’ll give you something in return. For example, I’ll pay all your utility bills for 15 years.

Now, let’s say you decide to take a chance and you move your family. Over time, you and the other folks who took me up on my deal work to improve your new neighborhood, to make something of it.

But a few years later, I show up and say, “Ummm, you know, this arrangement is costing me money. Deal’s off.”

Now you could say, “Wait right there. You’re backstabbing me. We made a deal, and a deal should be a deal.”

You could – you should – argue that you’re the one who took a chance and moved your family. You and the others who accepted the deal are the ones who worked to improve my iffy neighborhood. The least you should get is your free utilities for the rest of the 15-year term. That was the deal, after all.

This is a made-up example, of course. But it basically is what’s happening for real with enterprise zones in the state.

Now, what’s happening for real is different from the example. Californians who took up the state on its offer moved their businesses, not their families, into not-so-great neighborhoods that make up L.A. County’s eight enterprise zones. The businesses don’t get free utilities, they get state tax credits for 5 years in return for hiring people from the distressed neighborhoods. And it’s not me who wants to renege on the deal, it’s Gov. Jerry Brown.

What’s the same as in the example? The part about the backstabbing.

Brown wants to kill enterprise zones because they’re costing the state money in his view. And he doesn’t simply want to phase them out – that is, stop accepting new participants while continuing to pay the present participants. No, he wants to stop paying the present participants, too – those who moved into enterprise zones in good faith, are still there and were counting on the state to hold up its part of the deal.

It gets even worse. As you can see in the article on page 1 of this issue, a number of companies in enterprise zones have banked unused tax credits because they’ve sustained some tough years. They were counting on using those tax credits in future years, but Brown wants to erase those unused credits, too. In other words, Brown not only wants to go back on the deal today, he wants to take back the benefits from past years.

Now, you could debate whether enterprise zones, net-net, are beneficial or not. If you had that debate and concluded that they didn’t do much good or that there are too many abuses or they otherwise are unjustified, then fine, let’s have an orderly wind-down of them.

But that’s not the issue here. The issue here: A deal’s a deal. Companies made long-term commitments in good faith to hold up their end of the deal, and the state should not just kill the deal in midstream.

(By the way, isn’t this the same state that says we can’t undo the extremely generous pensions to state workers because a deal’s a deal?)

The damage from this goes beyond that sustained by the businesses in enterprise zones. This does damage to the already strained relationship between businesses and the state government.

In the article on page 1, a local accountant named Armando Jamjian, who’s also on the board of the California Association of Enterprise Zones, asked: “If the state has a program that generates tax credits for companies and then the state says it will take those tax credits away, why should a company even stay in California after this?”

Good question. Governor, have you got an answer to that?

Charles Crumpley is editor of the Business Journal. He can be reached at [email protected].

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