Enterprise zones defended by House speaker
Dems say 'lipstick on a pig' programs aren't effective
TUCSON - With the flip of a switch, four milling machines at Abrams Airborne Manufacturing Inc. start shaping blocks of aluminum into sheet metal parts used to make grenade launchers.
Vice President Jenny Abrams Wilson said these machines boost productivity by saving the company's 193 employees about 800 hours per year. Making the $1 million investment last year came easier for the family-owned business on North Romero Road thanks to income and property tax incentives offered under a state program aimed at boosting jobs and attracting businesses to areas in need.
"We've been able to put more money into things like employee benefits, hiring new people every year and expanding our facility," said Wilson, whose firm received $133,000 in credits in 2008, the last year for which numbers were available. "It's definitely been a benefit to us."
Wilson's was one of 197 companies statewide that in fiscal 2009 received $10.9 million in state tax credits through the Arizona Enterprise Zone Program. The program gives incentives to attract companies that offer high-paying jobs to 19 areas with higher unemployment and poverty.
According to the Arizona Department of Commerce, which runs the program, these companies received credits in return for hiring a total of 4,631 new employees and making nearly $1 billion in capital investments at locations in enterprise zones.
But House Speaker Kirk Adams, R-Mesa, says Arizona's program has fallen short compared to other states'. As part of a larger bill he contends would create jobs to help pull Arizona out of the recession, he wants to overhaul the program and make the entire state one large enterprise zone until 2016 to attract companies in specific industries.
"We don't only have a budget deficit; we have a jobs deficit," he said. "It's one component of a multifaceted bill, but it's a key component."
Adams' bill, HB 2250, cleared the House in January without a single Democrat's vote and was awaiting action in the Senate.
The enterprise zone concept was first introduced in the United Kingdom during the 1970s and made its way to the U.S. almost a decade later. Arizona's program was established in 1989, and today nearly every state has enterprise zones.
Arizona currently grants property tax incentives to manufacturing and commercial printing businesses that are woman- or minority-owned or have fewer than 100 employees, are independently owned and operated and invest a certain amount in fixed assets.
It gives firms up to a $3,000 corporate income tax credit for every new full-time employee who stays for three years. A company's credits are capped at 200 new employees per year, and firms must cover at least 50 percent of employees' benefits.
Wilson said that although the extra cash has been nice the program's credits need a boost if Arizona wants to compete for out-of-state businesses.
"These incentives wouldn't make me want to relocate if I were outside a zone," said Wilson, whose parents started the business at the same location in the 1960s. "I just lucked out."
Adams said he developed the bill based on input from the Greater Phoenix Economic Council and a study he commissioned from Elliott D. Pollack & Co., a Scottsdale-based real estate and economic consulting firm.
The measure would raise the income tax credit to a maximum of $9,000 for each new employee who stays for three years. Firms could claim up to 400 new employees per year but would have to pay them more than currently required.
All types of businesses would qualify for property tax credits, but firms would have to make larger capital investments to receive them.
Arizona would join Arkansas and a handful of other states that make their enterprise zones statewide.
Grant Nulle, fiscal policy director for the House, said the bill will be amended so the only companies to qualify would be in so-called base industries such as manufacturing, agriculture, retirement and tourism.
Barry Broome, president and CEO of GPEC, said expanding the enterprise zone program could be the answer not only for jobs but also for filling up Arizona's 100 million square feet of empty commercial and industrial space.
"We must change or we'll end up like Michigan," Broome said. "If people want to see the economy come back, we need to create jobs. If people want to see construction come back, we got to fill up these spaces."
But Rep. Tom Chabin, D-Flagstaff, who voted against the bill in the House Ways and Means Committee, said Democrats opposed Adams' bill because he hasn't demonstrated a clear return in jobs or capital investment and because the new requirements are so broad that the state could wind up giving tax breaks to less-desirable companies.
"It's like lipstick on a pig. The speaker's bill targets strip clubs and Wal-Marts," he said. "He has no discretion."
Peter Fisher, professor at the University of Iowa, said enterprise zones are rarely effective in attracting businesses. He said funding to other important services, like education and health care, would inevitably suffer if more cuts were made to business taxes.
"Someone's gotta pick up the tab somewhere," Fisher said. "My general take on this is that incentives are generally viewed by legislators as being far more effective than what the research shows."
Although Arizona's program has benefited Wilson, she said she would like to see other deserving companies have the same opportunities she's had, especially in a recession.
"Any incentives that would give a business a break and then be able to make new contracts and hire more employees should be applauded," Wilson said. "It's hard enough to be in business anyway."