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California bids goodbye to failed program to boost depressed areas

California Governor Jerry Brown speaks at the 7th Annual California Hall of Fame induction ceremony at The California Museum in Sacramento,
California Governor Jerry Brown speaks at the 7th Annual California Hall of Fame induction ceremony at The California Museum in Sacramento,

By Marty Graham

SAN DIEGO (Reuters) - California Governor Jerry Brown signed legislation on Thursday that phases out the state's nearly three-decade experiment with a program meant to encourage hiring in depressed areas, replacing it with new incentives that Brown promoted as an answer to aggressive efforts by Texas to lure away businesses.

The enterprise zone program, established in 1984, offered tax incentives to businesses in a bid to revitalize depressed areas.

But critics said it never produced promised payroll gains while giving businesses tax credits currently estimated at about $750 million. Critics also complained that some cities created enterprise zones in already busy areas, such as San Francisco's downtown financial district.

Both labor and business backed ending the program.

At a signing ceremony in San Diego at Takeda Pharmaceutical Company Limited's California subsidiary, Brown said the legislation would stop the "gaming of the state law by companies that rip off California taxpayers."

The new incentives signed into law include credits to businesses that hire workers in specific areas with high unemployment and poverty levels, and a tax break the state's manufacturers have long urged.

"Texas, watch out. California has some new tools," Brown said, jabbing at Texas Governor Rick Perry, who has tried to lure businesses away from California.

Brown targeted the enterprise zone program for elimination, along with California's redevelopment agencies, when he took office two years ago, finding support for a phase-out from most fellow Democrats and a handful of Republicans.

Most lawmakers in the legislature's Republican minority remain skeptical, however, about Brown's plans for refashioning relations between the state and its local governments.

Republican Senator Anthony Cannella told Reuters he supported replacing the enterprise zone program despite its benefits to his district. He said the program had allowed some glaring abuses.

"There were, for example, strip clubs and poker rooms getting tax credits," he said, adding that some businesses had closed facilities under the program to move to zones where they could hire employees more cheaply and win tax credits in the process.

The California Labor Federation echoed that complaint. "We saw some union jobs lost because of that," said Steve Smith, a spokesman for the state's AFL-CIO affiliate.

Republicans who backed an overhaul did so because they saw the program as doomed given Brown's focus on it and because the reform legislation gives the state's business community a break it has long sought: a sales tax credit for companies that purchase up to $200 million in manufacturing or biotechnology equipment regardless of where they are in California.

"It's a big deal," said Loren Kaye, president of the California Foundation for Commerce and Education, a research center affiliated with the California Chamber of Commerce. "It basically brings California closer to the way other states treat manufacturing equipment."

(Reporting by Marty Graham in San Diego; Additional reporting and writing by Jim Christie in San Francisco; Editing by Cynthia Johnston and Leslie Adler)

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