By CalTax President Teresa Casazza
This column originally ran in the Orange County Register, on April 27.
While discussing California's loss of manufacturing jobs, a colleague once quipped that at the rate we're going, the only factory jobs left in this state will be at The Cheesecake Factory.
We haven't gotten to that point yet, but it is true that the Golden State has been losing manufacturing jobs to other states and countries, in large part because of the high cost of doing business in California.
Even native California companies are moving operations to other states. The latest is Aerojet Rocketdyne, the pioneering aerospace company that is eliminating 1,100 jobs in Sacramento and creating 800 jobs in Alabama. You don't have to be one of Aerojet's rocket scientists to know that California needs to improve its jobs climate.
In 2013, the Legislature and governor approved an economic development plan to attract and retain high-paying manufacturing and research-and-development jobs. This legislation has been good for our economy, and has the potential to be great with a few adjustments – tweaks included in twin bills, Assembly Bill 600 and Senate Bill 600, by Assemblyman Jim Cooper and Senator Cathleen Galgiani, respectively.
The legislation approved four years ago did away with "enterprise zones" – government-designated areas where various tax incentives were authorized – because policymakers believed the zones weren't meeting their goal of encouraging investments, development and jobs. The zones were replaced by new incentives – including a partial sales tax exemption for manufacturing and R&D – and the governor and lawmakers agreed that the total amount of the new incentives should be kept at the same amount as the old incentives that were being eliminated. The new program is designed to provide more bang for the same bucks.
That bipartisan change sailed through the Capitol with support from business and labor groups alike.
State data shows that since the inception of this tax incentive for manufacturing and R&D, employers have invested $9.4 billion in equipment and infrastructure in California. For every $1 of incentive claimed, there has been an impressive $23 return in new investment.
Lawmakers have an opportunity to kick this success into high gear by clarifying ambiguities and easing eligibility restrictions to make the incentive more attractive to employers, and more effective in creating jobs.
The California Taxpayers Association, California Manufacturers and Technology Association and other supporters of the legislation note that the average manufacturing job pays $83,000 a year, and for every one manufacturing job, 2.5 additional jobs are created.
In addition to promoting the big factory jobs that most people associate with manufacturing and production, the incentive promotes small business growth – for example, the owner of a doughnut shop would benefit from the improved incentive via a partial sales tax exemption on commercial refrigeration systems, mixers, fryers and other equipment.
The new legislation also expands the incentive to agricultural manufacturing and processing equipment, and to equipment used in electricity production and distribution. The latter provides a twofold benefit: consumers benefit directly, because reductions in utility companies' capital expenditures reduce the electricity prices set by state regulators; and energy producers can invest more in "green" energy, leading to a cleaner environment.
Since problems with the existing credit have confined utilization to less than half the target set by policymakers, there is plenty of room to make the needed improvements while keeping the program revenue-neutral, as intended.
Approval of the new legislation will help protect and encourage California jobs, grow the economy and increase the tax base that funds our schools, law enforcement and social programs. The sooner it's approved, the sooner the benefits will come down the assembly line.
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