Santa Ana doesn’t have the corporate cachet of Irvine or Anaheim’s tourism.
But Orange County’s most populous city does have a carrot for businesses: state tax credits under California’s enterprise zone program.
Santa Ana is the only city in the county with an enterprise zone, a program designed to bring jobs to poor areas.
The zone “levels the playing field,makes us competitive,” said Lina German, enterprise zone coordinator for the city of Santa Ana. “It counters the challenges in Santa Ana.”
But the clock is ticking on Santa Ana’s enterprise zone, and others across the state. The program is set to expire in mid-2008.
So far, Santa Ana officials and others have failed to persuade the Legislature to give cities a five-year extension. With Sacramento’s budget mess, getting lawmakers to extend tax breaks is proving a tough sell.
The Franchise Tax Board estimates the cost of five-year extensions at about $100 million for the 2009-2010 budget under the most expensive scenario. Enterprise zone backers say economic growth from the program pays for itself.
Privately, some question whether Santa Ana, home to some of the county’s largest companies and scores of manufacturers, still needs the help.
Among the beneficiaries is Ingram Micro Inc., the county’s largest company by yearly sales. The technology products distributor employs about 850 people in Santa Ana.
“An enterprise zone is very important to Ingram Micro, and for it to be here in Santa Ana,” said Jennifer Baier Anaya, an Ingram Micro spokeswoman.
The city has selling points besides tax credits, according to Chris Chinnici, a senior vice president at real estate brokerage Collins Commercial Corp. in Irvine. Those include a strong work force and relatively cheap real estate, he said.
“There’s other motivating factors for them to go there,” Chinnici said. The enterprise zone “is just another feather in the cap.”
Santa Ana officials point to gains the city has made under the program and fear they’ll lose ground without it.
Already, city officials said delays for the enterprise zone extension are hampering their ability to recruit companies.
“There have been improvements in the 15 years we’ve had this enterprise zone,” German said. “There still are needs.”
So far, extending the enterprise zone has gone nowhere in Sacramento. For at least three years, legislation to add five years to the lives of enterprise zones hasn’t got much traction.
The effort now is on its second go-around with a set of bills stuck in committee, though one has cleared the Assembly.
If an extension isn’t granted, Santa Ana officials said they plan to ask for a new enterprise zone designation lasting 15 years. But the extension is a simpler, easier process for the state and the city, according to German.
The extension effort is butting up against budget concerns. All bills that cost the state money automatically are put in “suspension” for extra scrutiny, said Colin Grinnell, a consultant for Sen. Mike Machado, chairman of the Budget and Fiscal Review committee.
Machado is a Democrat representing Stockton and other parts of the San Joaquin Valley and is seen as moderate on fiscal issues.
The enterprise zone program could be tweaked to better focus resources on the truly needy areas of California, including putting more strictly defined parameters on social and economic indicators, Grinnell said.
Santa Ana’s German said she believes the city’s zone still would qualify under stricter rules.
Back in 1993, when the enterprise zone was granted, the overall economy was facing tougher times as it emerged from the huge downturn in military spending that cut thousands of local jobs.
Other cities, such as Anaheim, could have applied for an enterprise zone back then. Santa Ana was the only one to get the designation.
The city showed it lagged other cities based on crime, poverty and population statistics.
There have been gains in the past decade.
Back in 1993, more than 400,000 square feet of industrial space sat empty. Today that figure has dropped to about 100,000 square feet, with a lot of space added in the past decade.
Crime has improved, too. Violent crime is down 44% from 1993 to 2003. Murders alone are down 78%. Property crimes are off 43%.
But how much credit the enterprise zone deserves is debatable.
Santa Ana already benefits from location, according to real estate broker Chinnici, who specializes in manufacturing space.
“Newport entrepreneurs” don’t want to drive far to their businesses and often insist on looking only in Costa Mesa, Irvine, Tustin or Santa Ana, he said.
And, when it comes to rents, Santa Ana is cheaper than its neighbors.
“It’s realistically probably 10% to 12% cheaper to go to the city of Santa Ana,” Chinnici said.
The discounts are even bigger for people buying buildings, he said. Buyers also have more options in Santa Ana, according to Chinnici.
Despite gains, Santa Ana still has an image problem, a psychological relic of when crime rates were much higher, Chinnici said.
Still, buildings on Santa Ana’s west side are indistinguishable from those down the street in Costa Mesa or Irvine, he said.
One of the city’s biggest draws is a mammoth pool of workers, many of them recent arrivals from Mexico. They fill the ranks of Santa Ana’s factories.
Chinnici said he knows of three or four manufacturers that moved from Santa Ana to the Irvine Spectrum during the 1990s, only to move back to Santa Ana for better access to workers.
“It’s a great location,” Chinnici said of the city.
The enterprise zone has been a factor for companies that have moved into the area. Among them: Shonfeld’s USA Inc., a designer of gift baskets; Royalty Carpet Mills Inc.; cookie maker D.F. Stauffer Biscuit Co.; and Fabrication Concepts Corp., a sheet-metal maker producer.
For others, the enterprise zone is an afterthought. At BJ Bindery Inc. in Santa Ana, owner Naresh Arya said he didn’t tap the benefits offered by the enterprise zone until a few years ago.
The company, which he bought in 1985, was growing too quickly in the 1990s to bother with tax credits, he said. For him, the credits add “cream” to the company’s profits.
Arya said he doesn’t plan on leaving the city if the enterprise zone is nixed.
Santa Ana officials point to numbers to make their case for keeping the zone.
The city’s unemployment rate in June was 6.2%, the highest among larger cities in the county. Garden Grove was the second at 5.3%. The county’s overall unemployment rate is 3.9%.
Santa Ana also is a magnet for immigrants, who give the city much of its vitality but also bring problems, including overcrowding and poverty.
Officially, Santa Ana counts 352,000 residents. Some insist the number could be as high as 500,000 with undercounting of undocumented residents.
Santa Ana also has the youngest population of the 100 largest U.S. cities. Nearly 40% of its residents are younger than 20. That means the city has more young people entering the job market each year than other places.
“We can still demonstrate strong need for these incentives,” Santa Ana’s German said.
Santa Ana’s enterprise zone covers more than 90% of the city’s commercial and industrial areas. The biggest beneficiaries are manufacturers.
A qualifying company gets tax credits two ways:
By hiring. A business may earn $31,570 or more in tax credits per qualifying worker over a five-year period.
By buying equipment or making other business investments. Sales and usage taxes on some machinery and data processing gear can be reduced. More than $1.5 million or more annually in tax credits is available.
Rick Beets, president of Bristolite Skylights off Dyer Road, said tax credits have helped his company add workers. The maker of skylights has added at least 20 people to its rolls in the past couple of years, he said, and now counts about 120 workers.
The zone’s benefits have helped Bristolite stay competitive as other skylight makers moved to Mexico and now China, Beets said.
He declined to say whether he would move his company if Santa Ana lost its enterprise zone. But he did say, “Not moving has been strongly motivated by significant tax credits.”
