Redevelopment Is Gone, Now What?

LOS ANGELES-Tax increment financing was once crucial to job creation and business development throughout our marketplace. From the East Valley to North Hollywood to Downtown L.A., redevelopment was a proven tool reinvigorating our communities. But it's gone, so what do we have to attract and retain businesses in the state?

The State Enterprise Zone is an underutilized toolbox of incentives that many business owners don't take advantage of. Real estate industry advisors must be educated on these incentives. Here are the basics of the SEZ:

EMPLOYER HIRING CREDITS

Up to $37,440 over a five-year period per each qualified employee can be claimed by an Enterprise Zone business as a tax credit. An employee can qualify under any one of 13 different categories.

SALES and USE TAX CREDITS

An Enterprise Zone business can receive a tax credit of 100% of the sales/use tax paid for equipment purchases for use in the zone. Machinery, machinery parts, telecommunications equipment and office equipment such as copiers, printers, fax machines and telephone systems also qualify.

BUSINESS EXPENSE DEDUCTION

An accelerated depreciation is available for tangible personal property the first year it is placed in service in an Enterprise Zone. Office supplies and inventory do not qualify. Limits: $20,000.

NET INTEREST DEDUCTION

Lenders can earn tax-free interest on loans made to Enterprise Zone businesses.

DEPARTMENT of WATER and POWER RATE DISCOUNT

The DWP offers a 5-year electric rate discount to new businesses which move into the zone and apply within 18 months for the discount. Existing businesses whose energy consumption in the 6-month period before the date of application, with at least 35% greater than the monthly average in the prior 12 months, also qualify.

PARKING ORDINANCE

This ordinance provides reduced parking requirements for Enterprise Zone businesses compared with other areas.

Lastly, confronted with a significant budget shortfall, Governor Brown has proposed several changes to the SEZ. The most impactful change would be to eliminate “Retroactive Vouchering” from the Employee Hiring Credit. Current regulation allows a business owner to go back three years and file for an employee hired then and take credit for that employee today. This change, along with the other proposed changes, has not gone into effect so employers have a small window to take advantage of this substantial tax credit. It is expected that the Governor's proposals will eventually be adopted by HCD (Housing and Community Development) so employers would be wise to retroactively voucher these employees as soon as possible.

By calling on clients located in the SEZ and informing them of these changes and the overall benefits of the SEZ, a lead could be generated that turns into a transaction. Even by giving a business information that helps their bottom line, a relationship has been fostered in a way which a company acknowledges your value as a commercial real estate adviser.

Gil Gonzalesis senior director of Charles Dunn Co. in the Los Angeles office. He may be contacted at ggonzales@charlesdunn.com. The views expressed here are the authors' own. This column originally appeared in real estate forum's May issue.