During a recession, government efforts to boost the economy often gain higher profiles. Three recent studies of state economic development activities paint a mixed picture of the effectiveness of existing programs. The nonprofit, nonpartisan California Budget Project released a report in January that attempted to gauge the effectiveness and cost of all economic development activities, including state tax breaks. The CBP said that these activities cost the state $7.8 billion annually, but no one is sure what the state gets for the money. The CPB also found that economic development activities are uncoordinated and not reviewed regularly. The Budget Project's study followed on the heels of an examination by the State Auditor of the Technology, Trade and Commerce Agency. The State Auditor dinged the trade agency for lacking an agency-wide strategic plan and for not enforcing quantified goals. On a brighter note, a California Research Bureau study found that the state's 48 enterprise zones generally are effective at creating jobs in distressed areas. The study contrasts with a 1994 University of California study that concluded enterprise zones were ineffective. The California Budget Project tried to look at everything — $2.3 billion of "on budget" spending, such as state job training programs, and $5.5 billion of "off budget" expenditures, which come in the form of tax breaks for businesses that grow or perform certain tasks. Budget Project Executive Director Jean Ross said the organization left out spending by UC because information was too difficult to get. Still, she said, the report provides the most comprehensive look ever at the cost of economic development activities. What the Budget Project found was a lack of vision and planning. "We don't even have the tools needed to determine what kind of results these programs have produced," Ross said. The report states: "While recent policy debates around issues such as education have focused on accountability and performance standards, no similar standards have been applied to state spending for economic development … . Moreover, the state has failed to adopt a strategy, goals or objectives to guide the use of resources devoted to promoting a healthy economy." "Many state economic development programs," the report continues, "were created to emulate federal programs, or to implement a ‘good idea' brought to a legislator with little analysis of how well the program may fit California's overall needs. … Once created, programs are rarely eliminated." Most tax breaks (or "tax expenditures") go to "general relief of business and are not targeted to specific policy goals." The Budget Project recommended that the state formulate a unified economic development strategy, prioritize spending on the most important areas, systematically review all tax expenditures, and evaluate budgeted programs based on outcomes. Ross said the Budget Project does not advocate creation of a "super agency" but does want to see all entities collaborate, coordinate and communicate better. The Budget Project also urges better data collection. However, Michael Dardia, a research fellow at the Public Policy Institute of California who has studied economic development extensively, questioned some of the Budget Project's assumptions and conclusions. "I don't think there's anything all that new in it," he said of the report. Dardia said the Budget Project report leads readers to the conclusion that business tax exemptions are bad. But, he noted, breaks for individuals, such as the personal income tax exemption and the home mortgage interest exemption, cost the state more than three times as much as the business tax breaks. Moreover, the business tax breaks —the sales and use tax exemption on airplanes and vessels built in California is one of the biggest — play a role in business retention, he said. "If you want plane production to move from here to Seattle, go right ahead and slap the sales and use tax on airplane sales," Dardia said. The Budget Project concluded that the $7.8 billion spent on economic development amounted to 9.7% of general fund expenditures. But Dardia said if tax breaks for businesses and individuals are considered, the $7.8 billion is only about 7.5% of state spending. "To me, that doesn't sound like a big number considering that all of our money comes from economic activity in the state," he said. Although Dardia has doubts about the report — and the Davis administration was immediately defensive — other analysts and interest groups have given it high marks. "Different people have found different hooks," Ross said. The Budget Project report mirrored concerns expressed by the State Auditor in a study of the Technology, Trade and Commerce Agency. The separate studies even have similar recommendations regarding strategic planning and more quantifiable program criteria. "[T]he agency has discontinued an agency-wide planning process and backed away from a result-oriented approach," the State Auditor concluded. "Program-specific plans now guide its actions, but all the plans we reviewed are weakened by a lack of strategic planning elements." In a response to the Auditor, the trade agency said the energy crisis, a "dynamic environment" and staff vacancies have hampered strategic planning. The agency defended its planning process but said it would implement many of the report's specific recommendations. The Research Bureau's report on Enterprise Zones received a mixed reception from zone administrators, but Roger Dunstan, Research Bureau assistant director and co-author of the study, said the overall news is good. "Compared to other distressed areas, enterprise zones are creating jobs more rapidly," he said. Enterprise zones got their start in California in 1984; since then, the Legislature has designated 48 zones in economically depressed urban, suburban and rural communities. Businesses in enterprise zones get tax breaks for hiring people and buying equipment. The businesses also get preferences when bidding on state contracts. Dunstan and Suzanne O'Keefe, a professor at California State University, Sacramento, compared census tract data from within an enterprise zone with a census tract with similar characteristics outside an enterprise zone. For the time period studied, they identified 154,000 new jobs in enterprise zones, compared with 101,000 in similar areas outside enterprise zones. The net gain of 53,000 jobs cost the government $4,800 per job, which Dunstan called "extremely low." The enterprise zone tax credit for new jobs tops out at 150% of the minimum wage, so the program emphasizes lower-paying work. But, Dunstan noted, these are poor and often undesirable areas that are not going to attract top jobs. The next step, said Dunstan, should be an examination of how long enterprise zones should be in place. Currently, the designation expires in 15 years, and state officials can extend it for another five years. Contacts: Jean Ross, California Budget Project, (916) 444-0500. Roger Dunstan, California Research Bureau, (916) 653-7843. Michael Dardia, Public Policy Institute of California, (415) 291-4400. California Budget Project website: http://www.cbp.org/ State Auditors reports website: http://www.bsa.ca.gov/bsa/since93.html California Research Bureau reports website: http://www.library.ca.gov/html/statseg2a.cfm