State Program Lures Firms to Inner City : Business: But success of 5-year-old Southeast San Diego and Barrio Logan ‘enterprise zone’ proves hard to measure.

On paper, the state-designated “enterprise zone” that stretches across Southeast San Diego and Barrio Logan is one of the more successful in California, especially when it comes to finding jobs for the chronically unemployed.

But in real life, business owner Jack Ridout says he has mixed feelings about the government program, although it has already rewarded his aquarium-building business with $10,000 in income tax credits for the workers he hires from the economically depressed neighborhood.

“Enterprise zone means exactly that--you have to be enterprising,” said Ridout, who moved his firm from Mission Bay to the inner-city San Diego zone in 1987. “And, if the people in the area are not enterprising, they normally don’t make good workers.

“Certainly, we’ve had good workers from the local neighborhood . . . but unfortunately not enough.”

Ridout’s ambivalence underscores the problems and promise of a 5-year-old program in California designed to lure more businesses and jobs to minority and low-income areas.

The idea behind enterprise zones, first developed in Europe, is simple and appealing to many conservatives: Instead of pouring massive amounts of government money into traditional urban renewal projects, the government uses special tax breaks to entice business and jobs into certain geographic areas.

The concept has gained widespread notoriety in the wake of the Los Angeles riots, when President Bush embraced it as part of his ad-hoc “weed and seed” program to help pump economic vitality into decaying urban neighborhoods.

Yet California and 34 other states have established more than 2,000 enterprise zones over the last decade.

Since 1986, firms in or locating to the geographic zones in California approved by the state Department of Commerce have been allowed to write off any sales tax and take accelerated depreciation on equipment purchased. They also qualify for state income tax credits for every person they hire from high-unemployment neighborhoods or off of government job training programs.

Although the state continues to expand the investment program--it now has 29 zones around the state--officials in Sacramento concede that they still don’t know for sure whether it is working.

They said the program is generally successful, but they have failed to meet a legislative deadline this year to produce a report evaluating the program’s first five years. When The Times asked for statistics to show how many firms had moved into the zones and hired employees, administrators compiled numbers that were incomplete and inconclusive.

In March, Commerce Department Director Julie Meier Wright told an Assembly committee that there was still no way of tracking which firms were taking advantage of the tax breaks, what they were paying their employees, or if they moved into the enterprise zones from out of state--all key indicators of whether the program was working.

The numbers that do exist, however, suggest that San Diego’s enterprise zone in Southeast San Diego and Barrio Logan is among the best in California. A second, 9-mile zone along the international border on Otay Mesa was designated in January and has no track record.

Since the inner-city enterprise zone was formed five years ago, local businesses have hired at least 1,630 San Diegans who were either classified as hard-core unemployed or were on government job training programs.

That was more than twice the tally from similar, older zones in central Los Angeles, Fresno, San Jose, Yuba County, Eureka, Porterville, Pacoima and Agua Mansa, the numbers show.

Meanwhile, the enterprise zone has proven to be a boon to at least one major employer: National Steel & Shipbuilding Co., or Nassco, the struggling San Diego shipyard that has teetered on the brink of collapse.

The private boat builder has hired most of the people placed in the enterprise zone program, about 1,000 employees trained as welders, pipe-fitters and electricians. In return, the company has been rewarded with more than $1 million in corporate income tax credits--enough to shave the equivalent of 10% or more from its yearly income tax bills, said Jim Euphrat, Nassco’s tax manager.

“It’s not nickels and dimes,” he said.

The reason for San Diego’s success, state officials said, is the amount of effort the city puts into developing its zone. There are three city staff members contacting businesses in the area, while administrators in other California cities see enterprise zones as merely a part-time job.

San Diego officials “are aggressively marketing the zone incentives to businesses,” said Sam Paredes, the Commerce Department official in charge of all the state’s enterprise areas. “They have documented over 1,200 employees that have been (hired) through the program. That is phenomenal.”

Michael J. Jenkins, who oversees the enterprise zones for the city, said he and his staff members don’t actively try to lure new businesses to the Barrio Logan and Southeast San Diego areas. That would be a difficult task, especially since there are no large tracts of vacant land in the area, he said.

Instead, Jenkins said they have been concentrating on getting the 2,000 small businesses in the zone to expand, lease vacant buildings and--especially--hire people designated for tax credits under the enterprise program.

“Our main strategy is to be a job referral service--a free, no-cost service,” Jenkins said. “Anytime a business hires anybody, it has to put an ad in the paper and do some pre-screening.

“We do the screening, and then we send maybe three or four candidates for every job opening, and the employer chooses them. All they have to do is interview the candidate.”

“One thing to keep in mind is that all of the people who we are working (to place) have barriers to employment,” said Jenkins, who added that reducing unemployment is the top goal of the zone program.

So far, Jenkins said, about 400 companies--several of them fast-food franchises--have hired at least one employee from an enterprise zone referral. Almost 60% of the new employees still had their jobs after 13 weeks, contrasting with the national average of 50% for those who are on welfare and take part in a federal job training program, he said.

Jenkins concedes, however, that there is no way to prove that enterprise zones are working in San Diego--or elsewhere in the state.

While the city knows how many successful applicants it has referred to employers, it has no way of telling what they are being paid, whether they would have been hired even without enterprise zone tax credits, or whether they end up on unemployment again once they leave their jobs.

“Anecdotally, it seems like we’re doing a good thing,” Jenkins said.

“I would love to justify it based on good cost-analysis. I think in my heart, in my head that it’s a good program. But I don’t have any hard data to justify that, and I don’t think it is available.”

For his part, Ridout said the enterprise zone designation was not the main reason he moved his American Acrylics aquarium manufacturing business from Mission Bay to the enterprise zone. The main attraction: His neighborhood’s proximity to San Diego’s major freeways.

But once he settled in, Ridout said, he found the tax credits and helpfulness of the city’s enterprise zone staff an “added bonus.”

Over the last five years, Ridout said, his company has hired about 50 people for entry-level jobs paying about $5.50 an hour in his 90-employee company. Although about nine have stayed on and worked their way up the ladder as “career employees,” most of the others didn’t work out, he said.

“It’s nice to have a pool of workers, and they (the city’s enterprise zone staff members) do make available a pool of workers. It’s just that they’re not highly trained,” Ridout said.

“We had a lot of them come and go.”

Enterprise Zone

The Southeast / Barrio Logan Enterprise Zone is one of the most successful in the state, taking unskilled residents off some form of public assistance and giving them jobs. California Department of Commerce statistics show. The zone gives shopkeepers and businesses special tax breaks for buying more equipment or hiring residents from nearby minority neighborhoods, where unemployment is a chronic problem. The zone is one of 19 throughout the state.