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Once highly touted, enterprise zone expansion looks bleak

Amid quiet sniping from Republican lawmakers, one of Gov. Jan Brewer’s economic recovery planks appears near death.

Brewer has advocated for an expansion of Arizona’s enterprise zone program, which gives financial incentives to specific industries in 21 targeted areas across the state. The governor has proposed expanding the program to cover the state.

The governor said on Feb. 2 she still stands by the proposal and is “optimistic” that it has enough support to get through the Legislature.

But sources familiar with negotiations among Brewer, House Speaker Kirk Adams and Senate President Russell Pearce say the governor may be ready to shelve the enterprise zone proposal in order to appease legislative Republicans and ensure her economic recovery package’s swift passage.

Pearce is “resistant” to enterprise zones and said much of his caucus is, too. The Senate president said he thinks Brewer is willing to omit enterprise zones from the jobs bill to bolster legislative support for the Arizona Commerce Authority, a public-private economic development agency that would replace the Arizona Department of Commerce.

“There’s going to be compromises, just like there is every year,” Pearce said. “I think the governor is willing to do that to some degree. I believe that the cornerstone is her Commerce Authority. I think she wants that really, really bad.”

Adams, Brewer and Pearce all support the governor’s plans to reduce Arizona’s corporate income tax rate to 5 percent from about 7 percent; to increase the state’s sales factor — the percentage of Arizona-made goods sold out-of-state that are exempt from sales taxes — from 80 to 100 percent; and to increase the business personal property tax exemption, sources said. But the enterprise zones are the biggest stumbling block in the negotiations.

The Governor’s Office has not announced that it is dropping the proposal and is publicly supporting it. But there have been signs that Brewer and her staff are looking to shift their focus away from enterprise zones.

In a Jan. 28 speech at the Urban Land Institute’s Real Estate Trends Day, Brewer’s chief of staff, Eileen Klein, outlined the governor’s economic recovery proposal, but didn’t mention enterprise zones. That speech came just three weeks after Brewer touted the enterprise zone proposal at an Arizona Chamber of Commerce and Industry luncheon.

In an e-mail, Klein did not say whether the omission was intentional, but said her presentation at the Urban Land Institute’s Economic Development Trends panel included the governor’s desire for “immediate job creation tax incentives.” She didn’t say whether those incentives would differ from Brewer’s initial enterprise zone plans, but she hinted at changes.

“We are refining what form those take for inclusion in the competitiveness package, so that they are successful both at the Legislature and in the marketplace,” Klein wrote.

A source familiar with the negotiations over the competitiveness package said Brewer is likely to replace her enterprise zone proposal with new or expanded tax incentives.

Pearce said he thinks Klein’s omission is a sign that Brewer is willing to sacrifice the enterprise zone expansion.

“She knows it’s a tough issue, so I think so,” he said.

On Feb. 2, Brewer said she is still pushing for enterprise zone expansion, and said she has not heard much opposition to the plan.

“I feel that we’ve got support on both sides of the mall here, and I look forward to hearing their problems or their issues, if there are any,” Brewer told the Arizona Capitol Times. “No one has really talked to me in regards to not supporting it.”

Brewer would not comment on Pearce’s vocal opposition, and said she thinks she and the Senate president are mostly in agreement on an economic development package.

“We’ve been meeting regularly and we seem to be on the same page. We want the best thing for Arizona and we will continue working toward that direction,” she said.

Senate Appropriations Chairman Andy Biggs said he has concerns about the enterprise zones, as well as the Commerce Authority. And he said he’s far from the only one.

“I think there’s some tough sledding in the caucus about enterprise zones,” the Gilbert Republican said.

Biggs said he wasn’t familiar with the negotiations among Adams, Brewer and Pearce. But he said Brewer will have to alleviate concerns that the Commerce Authority and the enterprise zones will play favorites with certain types of businesses, and he added that it will be difficult to get both items through the Senate.

“Depending on how they’re structured,” Biggs said, “they both might get through. But my suspicion is there’s enough distaste for both of them that it’s going to take a lot of give-and-take to get something out of there that will fly.”

Supporters of the enterprise zones aren’t giving up hope. Barry Broome, the president and CEO of the Greater Phoenix Economic Council, said he isn’t convinced that Brewer is abandoning her enterprise zone proposal, and said the GPEC will fight for it.

“I have not heard from the governor, but we’ve been around the state Capitol long enough to know that political discussions lead to political solutions,” Broome said. “I think the governor wants to see a statewide economic development tool that drives capital and jobs. Whether she can get concurrence on the leadership is another issue. If she can’t get that, then that’s how it’s going down.”

Broome said Arizona’s enterprise zone is outdated and ineffective. He said he hopes Brewer will use GPEC’s Invest Arizona plan as the outline for her enterprise zone program.

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