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Washington County ready to give Genentech big tax break

New Hillsboro plant expected to be 'magnet' for biotech firms

Washington County's Board of Commissioners is set to give the biotechnology firm Genenetch Inc. a $26 million, 15-year tax break in exchange for several hundred new jobs and the promise of a future in the lucrative biotechnology industry, said Tom Brian, the board's chairman.

'If you were to name one company in the world that you could choose to be a magnet, Genentech would be it,' Brian said.

The San Francisco firm is seen as a pioneer in the biotechnology industry and is the producer of cancer-treating pharmaceuticals.

Genentech, which posted revenue of $6.6 billion last year, plans to break ground on a packaging facility in Hillsboro in December, contingent on the commissioners' approval of the tax relief, as well as that of the Hillsboro City Council.

Those officials have scheduled a public hearing and vote this evening in Hillsboro.

The tax break was negotiated under the state's Strategic Investment Program (SIP), an incentive local governments can offer to exceptionally large industrial projects. Under the program, property taxes are assessed only on the first $25 million of the company's assets.

Brian said that barring any surprises in the public's testimony, he expects the agreement to be approved.

'We've reached a conclusion that this is a very good company,' he said Monday.

Under the terms of the SIP agreement, Genentech would get a 15-year exemption from real property taxes on local assets totaling more than $25 million. The exemption is capped at $250 million.

Company will pay fees

In practice, Genentech's tax break is only on its high-tech equipment.

Local officials, in Washington County and elsewhere, have long complained that Oregon's tax on industrial machinery and other business equipment makes it hard to lure companies that must constantly upgrade facilities.

'The county's policy all along has been that the primary purpose of the SIP program is to help address the fact that the state's personal property tax tends to penalize companies that spend a lot of money on specialized or expensive equipment,' said County Counsel Dan Olsen.

As a result, county officials crafted this deal, as they did previous SIP agreements with Intel Corp., to require Genentech to return to the county a sum of money equal to the taxes it would pay on its land and building throughout the life of the SIP agreement.

In Genentech's case, that comes to roughly $15.1 million.

About half of the money, known as a community service fee, would be distributed in half-million dollar increments to the county each year of the agreement. Those payments are discretionary funds that the commissioners could spend as they liked.

Most likely, Brian said, those funds would be distributed between the county and taxing districts inside the city of Hillsboro according to an agreement still to be negotiated between the governments.

The other half of the $15.1 million is broken down into increasing yearly payments pegged to estimates the county made on what the company's land and building taxes would be.

Genentech is getting some help with the fee. The Department of Transportation is sending $1 million directly to the county to use for street and road improvements related to the construction of Genentech's new facility. And, in a last-minute deal, the Department of Energy agreed to give Genentech a $2 million tax credit to make up for a discrepancy in the state's calculation of the expected cost of the SIP agreement with the county.

In all, the state is offering about $6 million in incentives.

County gets flexible funds

While the collection method means the commissioners would have more discretion over the money's use than they would if it were actual property tax money, it is expected to be spent in much the same way. The money will go to the county's general fund, Brian said, to be used to balance the county's budget in upcoming years.

'We have not gone out for a basic services tax levy in 14 years,' Brian said. '(This agreement) is going to help the county put off that much longer any consideration of a general property tax increase.'

The agreement offers no special designation for any of the funding to go toward schools - the lack of such a designation was a criticism of the county's approval of the last SIP agreement with Intel Corp, in 2005.

In that agreement, Intel said it planned to invest $25 billion more in its local facilities and workforce.

At an expected investment of $250 million, the Genentech agreement, in comparison, is one one-hundredth the size.

Scale of project questioned

That bothers Chuck Sheketoff, executive director of the Oregon Center for Public Policy.

'The city and the county ought to be concerned with what they are giving up,' Sheketoff said, adding that Genentech is proposing to bring only 200-300 new jobs and that its new facility would not likely draw the cluster of companies the commissioners hope for.

'It's really, basically, a bottling plant,' Sheketoff said. 'It's not an engineering facility or a design facility.'

Brian, however, countered that the jobs are for 'regular folks' who will be trained and who will end up making more money than they are now. The jobs are expected to range in salaries from $35,000 to $75,000, Brian said.

And, he said, he sees promise in the fact that the company has bought more land than it needs (about 100 acres compared to the 40 or so it plans to build on.

'Intel's first SIP was essentially for assembly line manufacturing,' Brian said. 'Once it got up and rolling, it added to that and brought its research here. This is a long term view.'

Brian also said he believes Oregon's property tax system is outdated and unfairly taxes companies who need specialized equipment. The property tax that the county officials are giving up is property tax they won't get without the SIP agreement.

'I am absolutely and firmly convinced that Genentech would not come to Oregon without this tax break,' Brian said.