Local leaders balk as lawmaker seeks cuts to job creation fund

An influential Portland-area legislator thinks local and regional governments are owed too much money from state income taxes collected as part of their economic development efforts.

State Sen. Ginny Burdick, who represents Southwest Portland and parts of Washington County, wants the 2013 Legislature to reconsider how the state repays cities, counties and special districts that waive their property taxes to attract new jobs.

The state has not made any such payments yet because of a possible legal glitch in the program created by the 2007 Oregon Legislature. Called Gain Share, it requires that 50 percent of the state income taxes generated by new jobs that qualify for the program be sent back to the local and regional governments.

Burdick says the potential cost is more than the Legislature estimated, however. She believes the distribution formula should be PAMPLIN MEDIA GROUP: CHASE ALLGOOD - Portland-area State Sen. Ginny Burdick thinks the state owes Washington County governments too much money for their economic development work in support of Intel's D1X fabrication plant and other job-creating projects.

“When the state is facing financial shortfalls, we have to be careful how we spend our money,” says Burdick, who chairs the State Senate Interim Finance and Revenue Committee.

But Washington County Chair Andy Duyck argues that the state should send even more money back to local and regional governments that waive their property taxes. The state owes governments in Washington County about $12 million for job-creating investments made by the Intel Corp. and Genentech, a major pharmaceutical company that brought a plant to the county several years ago.

That’s a small fraction of the property taxes that have been waived so far.

“I would agree that the Gain Share program — a bold step taken by the Legislature in 2007 — should be evaluated,” says Duyck. “This is the type of effort we should be proud of and expand. Specifically, given the scale of investments local governments make to attract quality businesses to Oregon relative to the state’s investment, we want to discuss increasing our share of the income taxes generated.”

Although the state might not have received additional income taxes if the local and regional governments did not waive their property taxes, Burdick says the money owed Washington County governments is far more than expected. She points to a revenue impact statement prepared for the 2007 Legislature that estimated the Gain Share program would cost the state only $4.5 million during the 2011-13 biennium.

“It’s like the Business Energy Tax Credit program that got out of control,” Burdick says. “It was estimated at $14 million in the first year and turned out to be $300 million, and we were heavily criticized for that.”

Burdick’s committee has scheduled a hearing on Gain Share Sept. 14 in Salem.

Bipartisan support

Gain Share is part of the state’s Strategic Investment Program, created by the 1993 Legislature as an important economic development tool. Under the program, local governments agreed to exempt a portion of large capital investments from property taxes to attract new job-creating investments by businesses that sell products outside the state. Project thresholds start at $100 million in urban areas and $25 million in rural areas. The property tax exemptions last for 15 years.

Since the Strategic Investment Program was created, companies have invested more than $48 billion in qualified projects. In addition to the projects in Hillsboro, they include a paper product-manufacturing project in Clatsop County and wind-energy projects in Sherman and Union counties.

According to the most recently published figures, companies have used the program to save more than $542 million in property taxes while still paying more than $196 million to the local governments in lieu of the taxes.

Gain Share was created in 2007 to share the benefits of the investments with the local and regional governments that were foregoing property taxes to encourage them. The bill that created it enjoyed overwhelming bipartisan support. The final version of Senate Bill 954 passed the state Senate on a 20-5 vote. It passed the Oregon House on a 47-1 vote. (Some members of both chambers did not vote on the issue.)

“Gain Share was intended to address a question of fairness among state and local governments involved in these partnerships,” Duyck says. “How much property taxes have citizens in these Oregon counties foregone to generate how much income tax for the state?”

Not a handout

Since Gain Share was created, Intel and Genentech have invested more than $41 billion in Hillsboro under the Strategic Investment Program. To encourage them, local and regional governments in Washington County have waived more than $486 million in property taxes. Of that amount, nearly $35 million in property taxes were waived for Gain Share-qualified projects.

The state owes Washington County about $12 million as its share of the additional income taxes generated by the projects. The county will split the money with Hillsboro, several special districts, Metro and the Port of Portland.

But the money has not yet arrived. According to Michael Jordan, state chief executive officer and director of the Department of Administrative Services, lawyers with Oregon’s Department of Justice think the law that created Gain Share might not authorize the state Department of Revenue to process the payment. Jordan says he and other officials are researching whether the 2013 Legislature has to amend the law for the payments to proceed.

“We should know within a few weeks if we can make the payments or if a legislative fix is required. If we can make the payments, we will,” says Jordan, a former Metro executive.

The situation does not please Washington County officials.

“We’re not asking for a handout,” says Duyck. “We entered into a partnership with the state, we upheld our end of the bargain and we expect them to do so, too.”

County officials are also questioning the explanation for the delay, noting the Gain Share legislation was thoroughly reviewed by committees in both the Oregon House and state Senate. It also was reviewed by the state agencies involved in the fund transfer, including DAS, where a Shared Services Fund was created to facilitate the transfer.

The county already has dedicated $4.5 million of the funds to one-time projects in its current budget. The projects will either have to be funded from other sources or canceled if the payment is delayed much longer.

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