Washington County sees $25 million deal as a biotech beachhead

Washington County's Board of Commissioners and the Hillsboro City Council unanimously approved Tuesday a $25.95 million tax deal for Genentech Inc., a San Francisco biotechnology company that plans to build a packaging facility in Hillsboro later this year.

Genentech, which posted revenue of $6.6 billion last year, is seen as a pioneer in its industry and is considered by its peers to be a top-rated place for employees to work.

The tax deal approved by the county officials gives the company a 15-year exemption from real property taxes on local assets totaling more than $25 million. The exemption is capped at $250 million.

The deal was structured under the state's Strategic Investment Program (SIP), an incentive local governments can offer to exceptionally large industrial projects.

Although the company's plans for its Hillsboro packaging facility - described by one critic as 'basically a bottling facility' - are not grandiose, the tax relief was granted in large part because the commissioners hope it'll launch the county into the lucrative biotechnology industry.

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

Indeed, the expectations are high. During the two-hour public hearing held Tuesday, both county officials and prominent business leaders repeatedly compared Genentech to Intel Corp., which opened its first plant in Aloha more than 20 years ago and since has become the state's largest private employer with 17,000 workers, most of them in Washington County.

Genentech is 'the Intel of our time,' Jonathan Schlueter, executive director of the Westside Economic Alliance, a business advocacy group, said Tuesday.

'We took a chance and invested (in Intel),' said County Commissioner Roy Rogers. 'We are looking at Genentech in the same fashion.'

Even Intel jumped on the bandwagon.

'We may be creating our next new galaxy,' said Jonathan Williams, a spokesman representing Intel, referring to the cluster of high-tech firms that have located in the county as a result of the presence of the semi-conductor manufacturer.

Frozen assets

Genentech's new facility will be on about 25 acres of vacant land near the intersection of Shute and Evergreen roads in Hillsboro. The company plans to break ground in December and is expected to have the facility constructed by 2008. It plans to be licensed and operating by 2010.

The building, technically called by the company a 'Fill/Finish' facility will be a 'lean manufacturing' facility, said Barry Starkman, its director of operations.

Drugs developed in San Francisco will be shipped in bulk by semi-truck to Hillsboro. Once here, the drugs, which will be frozen, will be thawed and filled into the containers that will be delivered to patients.

The packaged products will likely be air-shipped from Hillsboro to their final destination, Starkman said.

The company plans to hire and train between 200 and 300 employees, many of them locally. Salaries will range between $35,000 and $75,000, county officials said.

Under the terms of the tax deal negotiated between the local government agencies and the company, Genentech's nearly $26 million tax break is, in practice, 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.

As a result, county officials crafted this deal, as they have 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.

'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.

About half of the money Genentech will pay, known as a community service fee, will be distributed in half-million dollar increments to the county each year of the agreement.

Those payments will be distributed between the general funds of 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 $6.8 million in incentives.

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 work force.

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

Scale questioned

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

Sheketoff did not testify at the public hearing on Tuesday - nor did anyone else testify against the county's approving the tax break.

Sheketoff said he didn't think he'd change many minds by testifying, but, in a phone interview, he said he did have concerns about the size of the proposed project versus the amount of the tax break.

'The city and the county ought to be concerned with what they are giving up,' Sheketoff said, adding that his concern stems from the fact that the deal brings in only several hundred new jobs. He also was skeptical that the facility would 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. And he pointed out that Genentech bought more land than it needs - about 100 acres total. He sees promise in that decision, although company representatives have been careful to say they have no plans right now to build more than what they've proposed.

'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.'

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