TFO had an extraordinary week: we testified FOR three bills. So in this report, we’ll set aside all the cockamamie proposals we’ve spoke against and celebrate the alignment of the stars. Three items on the proactive agenda we set at the beginning of the session had hearings.
Strategic Investment Program reform
Since the 2022 session, we’ve been studying the SIP, along with other property-tax abatement agreements that localities can offer in exchange for the promise of jobs and economic development. The SIP program, enacted in 1993, was aimed at “traded sector” businesses—generally manufacturers that produce goods for national and world markets. Think Intel’s chip plants. SIPs have saved businesses billions of dollars in taxes and fees. In recent years they’ve been used by wind farms, solar farms, data centers and big wholesale distributors that may or may not employ many people. The program has never had serious review.
We began urging reform with legislators last summer. House Revenue Committee Chair Nancy Nathanson and committee Republican Greg Smith introduced a bill, HB 3457, that would limit the SIP’s largess. Smith works as an economic development official in eastern Oregon and has first-hand experience with the agreements—and their use among companies that site operations near the Columbia for its wind, power, land and water. The tax breaks are gravy that don’t influence their location decisions, except when their negotiators pit counties against each other.
The tax breaks also harm K-12 schools statewide. Because of the school funding equalization formula, the state General Fund backfills property-tax abatements that reduce funding for school districts, and that reduces funding to other districts that don’t provide abatements. We’re robbing Peter to pay Paul. Our allies include teachers and other school employees who have watched funding decline for decades.
HB 3457 (and amendments expected) reflects points we’ve made. It would reduce the cost of property-tax abatements, projected to be more than $700 million in the next biennium, by raising the threshold values of the business equipment upon which the abatements are based. It would also index them for inflation.
Opportunity Zones “disconnect”
House Revenue also heard HB 3039, the Opportunity Zone bill TFO initiated in 2020. A watered-down version of the bill died on the floor when GOP leader Christine Drazan led her caucus walkout, ending the legislative session.
Under the bill, Oregonians would be required to pay income tax on their capital gains that are exempt from federal tax. Local development officials, anxious to entice real estate projects, have been confused by the jargon used to describe the bill, and they conveyed their confusion to Salem. Tax wonks call it a “disconnect” from federal law, and the supporters of O Zones either don’t understand what that means—or they exploit misunderstanding of what it means—in arguing that Oregon will lose investments if the state’s taxpayers are denied state tax breaks.
That’s not how O Zone markets work. The out-of-state investors who put money in our projects don’t pay Oregon taxes. And because 99 out of 100 O Zones are in other states (8,764 nationwide, 86 in Oregon), it’s reasonable to assume that most Oregon investors are putting most of their money in other states. Requiring them to pay state taxes would have a vanishingly small effect on projects in Oregon. All taxpayers get the federal breaks. We think the legislature has better uses for $50 million a biennium than handing out subsidies to the 1% for fancy hotels and office buildings in downtown Portland (or LA or Phoenix).
In 2020, when House Revenue held a hearing on the same bill, opponents said they “believed” it would hurt the state. Belief is not evidence. If you’re into evidence, read or watch our testimony, which begins at the 8:30 mark of the committee video.
Opportunity Grants are the state version of Pell Grants for low-income college students. The program was initiated years ago. In 2018, the Revenue committees approved an addition to the funding, most of which is provided by the Ways and Means Committee through the regular appropriations process. The addition is a $14-million-per-year auction of tax credits, administered by the Department of Revenue.
In the 2022 session, we testified that the auctions were a wasteful way to finance programs, because the tax-credit buyers siphon a portion of the expenditure. Back then, we were talking about the auction that finances subsidies that the Oregon Film gives to producers of movies and TV shows. The Opportunity Grants auction works the same way. Over the past four years, the auctions have taken $3.7 million of the $56 million intended for students and given it to the auction winners.
SB 129, introduced as a routine matter at the start of the session, would extend the Opportunity Grants auction through 2029. We showed legislators that the auctions are a dumb way to fund a program, and the Senate Education Committee agreed, voting 6-0 to end them as of 12/31/2022. The Joint Committee on Tax Expenditures heard the amended bill Friday morning, capping our unusual week. TFO was the only witness. We’re hopeful the bill will sail to the governor’s desk.
We don’t anticipate another week like it, but we enjoyed our pause from being Debbie Downer.