Some legislative committees are focused on subsidizing every kind of business development imaginable—and some beyond imagining. Much of TFO’s focus in the second half of February has been countering the rush to give away our tax base.
We testified on Enterprise Zones, Gain Share, Regionally Significant Industrial Sites (RSIS) and research tax credits in four committees. The load has limited our bandwidth to work on amendments for flawed bills.
Reviving the R&D credit is the rage, despite all evidence that it has no effect on recipients’ behavior. As we have testified in Senate Finance and the Joint Semiconductor Committee (and as ally Oregon Center for Public Policy has written and testified), Washington and Oregon killed their R&D credit—and remain first and fourth among states measured by research spending as a share of GDP. Arizona, which the business lobby points to as the model Oregon should follow, has lost ground despite increasing its state subsidies. In fact, their standing among states for research dropped from 14th to 21st place in the decade after they increased their R&D tax credits by 4%.
A revived R&D credit, in any form, would cost Oregon’s General Fund tens if not hundreds of millions of dollars and benefit fewer than 200 businesses.
If you attend a town hall or write a note to your legislators, ask them which states got boosts in R&D after they enacted R&D tax credits. We’ve been unable to discern any relationship. Big, small, none—credits don’t appear to matter.
Other bills would subsidize preparing farmland for industrial development. When a homebuilder buys 100 acres, puts in all the infrastructure (grading, water, sewer, utilities, roads, sidewalks, lights), it recovers its costs in the price of the homes. Industrial developers recovered costs the same way through the 1990s. For example, Washington County’s Westmark Business Park was developed on former farmland in 1997 and filled by 2015 with its businesses having borne all infrastructure costs.
But today there are two ways businesses avoid the cost. In one the property taxes of the new businesses are diverted from cities, counties, schools and libraries to pay for industry’s infrastructure as farmland now gets Urban Renewal Zone status. In another program, Regionally Significant Industrial Sites (RSIS), 50% of the income taxes of the new businesses’ employees are returned to the developer. In meetings and testimony, we’ve asked: Why are we absorbing the costs of getting the property shovel-ready when businesses purchase (or lease) property? Why is the public paying when they buy homes, and again when they arrive at work?
The new model for getting the public to pay is clear in the Hillsboro Technology Park which sits on 822 acres of former farmland. It is zoned for industrial development and inside the Urban Growth Boundary. It is in an Enterprise Zone, an Urban Renewal Zone, and under a contract for a RSIS subsidy.
We want businesses themselves to pay for infrastructure, not their employees, whose tax payments otherwise pay for the services they require as county residents.
And then there’s Enterprise Zones. The Oregonian has published a series explaining how the state subsidizes Amazon facilities (that compete with local businesses) and Washington County data centers. But when Amazon wanted to build its massive structure just west of I-5, Woodburn didn’t give it a property tax exemption and insisted that the business make road and other infrastructure improvements with its own money. Guess what? The retail Goliath went ahead, without subsidies, because it needs to be close to its customers.
In a 2022 report (p. viii) commissioned by Business Oregon, Long Term Rural Enterprise Zones (LTREZ) have had a poor return on investment. But legislators (most of them Democrats) introduced seven bills to extend E-Zones without changes. Only one bill, based on our recommendations, would make any changes. The others all extend the 3-5 year and the 15 year Enterprise Zones without changes, some with extensions until 12 years from now!
And then there’s Gain Share, that unique idea out of Hillsboro that because they’ve given up property taxes for Intel, Genentech and others they should be rewarded with 50% of the income taxes of the new employees at the businesses. Nevermind that 32% of the property taxes they choose to give up are essentially state money because of the way the funding formula works for K-12, Community Colleges and ESDs. Gain Share too is facing a sunset. We offered legislators a chart showing that many communities are collecting in fees and taxes most of what they would get from the businesses they didn’t offer SIP property tax breaks. We testified that Gain Share doesn’t make sense but at least should see changes if they don’t choose to just let it disappear.