Accountable USA - Oregon

Corporate income tax credits and other tax-based subsidies that Oregon initially used to attract high-tech manufacturers have proliferated over the past three decades.  In its 2010 report about tax expenditure accountability and transparency, OSPIRG estimated that economic development tax expenditures would total at least $357 million during the 2009-2011 biennium.  The report stated that “of the 56 income tax subsidies created by the Oregon Legislature that corporations benefit from, 48 have been created since 1980; 36 of those since 1990.”  Taxes paid by corporations now contribute less than 7 percent of the state’s general revenues.

The Strategic Investment Program (SIP) was enacted in the early 1990s to encourage expansion in the state by major employers such as Intel, which later in the decade got a $200 million SIP deal for an enlargement of its chip fabrication plant outside Portland (see below).  SIP was also used to provide over $100 million in tax subsidies to LSI Logic, another semiconductor manufacturer (see below).  Yet another SIP recipient, Hynix Semiconductor, received a $66 million property tax abatement in 1998, only to close the plant 10 years later, laying off over 1,000 workers. The program's job creation requirement has been incrementally lowered to allow small employers to qualify. 

The currently inactive but still costly Business Energy Tax Credit program (BETC, pronounced “Betsy”) has proven to be a true budget nightmare. Oregon has no sales tax, so the loss of income taxes is especially costly.  Its ballooning cost – nearly $150 million over the 2009-2011 biennium (companies are allowed to sell the credits to each other) – was a major contributor to Oregon’s declining general fund revenues in 2010.  Future BETC commitments made during the current biennium could cost as much as $500 million. After the issue was publicized by Tax Fairness Oregon, the ensuing controversy caused the state to restructure the program by splitting it into three separate subsidies and dramatically reducing the credit pool.  Rules for the new programs are still in development.  The Oregon Department of Energy began disclosing BETC recipients after the publication of Good Jobs First’s study Show Us the Subsidies in March 2011.

Revenues have also been depressed by the state’s enactment of Single Sales Factor, which drastically reduced some major corporations’ income taxes (those with a lot of employees or property in the state but selling to national markets).  Other major tax subsidies in Oregon are the Research Tax Credit and the Oregon Production Investment Fund tax credit.  The state also administers a workforce training fund.

In 2011 the state created a webpage with recipient disclosure for several tax credit programs, including BETC and the Production Investment Fund.

Key Subsidy Programs

Subsidy Program Recent Annual
Cost
Online Recipient
Disclosure
Recipient Disclosure
Score
Job-Creation/
Job-Quality Score**
Monitoring/
Enforcement Score***

Enterprise Zone Program

various exemptions from state and local taxes including total exemption from the property taxes normally assessed on new plant and equipment, for a specified amount of time

$22.5 million (FY2014)
40/100
not included
not included

Oregon Investment Advantage

businesses setting up new operations may annually deduct or subtract taxable income related to those operations from state income tax responsiblity

$1.5 million (FY2014)
55/100
not included
not included

Qualified Research Tax Credit

corporate income tax credits based on increased R&D expenditures

$6.3 million (FY2014)
0/100
10/100
38/100

Renewable Resource Equipment Manufacturing Facilities (BETC)

a tax credit of 50 percent of eligible costs, up to a maximum of $40 million for manufacturers in the renewable energy industry

$30.5 million (FY2014)
30/100
38/100

Strategic Investment Program

exempts a portion of capital investments from property taxes for large manufacturing and high-tech companies

$177.7 million (FY2014)
67/100
13/100
39/100

* The score is derived from the Good Jobs First report Show Us the Subsidized Jobs (January 2014).

** The score is derived from the Good Jobs First report Money for Something (December 2011).

*** The score is derived from the Good Jobs First report Money-Back Guarantees for Taxpayers (January 2012).

Major Subsidy Deals

Intel (1999)

In January 1999 Intel announced plans to spend $12 billion on an expansion of its semiconductor operations in Oregon, but the company made it clear that the investment was contingent on receiving a huge property tax abatement. Actually, Intel was demanding an extension of tax breaks it previously received in the state, where its manufacturing operations dated back to 1974. Those breaks were enabled by the state’s Strategic Investment Program, which was adopted in 1993 with Intel in mind. In June 1999, Washington County commissioners approved the deal, which was estimated to reduce Intel’s property tax bill by $200 million over 15 years.

In an unusual move, the county, concerned about overdevelopment and sprawl, required Intel to pay a “growth impact fee” of $1,000 for each new manufacturing job created in excess of 1,000, on top of the 4,000 production positions it already had in the area. (The fee was abolished in 2003.) In 2005 Intel persuaded the county to extend the property tax break to 2025, locking in an estimated $579 million in additional savings. Regarding the two other largest taxes companies normally pay: Intel very likely gained a substantial reduction—perhaps to a negligible minimum—in corporate income taxes when Oregon adopted a Single Sales Factor system in the early 2000s; and the state has no sales tax, so its purchase of building materials and equipment was sales tax-free. (Key sources)

LSI Logic (1995)

In June 1995 semiconductor producer LSI Logic announced plans for a sprawling campus with up to six microchip fabrication plants in the Portland suburb of Gresham. The first phase alone, the company told The Oregonian, would employ 400 people and cost $600 million to $800 million. LSI made it clear that the project was contingent on receiving a 15-year property tax abatement under the state’s new Strategic Investment Program. Within a few weeks the company was saying that it would invest $4 billion and create 2,000 jobs – if it got a tax break worth an estimated $113 million. Multnomah County went along with the idea after LSI agreed to return 25 percent of its tax savings in the form of community service fees and make other concessions such as local hiring. A month later, the company said it would add a 600-worker research & development operation to its Gresham complex.

By 2000 LSI’s workforce in Gresham surpassed 800, and the subsidy deal was deemed a success by public officials. Two years later, however, the company announced that a downturn in the chip industry would force it to eliminate more than 200 jobs in Gresham as part of a sharp reduction in its companywide workforce. Over the next few years the job reductions continued, and in 2005 LSI announced that it intended to divest the Gresham operation as part of a plan to outsource its manufacturing.

In 2006 the plant was sold to ON Semiconductor for $105 million. The new owner retained LSI’s workforce, which by that time was down to about 500. The state gave ON Semiconductor a $1.5 million forgivable loan, and despite furloughs by the company in 2009, the city gave it a $420,000 property tax abatement in 2010. The tax break was made contingent on meeting investment and employment goals and paying community service fees. (Key sources)

Walmart in Oregon

  • At least 1 Wal-Mart location has received subsidies worth about $2.5 million in Oregon.
  • At least 2 Wal-Mart locations in Oregon have challenged their property tax assessment.
  • Many Wal-Mart workers are ineligible for health coverage from their employer or choose not to purchase what is available, because it is too expensive or too limited in scope. These workers often turn to taxpayer-funded health programs such as Medicaid. Oregon is among those states that have not disclosed data on the employers with the most workers or their dependents enrolled in such programs.

For more information, see the Oregon page of Wal-Mart Subsidy Watch.