By DAVID R. ROTH and PATRICK STORY
Tax Fairness Oregon
In the recent Legislative session, Tax Fairness Oregon worked hard in support of HB 4142, the “Rural SIP Bill.” It would have closed a nasty tax loophole and made it easier for rural communities along I-5, I-84 and US 97 to compete with the Portland Metro area for large business investments.
HB 4142 passed the House with bipartisan support (48 ayes, 9 nays, 3 excused). However, it was much harder going in the Senate, where the Republican Caucus finally leaned against it.
“SIP” refers to Oregon’s Strategic Investment Plan for recruiting highly desirable industries. To qualify, an industrial development must be large, at least $25 million for a Rural SIP and $100 million for an Urban SIP. The minimum rural investment is set low to make it easier to attract strategic investments to rural communities.
The SIP incentive is this: Property taxes are waived for 15 years on assessed value over the minimum investment. A rural investment of $125 million would receive a property tax waiver on $100 million ($125 million - $25 million = $100 million). An urban investment of $125 million would receive a property tax waiver on $25 million ($125 million - $100 million = $25 million).
What’s wrong with a state program that benefits rural communities? Nothing, unless rural benefits are going to urban communities. Because of a twist in the SIP law, about 5,000 acres of urban land in the Portland metro area are treated as rural, because those acres were considered rural back in 2002. They’re no longer considered rural for land-use planning purposes, but the SIP program still treats them as rural because of that 2002 date in the law.
As a result, the Rural SIP makes some strategic urban investments much more profitable, since taxes will be paid on only $25 million, rather than $100 million of property. For example, Genentech, located in Hillsboro, will pay about $20 million less in taxes over 15 years because it got a Rural SIP rather than an Urban SIP.
As a watchdog group, our mission is to protect Oregon’s tax laws from unwarranted tax breaks and other abuses that waste taxes and give advantages to wealthy and powerful interests.
Years before we learned about the twist in the SIP law, we fought successfully in the Legislature to bring an end to excessive tax breaks for wind power and other alternative energy projects under the Business Energy Tax Credit. The state now requires that all state tax credit programs have a “Sunset” date. When that date arrives, the tax credit must end unless the Legislature determines that it deserves to continue. That Sunset review gives watchdogs like us regular opportunities to question the effectiveness and the fairness of tax giveaways.
When we learned of the 2002 date in the SIP, we knew it would pervert the law. It violates the original intention — that new urban investments would get tax breaks, but not breaks as deep as rural investments, in order to encourage new development in rural communities.
To restore the original intention of the Rural SIP, HB 4142 would have replaced the fixed SIP date with the date of each application for the tax incentive. That would mean that the current land-use status of a piece of property would determine whether it qualified for a Rural Sip or an Urban Sip, not its land-use status as of 2002.
A Republican representative from a rural county helpfully advised us that the misuse of the Rural Sip mainly affected rural communities along major highways (I-5, I-84, and US 97). So we concentrated our lobbying on Republican senators in districts along those highways, and they saw how unfair it was for a tax benefit designed for their counties to be available in the Portland metro area.
One Republican senator from a very rural district gave us an ironic response. He didn’t see any reason to eliminate the twist in the Rural Sip because none of his constituents had complained to him about it. That’s ironic because it reveals the very reason that tax breaks are so insidious — they are largely hidden in the tax code. That’s why the Senator wasn’t hearing from his constituents.
If these were regular budgetary expenditures, they’d be voted on every two years, so the press and the lobbyists would call more attention to them. HB 4142 never got a floor vote in the Senate — the Republican Caucus decided not to support it.
If your senator is Republican you might ask him or her, “Why did the Caucus oppose HB 4142?” If voters in rural counties let their senators know they want the Rural SIP to be returned to rural Oregon, then we’re optimistic about the chances of passing it in the next session.