Paul and Intel Investors - <Intel and Washington Co. Oregon strike property tax relief deal>
oregonlive.com
Intel, county strike deal on tax
A proposal would give the chip-maker a tax break and promise millions for Washington County
Thursday, May 27, 1999
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By Don Hamilton and Elisa Williams of The Oregonian staff
HILLSBORO -- Washington County and Intel Corp. exchanged multimillion-dollar promises Wednesday in a tentative deal that would guarantee the county $28.9 million in fees even if the world's largest chip-maker never spends another dime in Hillsboro.
In exchange, Intel could shave as much as $200 million off its property tax bill on $12.5 billion worth of equipment and plant upgrades planned during the next 15 years.
Even with such a tax break, Intel's annual payments to Washington County would increase from $12 million in 1998 to an average of $19.3 million a year -- the largest of any taxpayer in the Silicon Forest.
Intel Tax Relief
Intel gets:
• An initial cap of $100 million on the taxable value of $12.5 billion in capital investments during the next 15 years.
• The ability to make major equipment upgrades without big fluctuations in its property tax bill.
Washington County gets:
• $110 million in taxes, community service fees and other payments over 15 years, including a guaranteed $29 million even if Intel does nothing.
• The opportunity to ease service shortfalls that the county says are caused by Measure 47 and Measure 50, two tax-limiting reforms.
Taxpayers will see:
• No property tax increases caused by the program.
• No significant increase in Intel jobs, which means no additional demands on government services such as schools, roads and police.
What's next:
• Community forum hosted by the county and Intel, 7:30 p.m. June 9 in the Public Services Building cafeteria, 155 N. First Ave., Hillsboro.
• Public hearing, 6:30 p.m. June 15 in the Public Services Building cafeteria. This session of the Washington County Board of Commissioners will include the Hillsboro City Council and is the earliest meeting at which the commissioners could vote to ratify the agreement.
Without the program, Intel said its investments in Oregon would dwindle because the company's property taxes would be too high.
The agreement comes after 12 weeks of haggling as Intel sought its third contract under the state's Strategic Investment Program. The program enables local governments to set an initial $100 million cap on the taxable value of a new project and charge a fee equal to 25 percent of the tax savings, as much as $2 million a year.
If the Board of County Commissioners approves the agreement, which could come up for a vote as early as June 15, the county expects to receive an additional $110 million during the next 15 years in taxes and fees. No decisions have been made about how the county would spend the fees from Intel.
If approved, Intel's tax savings wouldn't raise taxes for other property owners.
"The goal is to retain 11,000 jobs by Intel in Washington County. That really is the overarching achievement. That's how we will be judged 15 years from now," said Charles D. Cameron, Washington County administrator and a member of the negotiating team.
Intel already has two of the four existing contracts under the state's Strategic Investment Program.
The new agreement would set a number of precedents for the investment program, which was designed to ease the property tax burden on companies that make huge capital investments.
The county secured financial guarantees that are twice what the program requires.
The Strategic Investment Program originally was designed to create jobs. But in this application, Intel has agreed to pay additional fees if employment grows too quickly. The company, which is the state's largest manufacturer, employs about 11,000 people in Washington County. With the future spending, Intel expects to create fewer than 1,000 new jobs during the next 15 years. If it exceeds that figure, it must pay an impact fee of $1,000 per additional employee per year.
"Frankly, had this been a proposal to add 5,000 jobs, I doubt we could consider it because of the impact and the concerns of the community," said Tom Brian, chairman of the county board and head of the county's negotiating team.
Intel expects to spend $1.1 billion in the first two years under the agreement. In the following three to five years, it expects to spend about $1.7 billion. The balance of about $9.7 billion probably would be spent during the final years of the agreement.
The deal is designed to ease Intel's tax burden on manufacturing equipment that costs millions of dollars but lasts only a couple of years. The agreement would not cover any new buildings, which would be taxed like any other building in Washington County. In Oregon, property taxes are levied on machines and equipment along with buildings and land.
"I was very positive on the outcome and the process," said Steve Grant, an Intel plant manager who helped negotiate the deal. "It gives us a long-term horizon. We know how the taxes will be treated."
Intel, based in Santa Clara, Calif., makes the chips that run 85 percent of the world's personal computers. Predicting spending several years into the future is difficult, Grant said.
The $12.5 billion Intel plans to spend in Oregon during the next 15 years represents about a quarter of the company's capital spending, industry analysts say. Intel is the chip industry's largest spender by far.
Intel faces a complex but favorable political climate in its bid for three votes from the five county commissioners. Brian favors the plan, as does Commissioner Roy Rogers, also a member of the county team that negotiated the deal. Kim Katsion has not made up her mind.
Commissioner Delna Jones plans to abstain because she owns stock in Intel valued at more than $1,000, meaning state ethics laws consider her to be associated with the company.
But that could change. Under an exception in state law, Jones could vote to break a tie if her vote "is necessary to meet a requirement of a minimum number of votes to take official action."
Commissioner Andy Duyck, who opposed Intel's application in 1994 and planned to oppose the company request this year, has had a change of heart. Duyck, owner of a Forest Grove machine shop, said he has changed his mind several times during county negotiations with Intel. But Wednesday, he said he planned to vote for the Intel request, although only if his were the deciding vote.
"I believe it's in the best interest of Washington County," he said.
If it would pass without his support, however, he would vote against it as a protest against the tax system. The Intel application, he said, illustrates an unfair system in which a big industry gets tax breaks unavailable to the little guy.
"If you wrote a bill giving special treatment to each business with an end result where everyone was treated fairly, I wouldn't have a problem," Duyck said. "But we're choosing certain industries and neglecting others. There's no relief for the average small business that's still capital-intensive."
Some of Intel's peers question the program.
"They've got an immense economic club that they're wielding," said William Perrill, chief financial officer and treasurer for Komatsu Silicon America Inc., another Hillsboro high-tech company. "Will they really pull out? Who knows, but they do have options."
Still undecided is how the money would be allocated. Intel's two 1994 applications under the Strategic Investment Program call for payments of $22.6 million over 15 years in community service fees. But the county also is receiving $4.2 million in fees negotiated above what's required by state law.
If the request is approved, Washington County would receive $7.3 million a year. But it may not all wind up in county coffers. Local schools could receive some, as could the city of Hillsboro.
No decisions are needed for a while, though. The county probably won't receive its first payment from Intel until December 2000. |
