Processor and semiconductor giant Intel Corp. entered a Strategic Investment Program Agreement Aug. 11 with Washington County, Oregon’s second-largest county, located just outside Portland, the Portland Business Journal reports. The agreement is loaded with property tax incentives to ensure that Intel continues to invest in manufacturing and developing technologies in the state. While county officials have not announced how much Intel will save through the agreement, one estimate put it at $2 billion. The deal must still be approved by the county and Hillsboro City at an Aug. 26 meeting, reports the Oregonian.
The deal is the latest example of Oregon’s use of its Strategic Investment Program (SIP), which was enacted in 1993 to encourage cities and counties to retain major industries and attract investment and employment. SIP agreements generally limit property taxes for a specific taxpayer. In return, the taxpayer typically pays a community service fee in lieu of property taxes. Intel has previously entered SIP agreements with Washington County and the city of Hillsboro, most recently in 2005.
To qualify for the program, projects must be approved by the Oregon Business Development Commission, must directly benefit a specific industry, and the total cost of the project must exceed $100 million—an amount Intel exceeds 1,000 times over.
Intel’s current SIP takes it up a notch, both in terms of amount and duration. The new agreement provides that Intel will invest up to $100 billion in the state over a 30-year period, and cites the accelerating cost of research and development of new technologies as the reason for its huge investment. The $100 billion will go mostly to investments in semiconductor manufacturing and developing new semiconductor technology—the agreement prohibits the investments from going to other areas like new business groups or product marketing.
Although Oregon has Intel locked in for the long haul, it may not reap the benefits of the SIP for a while—Intel has 10 years from the start of the agreement to make its first portion of the $100 billion investment. Once it does invest, each payment Intel makes will be eligible for a 15-year partial tax exemption, and the first $100 million is fully taxable (plus 3 percent each year for annual growth). Any investments made after year 15 of the agreement will only get the partial exemption until the end of the 30-year period.
In exchange, Intel will make three separate types of payments. First, it will pay Washington County $2.87 million per year from 2025 through 2044, referred to as guaranteed annual payments. Intel will also make community service fee payments, which are 25 percent of the amount exempted from property tax for that year, up to $2 million per year. And a third yearly fee, called a fee in lieu of property taxes, must also be made based on a specific formula that considers the amount of the community service fee and is prorated based on how much of the $100 billion investment was made during that year. Importantly, Intel retains its right to challenge its assessed property values in the normal manner for other property owners throughout the agreement.
While Oregon and Intel are likely very happy with this deal, others may be skeptical that the deal will actually be beneficial for the state in the long term. Joseph Henchman, of the Tax Foundation, writes that analyzing the effectiveness of incentives is difficult, because they are often judged by ribbon-cutting ceremonies at the start rather than real results at the end. Henchman also tweeted Aug. 11, “Speaking on tax incentives, I told state legislators to STOP OFFERING THEM. But if you’re going to, evaluate them.” States should consider how they will measure the impact of an incentive agreement, how it fits into their broader tax policy, and whether they would spend the amount of money in the incentive program through an ordinary budget appropriation, Henchman adds.
Similarly, the Institute on Taxation and Economic Policy stated that tax incentives bring little benefit to states and localities, and are a “drag” on the national economy. The Institute noted that tax incentives are rarely the deciding factor in whether a taxpayer chooses to stay or locate to the jurisdiction offering the incentive—rather it serves as a windfall benefit for a company that already knows where it wants to be. Further, the money that goes toward the incentive takes away from what would otherwise contribute to improving public services—and if the incentive attracts lots of new employees to the state, that also means more services are needed, the report adds.
With Intel and Oregon celebrating their new agreement, the rest of us will have to wait until 2044 to see if the agreement constitutes good tax policy. But, perhaps the state did not worry about committing bad tax policy to ensure the continued presence of its largest private employer.
Continue the conversation on Bloomberg BNA’s State Tax Group’s LinkedIn page: Did Intel get too sweet of a deal? More broadly, should states move away from huge incentive programs for specific taxpayers?
Sign up for a free trial of the Bloomberg BNA Premier State Tax Library and see a detailed discussion on state property taxes.
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