A Struggling Green Manufacturing Sector Causes Oregon to Retool Tax Incentives

May 8, 2013

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The state of Oregon boasts many great opportunities for manufacturers: Friendly legislation and tax breaks, fairly inexpensive land (compared to other states), and a level of corporate taxes that aren't too burdensome.

Oregon's attitude toward business and manufacturers has led to major corporations like Nike, Adidas, and Intel deciding to do business there, along with major solar companies like SolarWorld and SoloPower.

But Business Oregon, the economic development agency of the state, feels like it's losing ground to states like California when it comes to attracting businesses, and even though manufacturing accounts for the largest share of the stats' gross domestic product (GDP), the agency is trying to do more.

And instead of trying to attract more renewable energy manufacturers, Business Oregon is casting a wider net.

It might have something to do with the fact that two major solar companies located in the state are in big trouble; according to The Oregonian, the state's largest newspaper, SoloPower shut down its Portland factory on April 21, despite having received a $20 million tax credit from Business Oregon.

Another solar company, SolarWorld, is also facing possible layoffs as the German-based company sees its stock plummet.

"I think we really need to make changes to our approach because what we were doing had pretty much run its course," said Tim McCabe, the director of Business Oregon. "A large part of our economy is built on green industry, but with the solar and wind industries in a little bit of turmoil, we wanted to address other sectors of manufacturing as well.

A look at the Nike headquarters in Beaverton; Nike is one company that Business Oregon has convinced to keep its expansion plans in-state. Credit:OregonLive.com

A look at the Nike headquarters in Beaverton; Nike is one company that Business Oregon has convinced to keep its expansion plans in-state. Credit: OregonLive.com

"We had targeted solar in 2006, and we saw it as a growth industry," McCabe said. "And it's still a viable industry, but we think it needs to sort itself out and see who's standing, and in the meantime we focus on manufacturing as a whole."

McCabe added that another reason to expand the manufacturing program beyond solar is that, "quite simply, we haven't had much interest from any new solar companies wanting to come into the state in recent years."

Some of the changes to Business Oregon's proposal, called the Oregon Manufacturing Initiative, are:

  • Extending eligibility to all manufacturers looking to expand or locate in Oregon, not just those in renewable energy.
  • Limiting companies to one credit worth as much as $10 million -- instead of two credits that max out at $40 million -- and capping the total amount of tax credits to $100 million every two years, versus the $200 million now.
Other parts of Business Oregon's manufacturing initiative, enacted in 2006, have not changed: Companies can still use their tax credits to offset corporate income taxes, or can alternatively sell them to taxpayers at a discount.

To get the credits, though, manufacturers must meet certain conditions over a five-year time period, which include wage and employment benchmarks.

The new initiative began being discussed in the Oregon state legislature last week, and several lawmakers I spoke with felt confident it would have a good chance of passing.

The wage issue is one that McCabe feels strongly about; he said that stage figures show the average worker in Oregon earns $43,694 per year, while the average manufacturing sector job employee earns $62,000 per year.

So by boosting the manufacturing sector and offering incentives, the idea is to create more high-paying jobs, something that appeals to legislators on both sides of the aisle.

Additionally, under this new initiative, to qualify for the tax credits employers will need to pay 150 percent of the state average, meaning a salary of $65,000.

"We're talking about any kind of manufacturing industry, from high tech to making wood products, primary metals, whatever," McCabe said. "We're becoming a major home of activewear companies as well."

I asked McCabe about why the amount of tax credits would now be capped at $100 million, reducing by half the amount currently available.

"We want the state to realize an ROI (return on investment) within five years, and we thought this was the most feasible way to go about it," McCabe said. "We talked to some legislators and they agreed this was the best plan to get the (initiative) passed."

"We wanted to downsize everything."

State Senator Mark Haas, a Democrat, firmly supports the new Manufacturing Initiative and said his state "is lagging behind the national average and we've got to do something to bring the impact up."

Hass said part of Oregon's problem was the BETC (Business Energy Tax Credit) program, which greatly expanded in 2007 and doled out more than $100 million in tax credits to manufacturers, some of whom, like SoloPower, were unable to succeed even with the financial backing of the state. The new version of the BETC will apply to all manufacturers and industries.

"We got scorched with the BETC, quite honestly," Hass said. "It was questionable spending and questionable tax credits, and I think we as a state government learned our lesson there.

"I think the new plan will change things to key industries, as opposed to just green industries, but it also includes industries like forestry and green apparel; there's still a lot of clean industry here that helps drive the state's economy."

Hass didn't want to speculate as to which industries will most take advantage of Oregon's revised plan, but pointed to Nike's recent decision to add more than 500 new jobs in the state as proof that major corporations are willing to stay in-state.

"They were in play for a few months and were looking at other states," Hass said. "I mean, we saw what the state of Washington was doing for them (to get their expansion), and it was incredible. "States have a choice these days; they can give themselves some tools to be successful, or they can watch companies go to one of your neighbors. We're trying to give ourselves some tools."

But Oregon isn't just trying to protect what it has in Oregon; it's also, like most other states, trying to poach companies from elsewhere.

State Rep. Tobias Read, another Democrat, told The Oregonian that attracting outside businesses is a major goal of the initiative. "We are looking at opportunities to have manufacturers that fit with Oregon's competitive advantage and hire Oregon workers," he said.

Hass and McCabe both said they were feeling optimistic about the "re-branding" of Oregon's manufacturing incentive policy passing, but Hass did sound a note of caution when asked how far the state was willing to go to lure business.

The idea is to boost jobs in the state," Hass said. "Most states are in the same boat, and there's a happy medium there that we're trying to find. "I've been on revenue committees for 12 years, and the question usually comes back to, 'where's the sweet spot between giving incentives and giving away the store, fiscally? We're trying to find that spot like everyone else is."

Whether Oregon is able to lure new businesses with this new program remains to be seen, but McCabe and Hass are right about one thing: It truly is an "arms race" between all 50 states to see who can give businesses the most incentive to come play.

And at some point, as states offer incentive after incentive, you have to wonder if taxpayers who don't see a flood of new high-paying jobs throw up their hands and say "enough" to the state legislators.

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