Oregon implements SIP program

Electronic News, March 24, 1997 by Stuart Sandler

"We learned a lot from Oregon's Strategic Investment Program (SIP)," says Bob Levin of the State of Washington's Columbia River Economic Council, a group involved in a major way in attracting the $1.2 billion WaferTech wafer foundry to an industrial park in Camas, Washington. "It's the benchmark."

The SIP is designed for businesses making new investments of more than $500 million to, among other things, take advantage of significant property tax breaks over the next 15 years. In return, the company is expected to provide considerable employment opportunities for local workers and to drive the development of educational programs in the area that will produce a cadre of future employees.

But philosophical questions arise: Should state government provide such tax breaks to industry or be involved at all in such private enterprise decisions? Are property tax breaks the best answer? Each locality answers such questions differently.

In Newberg, Ore., proposed site of Sumitomo's $900 million wafer manufacturing plant in 1996, the answer was an unqualified "What's going on here?" According to Ann Pesola, from the Newberg Chamber of Commerce, everything was in place for the plant to be sited after months of resistance from both citizens and public officials alike. Opposition groups had objected to the plant's intended water supply and to the increased traffic the plant would have supposedly brought to this rural area, located about 30 miles southwest of Portland. There were complaints about the $7.50 entry-level wages as being too low. Yamhill County officials opposed tax breaks for the plant and refused to approve county participation in the SIP.

And then, Ms. Pesola describes, after months of wrangling, "Sumitomo decided to go ahead, even without tax incentives. They still were even willing to work with our local college and high schools to get students ready for the labor force." Yet, only days after county commissioners finally gave their approval, Sumitomo pulled out, headed for Phoenix, in Southern Oregon.

"Another appeal had been filed," says Ms. Pesola, which could have strung out the situation for months, "and Sumitomo felt they had lost their window of time here." In the end, she thinks, the proposed wages weren't low, water wasn't scarce, and traffic wasn't a problem. "Our community saw this huge organization coming in and they were afraid of it. So they said no."

Enthusiastic Courting

Gresham, Ore., however, with $23 million in property tax abatement over 15 years as a bargaining chip, enthusiastically courted Fujitsu and its proposed 445 new jobs for low-income workers.

Located just on the eastern outskirts of Portland, Gresham and Fujitsu set all kinds of programs in place. Oregon's SIP requires that companies fund targeted social programs with 25 percent of what they would have paid in taxes.

A grant to the Portland Development Commission promised more jobs to the underemployed; a deal with the local community college was to create a new, state of the art chip-making training center; there would be scholarships and an improved science curriculum, all centered around Fujitsu-oriented technical skills. Multnomah County and Gresham each contributed $50,000 to open an employee training center, based on what they considered a done deal.

Fujitsu Pulls Out

And then, the bottom fell out--specifically, Fujitsu's bottom line. Without warning, Fujitsu executive Dick Romano informed Multnomah County officials that Fujitsu was pulling out. The memory chip business had slumped dramatically in 1996 and Fujitsu had decided to roll back its planned expansion.

To Mr. Romano, it all seemed simple. "No jobs," he said, "no tax abatements." But Gresham and the county would have to severely curtail all the lofty plans built around this agreement, and for Multnomah County Commissioner Tanya Collier, "That's not OK. . . . A deal's a deal." Discussions between Fujitsu and Multnomah County and Gresham are continuing, with some accommodation reportedly still possible.

But, although LSI Logic, a California-based semiconductor company, is still committed to their SIP agreement in Gresham, the situation has left considerable distrust and lingering questions about relying on private industry commitments to public benefits.

Just across the Columbia River, in Camas, Washington, apparently, no such discord exists. WaferTech's fabrication facility is proceeding right on schedule for 1998 production, and, says Mr. Levin, public support still runs high. Also, they've had the benefit of going to school on Oregon's experience in the creation of their incentive program. Washington eliminates state taxes on a manufacturer's machinery and equipment purchases as well as their installation labor, maintenance and repair. Washington has both a sales and a property tax, but offers breaks only on the sales tax, which includes machines and labor. Oregon does not have a sales tax, and does offer companies breaks on its property tax.

"We thought the SIP inadvertently discriminates against existing employers as well as against potential small manufacturers," Mr. Levin says. "You still see plenty capital investment here. But, we have no $500 million threshold; there's no threshold at all. If you invest $500 million, you qualify. If you invest $5,000 on a new widget machine, you qualify." Manufacturers in Washington State no longer have to come up with an additional 7.6 percent tax on their means of production.