Strategic Investment Program Policy Review Proposed 2014 Strategic Investment Program (SIP) Agreement

Size: px

Start display at page:

Download "Strategic Investment Program Policy Review Proposed 2014 Strategic Investment Program (SIP) Agreement"

Christal Mitchell
6 years ago
Views:

1 Strategic Investment Program Policy Review Proposed 2014 Strategic Investment Program (SIP) Agreement The following staff report is a review of the proposed 2014 SIP Agreement based on Evaluation Criteria in the County s adopted SIP Retention Policy. Relevant parts of the policy are in italics under each major section of the policy. A. Is the Tax Exemption Needed to Retain Jobs? Is the property tax exemption needed to retain jobs? Will the tax exemption make a major contribution to keeping the company competitive in the global marketplace? What impact will the investment have on retaining the firm in the County and positioning the firm for long term viability in its line of business? Does this investment ensure that the firm will maintain a long term presence in the County? Will the tax exemption clearly result in the retention of jobs in the future that might otherwise not be retained? Many factors enter into a major corporate site investment decision, including: land cost and availability; availability and/or the ability to attract a quality labor pool; utility costs, availability and reliability; adequate transportation to and from suppliers and markets; local infrastructure and quality of life; synergy with existing suppliers and collaborators; and, of course, local and state taxes and fees. To determine whether the SIP tax abatement is necessary to attract and retain the proposed future investment (beyond the clear statements of the applicant to that end), it is necessary to determine that: Property taxes, under the state and local property tax system, would materially affect the economics of the proposed investment to the point that it would likely go to an area that would provide more favorable treatment, and The applicant has access to reduced taxes in other potential site locations. 1

2 It is clear that Intel must continue to make significant investment in new technologies in order to maintain its position as the premier developer and manufacturer of microprocessor technologies. Intel s estimates of the level of future technology investments dwarfs the company s previous investment made in Washington County and is unique among all Oregon companies, if not the entire country. As evidence of the escalating costs of technology investment necessary to remain the premier developer in the industry, Intel s investment under the 1999 SIP was $12.5 billion. The 2005 SIP allows for a $25 billion investment that is likely to be made by 2016, and the proposed 2014 SIP agreement contemplates $100 billion in investment. As Intel states in an opening letter to Washington County, A new agreement will provide a framework for potential additional Intel investment in Oregon... commencing when the current SIP agreement approaches the limits of its investment ceiling. As Intel s research presence in Oregon grows, the associated investments have risen faster than anticipated. A new agreement is necessary in order to enable that ongoing investment. Historically, the market for investments of this type has focused primarily on sites in the United States, including operations in Oregon, California, New Mexico, Massachusetts and Arizona. However, the company has also invested in operations abroad in Israel and Ireland. Staff has reviewed the tax structures in other states in previous site selection processes, including the aforementioned sites. Although difficult to make an apples to apples comparison, it is readily apparent that other viable locations in the United States offer incentives, programs and tax structures that appear to be more favorable than the incentives offered in Washington County. As for the sites abroad, the government incentives and involvement in projects of this magnitude are so extensive that it appears unreasonable to attempt to compare or compete with those foreign sites. 2

3 For purposes of this section of the report, staff has concluded the following: An investment of this magnitude ($100 billion) is clearly a leading investment in microprocessor technology in the global marketplace and thus, would be highly sought after globally with other sites potentially offering packages of incentives well beyond those offered by Washington County. Although financial incentives (partial tax abatement in the case of Washington County) are an important and necessary element to Intel s future site investment decisions, the company has made significant investments in Washington County through several prior SIPs and this SIP would build on the investment and infrastructure currently existing in Washington County. The proposed 2014 SIP appears to offer adequate flexibility and incentive to retain major investment in future technology here in Washington County. The proposed investment of $100 billion, facilitated by the 2014 SIP, would provide considerable assurance (but no guarantee) that Intel will continue to have a major presence in Washington County. Intel officials believe future investment of this magnitude in Washington County will keep Intel competitive in world markets and will greatly increase the likelihood that Oregon will continue to be a major design, development and manufacturing center for the corporation. The staff conclusion is Intel would not proceed with an investment of this scale in Washington County without the proposed SIP. Although the current presence in Washington County would likely continue into the near future without the proposed SIP, over time Washington County would cease to be a major technology center for Intel and the quantity and quality of jobs and economic impacts would decline. 3

4 B. Nature of the Retained Jobs How many jobs will be created or retained, both now and in the future? What types of jobs are they: what do they pay? How many new or retained jobs will be part of such program? A minimum of 50% of retained jobs should be permanent and pay at or above the average covered wage in Washington County Firm must provide industry standard benefits to permanent employees What training programs will the firm implement for job retention? The proposed 2014 SIP agreement would pave the way for future investment in Washington county with the expected result of retaining existing positions in Oregon and Washington County, as well as a conservative estimate of 500 additional jobs over 30 years. Based on Intel s application to Business Oregon for the 2014 SIP and the Annual Employment Report, dated April 17, 2014, estimated average annual salary for the retained and newly created jobs is $140,954. The estimated average Intel wage is over three times the average gross personal income in Oregon. The average total compensation, including discretionary fringe benefits, is reported to be $184,578; which suggests that discretionary fringe benefits average $43,624, or over 30% of annual salary. C. Employee Residence Patterns Where do employees holding retained jobs live? How many of the retained employees and replacement hires for potential vacancies will be Washington County residents? How many are residents of the Portland and Metro area? What efforts will the firm make to hire locally? The County s goal is that new and replacement employees be Washington County residents or, secondly, current residents of the Portland metropolitan area. The ECONorthwest Economic Impact Study of Intel s Oregon Operations analysis, completed in 2012, found that over 12,000 (>70%) of Intel employees live in Washington County and well over 90% live in the Portland Metro area. As with previous SIP agreements, the proposed 2014 SIP requires Intel to enter into a first 4

5 source agreement to ensure employment opportunities for qualified local residents. D. Economic Impact/Multiplier What will be the multiplier effect of the project on the County s economy? What jobs will be retained, and what potential new jobs will be created by supplier firms? The County may develop its own economic impact report. The impact of Intel s current operations on the Washington County, Portland Metro and the State of Oregon s economy is profound. As the largest private employer in the State of Oregon, Intel currently employs over 17,500 employees in the State. The ECONorthwest Economic Impact Study completed in 2012 found that for every direct job at Intel, 3.1 indirect and induced jobs are created statewide. The following are additional excerpts from the 2012 Economic Impact Study: 16,500 Intel employees in Oregon as of Jobs created statewide for every direct Intel job multiplier effect 67,579 Total jobs attributed to Intel statewide $26.7 billion Total economic impact of Intel in 2012 $136 million Property tax revenue generated by Intel in 2012 $192 million Personal state income tax revenue generated by Intel in 2012 Portland Metro: o 9.2% of jobs due to Intel o 6.1% of personal income due to Intel Washington County: o 16.7% of jobs due to Intel o 25.2% of personal income due to Intel The multiplier effect of 3.1 jobs created for each direct Intel job appears to be relatively consistent over time and is expected to continue to have a similar impact under the 2014 SIP. Although the conservative estimate of 500 new jobs 5

6 over the 2014 SIP is a modest increase relative to past SIP s, the impact on the local and State economy is immense. In addition to the new jobs created, the proposed SIP would likely retain the estimated 67,579 jobs attributed to Intel statewide. E. Balance of Community Benefit and Tax Advantage Are the benefits the community will receive from the project generally reasonable in light of the benefits the firm will receive in terms of taxes avoided? Oregon s current tax system was not designed with Intel and other high tech manufacturing companies in mind. The Oregon system levies the full property tax rate on industrial personal property machinery and equipment. This system, applied in most all industrial cases, does not generate gross inequities. However, when applied to the extraordinarily high level of investment in high tech machinery and equipment necessary in this particular case, it yields gross inequities. As an example, the $100 billion dollar investment proposed in the 2014 SIP is over 10 times the assessed value of the entire City of Hillsboro or about twice the assessed value of Washington County. The Legislature recognized this when it created the Strategic Investment Program in While the SIP is applied on a case by case basis, it is similar to the broadly applied forest and farming alternate tax structures that recognize the unique nature of the target industry and offer an alternative tax structure. Should the proposed 2014 SIP agreement be approved, Intel would continue to pay a fee on its land and buildings at a rate proportionate to those made by every other business in Washington County. The alternative tax approach applies to Intel s investment in chip making and research and development equipment, which costs billions of dollars to create and can become obsolete after two to four years. This approach would help continue Intel s level of investment in Washington County and retain existing jobs as well as generate new jobs. It would also continue to generate property tax, fees and income tax for city, school, county and state services. 6

7 Perhaps the greatest benefit of the agreement is that by extending partial tax abatement via the 2014 SIP agreement, it would bring a large measure of stability to the tax environment out into the future. That predictability increases Oregon s competitive advantage for cutting edge technology enterprises. Finally, taxes avoided is largely theoretical. The applicant has been very clear, and stated on numerous occasions, that the existing property tax code, unaltered by programs like the SIP, would preclude future investment of anywhere near the scale contemplated in the proposal. Therefore, the argument of taxes avoided appears to be irrelevant, in that it is highly unlikely an investment of this magnitude would be made without addressing the inequities of the current tax system as it applies to this unique situation. F. Economic or Social Conditions Are there any economic or social conditions that would make a project more or less desirable at the time it is proposed (for example high unemployment, recent layoffs, etc.)? The focus of the SIP structure is to ensure that existing jobs are maintained, opportunities for advancement exist, and that any significant growth will be accompanied by appropriate infrastructure investment. The project is desirable in that it provides additional revenues to local and state jurisdictions without requiring significant additional investment in infrastructure or public services given the modest estimated increase in new employment. Accordingly, the significant benefit of the proposal is to continue to bring a large measure of stability to the local economy, mitigating the effects of a recession in Washington County. That is what, in fact, Washington County experienced during the great recession when Intel continued to invest and build new infrastructure. Stability is key to maintaining a sustainable local economy for the large and small firms that serve Intel directly, as well as those that serve the workforce of approximately 17,500. 7

8 G. Measurable Benefits Are the benefits provided by the project easily measurable? Will the firm agree to include those benefits as obligations in an agreement between the firm and the County? Will the firm agree to monitor and recapture provisions in the agreement? Community benefits from a proposed project of this magnitude can include economic, social, cultural and fiscal benefits. The economic benefits are readily measurable and discussed in section D. The social benefits through civic involvement and charitable giving are covered in section I. This section focuses on the fiscal benefits (payments to local jurisdictions) of the proposed SIP agreement. Much attention was paid in the development of the proposal to insulating the County and local jurisdictions from the uncertain nature of the future investment volatility. While Intel has a relatively high level of confidence in the order of magnitude of future investment required, evidenced by their consistent investment performance under several previous SIPs, the timing and phasing of investment packages is speculative. This uncertainty on County finances is mitigated by several factors: Fees previously applied to SIPs in total would now apply to each investment package identified under the proposed 2014 SIP A guaranteed annual payment of $2.87 million will be made, regardless of amount and timing of investment, as long as a partial tax abatement is extended. A Fee in Lieu is calculated on each investment package which would require Intel to pay an amount equal to what otherwise would be taxed on land and building or, in the case of an investment package of only machinery and equipment investment, a fee on the cumulative investment. All the information required to measure the investment and assessed value underlying Intel s fiscal obligations to the County is statutorily required to be 8

9 provided and there is a long standing track record of timely and adequate reporting. The structure of these payments is incorporated into the proposed agreement, providing appropriate sanctions, including in some cases revocation of the tax exemption and recapture of taxes, if Intel fails to meet its obligations under the agreement. H. Public Service Impacts What will be the public service impacts i.e., police, fire, schools capacity, roads) associated with the projects? The proposed 2014 SIP is characterized as a job retention project and is not expected to result in significant additional public service impacts. Public service impacts largely result from increased employment. The 2014 SIP project does not anticipate significant impact inducing events in that there is not anticipated to be significant job growth. I. Corporate Citizenship Is the firm a corporate citizen in good standing in Washington County Does the firm participate positively in community programs, volunteer and civic organizations? Is the firm active in assisting the County, other municipalities and civic organizations in bettering the lives of Washington County and Oregon residents? Intel has a long standing record as a positive corporate citizen in Washington County. Intel is a significant contributor to Washington County, regional, and statewide charities, nonprofits, and schools. The following charitable contributions are reported in the ECONorthwest 2012 Economic Impact Study of Intel s Oregon operations: Year Washington County Portland Metro Oregon 2010 $1,751,034 $5,924,656 $6,666, $1,806,316 $6,055,489 $6,792, $1,894,328 $6,238,426 $7,276,701 9

The Economic Impact of Allergan

The Economic Impact of Allergan Tom Kelly, Ph.D. Baylor Center for Business & Economic Research January 2016 Table of Contents Executive Summary... Introduction... Regional Input-Output Models... Economic