SHERWOOD, OREGON — Tax incentives are the primary tool municipalities use to attract new businesses and encourage redevelopment and job creation.
The City of Mount Vernon offers a Community Reinvestment Area, Enterprise Zones, and TIFs (Tax Increment Financing).
The Village of Fredericktown and Liberty and Wayne townships have EZ abatements. Clinton Township has a TIF.
According to a growth strategy report the Knox County Area Development Foundation commissioned last year, Knox County has $3.6 billion in unmet demand for services.
Unmet demand represents in dollars the demand for products or services that local businesses cannot supply. It is often called “leakage” because these dollars are going to, or leaking into, other counties.
One tool the ADF uses to recruit companies that can fill this unmet demand is incentives.
“The secret to incentives is that the company is held accountable to the potential loss of benefits if they don’t perform what they say they’re going to do,” ADF President Jeff Gottke said.
The largest incentive the state has ever offered is the $2 billion Intel package. With the tech giant facing financial challenges, many wonder whether the taxpayers will be on the hook for the grants and infrastructure investment.
The Cato Institute sounds a cautionary note about subsidies in general and Intel in particular, including the significance of clawbacks if the company does not meet performance projections.
Washington County, Oregon, Commissioner Roy Rogers knows firsthand what a deal with Intel involves. A commissioner since 1985, he helped negotiate Strategic Investment Programs (SIPs) with the tech giant.
His experience offers lessons for local officials navigating the “art of the deal” with companies interested in making Knox County their home, whether it is an Intel supplier company or a retailer.
Paying ‘full freight’
Rogers will step down as commissioner in 2025. For 40 years, he has represented District 3, which includes the City of Sherwood.
Rogers’ community service began in 1975, one year after Intel broke ground on its first Oregon facility. A year later, Intel opened the Aloha fab about 12 miles from Sherwood.
By the time he became a commissioner in 1985, Intel had opened two more campuses in Hillsboro.
Rogers represented the county in negotiating several SIP agreements with Intel.
Oregon assesses a personal property tax on business equipment but not TVs, stoves, or other equipment individuals might buy. The millage is the same as one would pay on a house or business property.
Oregon also assesses personal property taxes on buildings and land for businesses and individuals.
Under the SIPs, the county waived the taxes on equipment but required the tech company to pay the building and land taxes.
“I think they were surprised at our sophistication. We weren’t unsophisticated; we understood what we were doing,” Rogers said. “We said, if you are looking for tax breaks in terms of the equipment assessment, we can live with that.”
However, he said his negotiating team believed that if people paid “full freight” — full property taxes on buildings and land — then Intel should, too.
That, Rogers said, was a surprise to Intel.
“I think at first there were some gulps, but after that, they appreciated our candor and looked at it and said that’s something we can do,” he said.
Fears of nixing the deal
Although Rogers and his team took a firm stand, some had doubts.
“I can recall a couple of conversations with our side. They said, ‘Roy, you’re going to nix this deal. This is a corporation,’” Rogers said.
“And I said in my entire career in county government, I’ve always believed everything is a business deal. It has to be fair to the public, and it has to be fair to business.”
Rogers’ philosophy is “if you don’t ask, you don’t get.”
“If you go in there and say what can I do to roll over because you’re so nice to come to my community, you’re probably not going to be happy at the end of the day,” he said.
“But if you go in and say we have to have certain things as a community, they’ll say we understand, how do we work together?”
Rogers likened Intel to the anchor stores that arrive first in a shopping center.
“The anchor would come in and everybody filled in, but you had to give a little bit of a break to the anchor to get them in. And they (Intel) were the anchor for Washington County,” he explained.
In negotiating with Intel, Washington County wanted to ensure it could claw back incentives if the company did not fulfill its promises.
“Lots of promises and low-level jobs is not what we want to give tax breaks for,” he said.
According to Rogers, Intel’s promises were “exceeded in multiple,” bringing high-level jobs in all cases.
“Once they understand that … you have your boundaries and you’re not going to dance around, and they have their boundaries and we understood those, we came to a conclusion real quick,” Rogers said.
Gain share
As Intel developed through the years, Rogers said Oregon governors would note how great the company was for the state.
“We’d have to politely say to the best of our ability, ‘It’s good for you because you get the income taxes. We lose the [equipment] property taxes,’” Rogers said.
Because Washington County was paying for roads, schools, water, sewer, and fire districts, county officials felt the state should share some of the gain Intel brought to the state through income taxes. They called this idea “gain share.”
“We had to have some mechanism because we don’t have a mechanism to pay for the large influx of folks who needed those services,” Rogers explained. “We just didn’t have a way to do it, and so that helped us accomplish that.”
However, he said getting the state to live up to its promise to gain share has been challenging.
As the number of salaries and employees rose, the state began to feel it was sharing too much money.
“Instead of saying congratulations, we’re all winning, they wanted to phase it out,” Rogers said.
“We’ve had to fight like banshees to keep that money coming. It’s always at risk of disappearing because they have other needs and they kind of forget.”
The art of the deal: Cornerstones
Intel’s economic impact on Oregon is about $19.3 billion. Rogers said that as much money as Intel brought in terms of economic development and growth, “you have to be prepared for what it looks like afterward.”
That involves the cornerstones of diversity, sustainability, and balance.
Are we ready for diversity?
Rogers said much of Intel’s work in Washington County involves research and development. That means a diverse workforce from Southeast Asia, the Middle East, and other parts of the world.
“The talent, we might think it’s down the block, but it’s not. It’s worldwide,” he said.
He noted students in a school north of his District 3 speak 100 languages.
Is it sustainable?
Washington County Commissioner Katheryn Herrington said that at one point, 50% of the income tax came back to the county as part of the gain share program.
Because Intel’s growth and the SIP generated more income tax than projected, the state clawed back some of the shared income tax revenue.
“They put a cap on how much comes back to the local taxing districts. Now we only get $9 million total [for all companies.]”
However, the county gets a community service fee, guaranteed annual payment, and a fee-in-lieu from Intel based on when and how much Intel expands.
“It is a way for local governments to still get revenue … but they are sporadic,” she said of the payments.
When Knox County officials negotiate incentive deals, Herrington recommends creating a stable funding source.
Is it a balanced economy?
Although Rogers said he respects Detroit, MI, it rises and falls based on the auto industry.
“We didn’t want to be that way, so we said Intel will be one of our cornerstones, but it won’t be the only corner,” he explained. “So we said, how do we diversify? We wanted to make certain that we were robust in the array of industries we had.”
County officials looked at biomedical, hospitality, sportswear, and other industries that created jobs, not robots running factories. Columbia Sportswear, Nike, Comcast, and Lam Research, along with Intel, rank among the county’s top five employers.
In addition to the cornerstones, Rogers said residents must get a fair deal.
Regarding Intel, he said, “In the end it was a fair deal, and it remains that way.”