PUBLIC HEARING HB 2505, HB 2652, HB 3183

 

TAPE 89, 90, 91, 92, A-B

 

HOUSE REVENUE COMMITTEE

MARCH 20, 2003   8:30 AM   STATE CAPITOL BUILDING

 

Members Present:                        Representative Lane Shetterly, Chair

                                                Representative Wayne Scott, Vice Chair

                                                Representative Joanne Verger, Vice Chair

                                                Representative Phil Barnhart

                                                Representative Vicki Berger

                                                Representative Pat Farr

                                                Representative Mark Hass

                                                Representative Elaine Hopson

                                                Representative Max Williams                                               

 

Witnesses Present:                        Holly Schroeder, Department of Environmental Quality

                                                John Ledger, Associated Oregon Industries (AOI)

                                                Mark Nelson, Oregon Metals Industry Council

                                                Doug Riggs, Pacwest Communications/Golden Northwest Aluminum

                                                Jean Wilkinson, Oregon Farm Bureau (OFB)

                                                Matt Blevins, Oregon Environmental Council

                                                Patrick Green, Oregon AFL-CIO and Oregon Revenue Coalition

                                                Charles Sauvie, National Association of Business Economics.

                                                Alan Thayer, Perrin & Thayer, LLP and AOI

                                                Joe Schweinhart, AOI

                                                Eric Blackledge, Blackledge Furniture

                                                Darrell Fuller, Oregon Small Business Coalition

                                                            Oregon Auto Dealers Association,

                                                Don Schellenberg, OFB

                                                Donald Cersovski, Grass Seed Grower

                                                Jason Williams, Taxpayer Association of Oregon

                                                Jim Haynes, Business Reputation Management Consultant

                                                Chuck Sheketoff, Oregon Center for Public Policy

                                                Laurie Wimmer Whelan, Oregon Education Association

                                                Gweneth Van Frank Carlson, General Contractor, Catalyst Works,

                                                            Support Oregon Services Alliance

                                                            Lane Independent Living Alliance

                                                Paul Phillips, Smart Growth Coalition and Pac West Communication

                                                Don Lance, Monaco Coach Corporation

                                                Eric Amos, Columbia Sportswear

                                                Al Logan, Nike

                                                Jim Craven, American Electronics Association

 

 

Staff Present:                            Paul Warner, Legislative Revenue Officer

                                                Lizbeth Martin-Mahar, Legislative Revenue Office

                                                Kathy Tooley, Committee Assistant

 

TAPE 89, SIDE A

004

Chair Shetterly

Calls meeting to order as a subcommittee at 8:43 a.m. until such time as a quorum was reached.

 

OPENED PUBLIC HEARING HB 2652

 

017

Lizbeth Martin-Mahar

Discussed background and revenue impact of HB 2652, (Exhibit 1).

 

051

Holly Schroeder

Testified against HB 2652, (Exhibit 2) as it pertains to the transfer from DEQ to Oregon Economic and Community Development Department (OECDD).

 

077

Chair Shetterly

Did you want to testify as to the tax credit information in your testimony?

 

079

Schroeder

The fact sheet is a basic summary of the tax credit describing eligibility requirements, type of facilities, cited technical nature of the credit.

 

086

Chair Shetterly

This is current as the legislative changes from the 2001 session?

 

088

Schroeder

Answered affirmatively.

 

084

Rep. Verger

Were you made aware earlier, that this thought process was going through a shifting from one department to another for the responsibility of pollution tax credit?

 

092

Schroeder

It has been discussed, not extensively. Appreciate the economic component of the tax credit law, due to expertise required to administer law, and the knowledge of environmental regulations required, should stay with DEQ.

 

103

Rep. Verger

Is the economic aspect the only reason for the transfer to your knowledge?

 

105

Schroeder

Answered affirmatively

 

160

John C. Ledger

Testified in support of HB 2652, provided history of tax credit. 

 

181

Chair

Do you know the number of applications that go to DEQ and OECDD?

 

182

Ledger

Answered no.  Support movement to OECDD for three reasons:  Programs go into a higher tier if going into an economically depressed area; OECDD supports the program; DEQ response to this program is less than enthusiastic.

 

206

Ledger

Discussed removal of sunset.

 

229

Ledger

Discussed change in percentage tiers.

 

258

Ledger

Discussed need for incentives to attract and maintain companies.

 

273

Chair Shetterly

Walk the Committee through elements that qualify an application for top tier.

 

288

Ledger

Discussed top tier qualifications.

 

327

Chair Shetterly

Applications falling under top tier would still be governed by DEQ?

 

332

Ledger

Answered affirmatively.

 

337

Chair Shetterly

(Section 4H), location within an enterprise zone, is strictly economic development, not environmental?

 

340

Ledger

Answered affirmatively.

 

352

Rep. Berger

Can you give a sense of how recent changes are working?

 

358

Ledger

Cites lack of incentives, new program disappears after 2003 and goes away after 2005.  Now using as an economic tool.

 

364

Rep. Barnhart

Does it make more sense to budget, rather than give a tax credit, targeting businesses to come to Oregon, rather than scattered approach to tax credit without controls that an expenditure item would receive?

 

392

Ledger

Depends on view of how market should work. Telling corporations that if they are willing to provide high wage jobs, Oregon will provide a tax credit, rather than establishing board and picking companies to come to Oregon.

 

435

Rep. Barnhart

A state administered program expending money in a targeted way, might expend fewer dollars over all, rather than this approach.

 

474

Ledger

The business community would be very concerned with state sponsored selection of companies welcomed to the state.  The credit is only used if make money, it’s self-regulating during a recession, state is not expending.  The credit offered as a promise if the company invests.

 

065

Chair Shetterly

The amount of the credit is applied against the particular qualified pollution control component, not total project, correct?

 

077

Ledger

Answered affirmatively.

 

079

Rep. Berger

How does the lower tier play out, for example a service station fixing a tank?

 

082

Ledger

Describes make up of tiers.

 

084

Mark Nelson

Testified in favor of HB 2652.  Discussed percentage reduction and sunsets in the bill.  Reiterated Ledger’s testimony on the need for movement to OECDD, certification should be retained by DEQ.  The program is effective in attracting business and encouraging environmental cleanup and controls.

 

140

Chair Shetterly

An enterprise zone does not go to DEQ, should the $200,000 category be exempt, does not have environmental judgment attached to it?

 

194

Nelson

Answered affirmatively.

 

196

Barnhart

Without certification from DEQ how do we know if it is a pollution device?

 

210

Edgar

In the rules, the applicant is required to have an audited certification for pollution control.

 

232

Doug Riggs

Spoke in favor of HB 2652.  Provided background and example of struggling aluminum company that would be impacted by the bill. Two issues:  Who would be on the government screening committee and would they be able to identify potential significant employers; second goal of the program is to provide incentive to invest in environmental and pollution control.

 

314

Rep. Hass

Supported program in the past, where does this rank in terms of tax breaks for economic development in the big picture with regards to research and development, and capital gains?  The state can’t afford to do all these things, is this the best bill to turn the economy around?

 

320

Nelson

This is a small piece, not a silver bullet.

 

341

Riggs

This bill is an important piece of the puzzle, provides incentives for a manufacturing company and helps the economy and environment.

 

336

Rep. Hass

Development is one of the most important things to do, but pales in comparison to economic disaster when chopping days off school, more Oregon pays for tax credits, more difficult to send economic development message that Oregon has good schools and strong quality of life, need to balance and do both.

 

367

Ledger

Oregon has had a huge loss of high paying union industrial jobs, and are not paying taxes to support schools any more.  Oregon not viewed as business friendly; this program doesn’t have a huge expenditure to it.

 

430

Chair Shetterly

Discussed need for balance.

 

445

Riggs

800 Steelworkers that are unemployed, would be paying taxes if could get operations started up.  This is a small factor to get them restarted.

 

 

TAPE 89, SIDE B

 

035

Jean Wilkinson

Senator Dave Nelson sponsored the -1 amendment at the request of the Oregon Farm Bureau (Exhibit 3).  Discussed relationship between agriculture and pollution control.

 

065

Chair Shetterly

Credit is directed at facilities, how do you attach a cost to that for the purpose of claiming a credit?

 

072

Wilkinson

If farmer feels they have a pollution issue, they go to the Soil and Water Conservation District and the NRCS field office for technical assistance and cost estimate.

 

Questions and discussion regarding biodigesters.

 

100

Matt Blevins

Spoke in opposition to HB 2652. It eliminates Section 6-10. and would significant budget impact (Exhibit 4). Urged committee members to review the evaluation in the Tax Expenditure Report.

 

208

Rep. Verger

Would you comment on the transfer to OECDD?

 

212

Blevins

Would oppose move from DEQ as there is expertise needed for evaluation.

 

224

Rep. Barnhart

This credit may impede corporations from using improved methods to control pollution as are used now, can you expand on that?

 

229

Blevins

It’s not that it impedes, but there are better ways to do it more effectively.

 

241

Chair Shetterly

Revenue impact in the Tax Expenditure Report is probably overstated.  Does not take into account the 2 tier approach in effect last session. It moves in the direction of creating an incentive to go above and beyond.

 

254

Blevins

Analysis is not sufficient, that is why changes to this program are premature

 

260

Patrick Green

Reiterated the testimony of Matt Blevins.  It should not move to OECDD. Where is the stimulus, where are the jobs?

 

300

Chair Shetterly

Closed the public hearing on HB 2652

 

OPENED PUBLIC HEARING ON HB 2505

 

308

Martin-Mahar

Provided background on HB 2505, (Exhibits 5-6).

 

348

Charles Sauvie

Spoke in favor of HB 2505, (Exhibit 7).

 

Questions and discussion regarding taxation of pension account transactions.

 

433

Alan Thayer

Spoke in favor of HB 2505, (Exhibit 8).  Passage of HB 2505 is critical to reduce negatively perceived capital gains tax. Described mail order retailers, order takers are located in Oregon, warehouses capital investments are in Nevada where taxes on inventories are less.  Discussed competition for business extends to other nations.  HB 2505 retains employers, attracts new capital investments; stimulates economic growth.

 

 

TAPE 90, SIDE B

 

073

Rep. Barnhart

Are there scientifically valid studies that would support your propositions, looking at potential losses of a third of a billion dollars in the future?

 

088

Thayer

Not scientific studies, but Joe Schweinhart will refer to Wall Street Journal article that shows the top 10 states that cut business taxes had tax revenues 27% higher than rest of the country; Oregon rated last.  State of New York is enticing companies with 157 eliminated or reduced taxes.

 

102

Rep. Barnhart

Where do you place this proposal vs. pollution tax credit proposal, or other proposals?  Not convinced this is the bill.

 

120

Thayer

Look at from a business owner’s perspective instead of legislator’s. Have to weigh pluses and minuses of doing business in Oregon vs. another state.

 

136

Rep. Farr

When fully rolled out we’ll be at 5%, where is Oregon vs. other states?

 

144

Schweinhart

Close to the middle, which we can live with.

 

149

 

 

 

 

 

 

265

 

270

 

Schweinhart

 

 

 

 

 

 

Schweinhart

 

Schweinhart

Spoke in support of HB 2505, (Exhibit 9).  Described benefits of the bill, provides incentives to grow. Capital gains one piece that needs changing and is a burden on seniors.  Discussed Oregon study by Dr. Roger Brenner. Parthenon Consulting Group, consumer confidence is powerful source in economy; profit and payroll taxes are major disincentives in economy; adverse tax climate encourages migration out of state.

 

Read for the record, people who support of this bill.

 

Discussed pollution control tax credits.

 

282

Chair Shetterly

Remembered Dr. Brenner’s presentation, he said our economist was undershooting his recovery projection.

 

287

 

303

 

305

Rep. Barnhart

 

Schweinhart

 

Rep. Barnhart

Do you disagree with the revenue impact statement on this bill?

 

Have not seen it.

 

It shows a huge reduction in tax revenues, would like comment from AOI because if true, the dynamic analysis of the tax receipts should show an increase in income.

 

310

Schweinhart

Will have some numbers from Legislative Revenue and will respond.

 

Discussion as to subjective nature of impacts and inadequate data.

 

348

Eric Blackledge

Spoke in support of HB 2505, (Exhibit 10), from two perspectives, as a small business owner; and from economic development perspective.

 

430

Darrell Fuller

Reiterated Blackledge’s comments in support of HB 2505, (Exhibit 11).  Discussed negative perception of Oregon as a place to do business, and the lack of incentive to invest in Oregon.

 

468

Don Schellenberg

Reiterated Blackledge’s comments. Discussed history of capital gains, need to be in sync with the federal government. OFB supports HB 2505.

 

 

TAPE 91, SIDE A

 

049

Don Cersovski

Spoke in support of 2505, (Exhibit 12) discussed importance of capital gains cuts to the family farmer.

 

083

Rep. Hass

After 1986 tax law, Oregon’s economy doubled.  The largest expansion was in the 1990s, with or without change in tax policy, capital gains tax is higher in California, and they attract business.  Does not believe capital gains should be taxed on inflation. There is no evidence that it will create new business or jobs in Oregon.

 

100

Schellenberg

Agree, not the argument. Have not said there would be more jobs in agriculture, simply trying to save family farm.

 

109

Blackledge

Economic growth can occur regardless of the tax situation.  Capital gains tax rate has the greatest impact on business.

 

Questions and discussion regarding marketing function.

 

140

Rep. Hass

Discussed study which said businesses care about taxes, tax rates, but not as much as amenities and quality of life.

 

155

Blackledge

Would agree, but capital gains taxes are out of proportion with other states and need to be reduced or replaced with broader base of tax.

 

155

Jason Williams

Spoke in support of HB 2505.  The second highest capital gains tax makes it attractive to leave Oregon.  People are leaving Oregon for Vancouver.

 

208

Jim Haynes

Spoke in support of HB 2505.  Gave personal example of how capital gains tax inhibited generation of revenue in his company.

 

252

Chuck Sheketoff

Spoke in opposition to HB 2505, (Exhibits 13-14). Disputed anecdotal testimony using IRS migration data in and out of Oregon; referred to previous testimony to the Committee “Cutting Capital Gains Taxes will Hurt Not Help Oregon’s Economy”.  Characterized credit as a jobless credit for a jobless recovery.

 

398

Patrick Green

Spoke in opposition to HB 2505, citing sources.

 

 

TAPE 92, SIDE A

 

043

Lori Widmer Whelan

Opposition to HB 2505, reiterated comments by Sheketoff and Green.  Discussed balancing act between economic recovery and support of state infrastructure.  Discussed reduced education budget and 8000 teacher job loss for 2003-05.  Revenue losses amount to $383 million loss in 2007-09.  Public education system is best economic recovery program referred to ECONothwest Study on effects of public education on the economy.

 

084

Rep. Verger

Discussed decision to move to Oregon and provision of family wage jobs for 35-50 employees. Does not feel Oregonians have anti-business atmosphere, they connect business to schools. Believes Oregon is adversarial to workers.  Dilemma for Committee is not only balance, but to not turn to workers to supply the money.  Need to create more jobs, not tax people more.  Asked witnesses want to know not what you are against, but what you are for.  Need discussion of how to fund schools, and are talking how to build buildings.  Need to think of workers and their connection to successful business, and that successful business in connection to schools.

 

146

Whelan

Will be able to bring proposals during presentation on April 4.

 

151

Sheketoff

We are for state government that plays an important role in Oregon’s economy.  Discussed unemployment insurance, federal match, concerned for working poor; taxation should be targeted at upper income.

 

188

Gweneth Van Frank Carlson

Does not support HB 2505, government is not a business. It provides services and quality of life.

 

264

Chair Shetterly

Closed Public Hearing on HB 2505.

 

 

OPENED PUBLIC HEARING ON HB 3183

 

267

Lizbeth Martin-Mahar

Provided description of HB 3183, (Exhibit 15).

 

284

Paul Phillips

Spoke in favor of HB 3183 (Exhibit 16).  Detailed list of supporters, gave history.  Described focus of Smart Growth Coalition.  Discussed national competitive issue; long-range commitment.  There is no fiscal impact.

 

366

 

 

 

 

 

420

 

 

454

 

500

 

Don Lance

 

 

 

 

 

Lance

 

 

Lance

 

Lance

Spoke in favor of HB 3183.  Discussed short and long-term economic needs.  Critical component to long-term economic success is successful businesses offering stable employment. Question is how much should the state be involved in attracting and retaining businesses? HB 3183 will say Oregon is open for business and will provide long term benefits.

 

Discussed facility siting elements, tax credits, tax system, single sales factor apportionment.

 

Discussed competitor in another state with better tax incentives.

 

Two year effective date allows time to recruit business, offsetting revenue losses to existing companies. This will trickle down helping small business.

 

 

TAPE 91, SIDE B

 

074

Eric Amos

Spoke in favor of HB 3183.  Discussed growth in Columbia Sportswear over last 10 years.  Oregon tax liability is twice what it would be in a single sales factor apportionment state. Penalized for creating high wage jobs, doubling size of distribution center.  Stayed here because of Oregon roots.  HB 3183 would:  Encourage in-state economic development; side benefit, puts tax base at a national level.

 

112

Chair Shetterly

Doubling of tax liability, is that based on current rates, gone to 80% effective May 1?

 

119

Amos

Based on old rate. Probably increased 25% based on new rate.

 

126

 

 

 

 

 

 

162

 

 

173

 

 

185

 

Al Logan

 

 

 

 

 

 

Logan

 

 

Logan

 

 

Logan

Spoke in support of HB 3183.  Feels investments from this bill could drive economic development and is the key to Oregon’s financial health.  By products of development would be jobs, and investments in state.

 

Discussed impacts on Oregon:  Competitive position with surrounding states; direct impacts on Oregon tax payers; impacts tax revenues.

 

By moving to single sales factor and 80% superweighted, Oregon has distinguished itself as a state that wants investments.

 

Discussed unique incentive in that no benefit goes to a company that does not invest in Oregon.

 

Discussed effective date 2005-2007, no immediate budget impact, double-weighted sales factor, single sales factor stimulation.

 

250

Phillips

Discussed contents of handout, (Exhibit 16).

 

260

 

Question and discussion regarding revenue impact review for possible error.

 

273

Phillips

Discussed decision regarding choice of May 1: during last year of biennium would have no revenue impact.

 

287

Jim Craven

Spoke in support for HB 3183.  Reiterated Smart Growth testimony.

 

309

Barnhart

Ms. Carlson’s asked to reiterate her testimony is the same for this bill.

 

 

337

Chair Shetterly

Meeting adjourned at 11:45 a.m.

 

 

 

 

Tape Log Submitted by,

 

 

 

Kathy Tooley, Committee Assistant Reviewed by Kim Taylor James

 

Exhibit Summary:

1.       Martin-Mahar, “Revenue Impact HB 2652”, 1 page

2.       Schroeder, “Testimony HB 2652”, 2 pages

3.       Wilkinson, “HB 2652-1 Amendment”, 1 page

4.       Blevins, “Testimony HB 2652”, 2 pages

5.       Martin-Mahar, “Revenue Impact HB 2505”, 1 page

6.       Martin-Mahar, “HB 2505 OTIM Capital Gains Rate Feedback Estimate”, 2 pages

7.       Sauvie, “Testimony HB 2505”, 1 page

8.       Thayer, “Testimony HB 2505” 2 pages

9.       Schweinhart, “Testimony HB 2505”, 5 pages

10.   Blackledge, “Testimony HB 2505”, 2 pages

11.   Fuller, “Testimony HB 2505”, 1 page

12.   Cersovski, “Testimony HB 2505”, 1 page

13.   Sheketoff, “The Capital Gains Bird Does Not Fly:  The Unmoving Case of Tax Cut Advocates”, 10 pages

14.   Sheketoff, “The Wrong Answer for Oregon’s Economy:  Cutting Taxes on Capital Gains Income”, 14 pages

15.   Martin-Mahar, “Staff Measure Summary, Revenue Impact HB 3183”, 2 pages

16.   Phillips, “Testimony HB 3183”, 17 pages