PUBLIC HEARING ON HB 3610, HB 2299A

 

TAPE 135, 136, A-B

 

HOUSE REVENUE COMMITTEE

APRIL 21, 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                                               

 

Witness Present:                        Richard Kosesan, LifeLine Renewable Energy

                                                John Powell, LifeLine Renewable Energy

                                                Patricia Pilz, LifeLine Renewable Energy

                                                Gil Riddell, Association of Oregon Counties

                                                Judge Laura Pryor, Gilliam County Judge

                                                Paul Chalmers, Umatilla County Assessment and Taxation

                                                Brad Higbee, Renewable Northwest Project

                                                Debra Buchanan, Department of Revenue (DOR)

                                                John Phillips, DOR

                                                Mike Burton, Oregon Economic and Community Development Department

                                                Representative Dave Hunt, District

                                                John Pascone, Albany-Millersburg Economic Development Corporation

 

Staff Present:                            Paul Warner, Legislative Revenue Officer

                                                Mazen Malik, Legislative Revenue Office

                                                Kathy Tooley, Committee Assistant

 

TAPE 135, SIDE A

 

004

Chair Shetterly

Calls meeting to order at 8:40 a.m.

 

OPENED PUBLIC HEARING ON HB 3610

 

022

Mazen Malik

Provided description and background of HB 3610, (Exhibit 1).

 

056

Richard Kosesan

Spoke in support of HB 3610, (Exhibit 2). Discussed disincentives for development and production of wind generation facilities in Oregon.  Cited concerns about revenue loss by Morrow County on four existing facilities; administrative concerns by DOR.  Will be addressing concerns through future amendments.

 

100

John Powell

Spoke in support of HB 3610.  Discussed scope of amendments will create phase in date building to a production tax over a 5 to 10 year period.

 

140

Patricia Pilz

Discussed problem trying to solve with HB 3610. Discussed Oregon property tax rules disadvantages to wind development. Facilities are not asking for enterprise zone as they did not want wind power to require special exemptions as a boutique form of energy. Want to be able to sell power on the open market at market rates.  Looking at wind friendly tax model; chose production tax model with dependable steady revenues for the county with no depreciation.

 

223

Rep. Berger

What does Wyoming do with longer history?

 

227

Pilz

Discussed Riverside County, California as having longest experience; wind farm is viewed as a collection of equipment assessed at cost; county property tax is a little higher, and depreciation of equipment over 5 years. Kansas exempts wind facilities from property taxes. Minnesota program described as most progressive and has a production tax credit which is the model for the Oregon program.

 

260

Chair Shetterly

How many turbines go into a facility of $100 million?

 

264

Pilz

61 turbines, depends on megawatts. 

 

272

Rep. Barnhart

Is there a place to go to get an overview of the economics of this operation?

 

288

Pilz

Can provide web site names and provide spreadsheets.

 

294

Chair Shetterly

Do you have facilities in Oregon now? 

 

285

Pilz

Have licensed with Morrow County to build facility.

 

292

Rep. Hass

Asked for background on Lifeline, what is the track record?

 

312

Pilz

LifeLine was founded to build this facility in Eastern Oregon.

 

338

Chair Shetterly

Question regarding length of time required to startup.

 

340

Pilz

Six to 10 months from breaking ground to reaching capacity.

 

345

Chair Shetterly

Issue is not tax imposed before energy produced; issue is rate of tax vs. rate of return?

 

362

Pilz

Tax based on cost to build is prohibitive vs. cheaper cost to build gas fired plant with ongoing tax break.  Cited need for equity.

 

350

Rep. Barnhart

How do operating costs equate.  Gas plant pays for fuel, wind powered does not pay for fuel.  Secondly, can run gas all time, and wind only when available.

 

396

Pilz

Wind can be competitive, high cost of construction offset by low operating expense.  Wind power is competitive, but close to the bone.

 

430

Powell

Discussed Exhibit 2, outlines who is involved in the project, current status, environmental benefit, acreages required, and problems encountered.  Includes incentives from other states; does not include Minnesota which has gone to production tax.

 

 

TAPE 136, SIDE A

 

020

Malik

To offset high starting costs, would equalize costs by lowering taxes. When producing a gas plant, does the tax rate go to the same amount?

 

028

Pilz

No, the project is 20 years for a power purchasing agreement.  Low cost to operate lasts forever in all places except in this rural area which has a high tax rate. First 10-12 years everything is used to pay off debt.  The second 10 years investors get money back on their investments.  After that new land and power agreements are negotiated.

 

055

Rep. Verger

What changes with the amendments?

 

056

Chair Shetterly

The amendments phase in the operating tax for existing facilities?  To minimize or delay the impact of existing facilities so counties don’t see a drop off from property tax to production tax?

 

060

Kosesan

Answered affirmatively.

 

061

Chair Shetterly

Twenty years for an agreement, what is the life span of a turbine?

 

069

Pilz

Lifespan of modern turbine with proper maintenance can be indefinite, blades, turbines change out; they are modular can be moved about the site.

 

080

Gil Riddell

AOC opposes concept of original bill.

 

090

Judge Laura Pryor

Owns land that has towers placed on farm; may be conflict of interest.

 

098

Chair Shetterly

Go ahead.

 

100

Judge Pryor

Described SeaWest project received an enterprise zone. Project was done in two pieces in order to receive federal tax credit. Test towers have not shown that they would be profitable. Wind energy is incentivized through federal government and Oregon through enterprise zones.  Morrow County told not going to need enterprise zones.  Would like to know what size the projects are, and who is buying the power. Described losses in property taxation when project is placed on property.

 

160

Judge Pryor

Opposed HB 3610 because in rural Oregon if you lose taxing ability it is gone, no transparency to how much power is being provided.  Wind power can start or stop based on tax benefits. Many times towers are not running even though there is plenty of wind.  There are either problems with construction, or manipulated to benefit the company.  It is not something that can be counted on.  Rural communities will lose tax base.

 

183

Paul Chalmers

Spoke in opposition to HB 3610 Umatilla Board of Commissioners passed a resolution in opposition to HB 3610 based on potential loss of functions. Discussed visual display of wind projects on line actual and proposed.

 

220

Chalmers

Does not understand the disincentive claims as the federal tax credit is being reviewed, and does not appear to be eliminated.

 

228

Chalmers

Concern over production tax, shifts burden to the state in education funding.

 

240

 

 

265

Chalmers

Discussed gas power assumptions and enterprise zones in Umatilla County.  Once there is an income stream it goes through utility section of DOR.

 

Questions and discussion regarding income vs. cost taxation.

 

291

 

Questions and discussion regarding tax rate and valuation.

 

300

Chalmers

Strong local relationships with energy company in terms of vested interest in donations, community service, and civic projects.  Transition to production tax would transfer relationship to state level.

 

323

Chair Shetterly

The appraisal on income basis is done by DOR not county?

 

331

Chalmers

All three approaches are done at the state level.  Discussed Morrow County rate as being excessively high.

 

322

Rep. Barnhart

What is the comparison between HB 3610 tax and current tax is?

 

330

Judge Pryor

Assessor worked up numbers after SeaWest gets through the enterprise zone and comes on line $250,000 to county, if this bill goes through it would be $50,000.

 

340

Chalmers

Has numbers that substantiate that although it is proprietary information regarding production.

 

390

Brad Higbee

Neutral on HB 3610.  Provided background on economic benefits. Tentative on creation of brand new tax to deal with it and flies in the face of local government, would prefer local option taxation.  Should leave incentives to discretion of county.  Impediment to wind projects is the construction costs, about a $1 million dollars per megawatt.

 

TAPE 135, SIDE B

 

033

John Phillips

DOR has done analysis on appraisal process (Exhibit 3).

 

042

Chair Shetterly

What other tax incentives are there for projects like this, federal and state level?

 

048

Buchanan

Enterprise zones.

 

049

Phillips

Strategic investments.

 

050

Higbee

Federal production tax credit; it expires frequently and gets extended.

 

059

Chair Shetterly

To wind power specifically or other types of power generation?

 

061

Higbee

Renewable energy, primarily wind, defer to people in audience.

 

062

(Audience)

Green power.

 

075

Rep. Barnhart

When looking at tax structure change, would require more information about the economics to consider than present at the current time.  Ought to insist on a lot more information.

 

083

Chair Shetterly

Explained the bill is on loan to the Committee specifically to look at tax and revenue implications.

 

085

Chair Shetterly

Closed public hearing on HB 3610.

 

OPENED PUBLIC HEARING ON 2299A

 

090

Mazen Malik

Described HB 2299A and provided background, (Exhibit 4).

 

130

 

Questions and discussion regarding -5 (Exhibit 5), and -6 (Exhibit 6) amendments.

 

180

Mike Burton

Discussed overview and history of HB 2299-A (Exhibit 7-8).  The bill provides technical corrections on business tax incentives including strategic investment and enterprise zone programs.

 

190

Burton

Discussed policy changes (Pages 1-2, Exhibit 8); consensus building that occurred in crafting HB 2299-A, department recommends passage,

 

233

Burton

Discussed strategic investment program (Page 3, Exhibit 8).Targeted toward investments over $100 million.

 

Questions and discussion about wind turbine incentive.

 

276

Burton

Discussed proposed changes scaled to benefit rural areas.

 

284

Rep. Dave Hunt

Discussed rural aspect of -5 amendment in strategic investment program vs. inclusion in urban growth boundary (UGB).

 

341

Chair Shetterly

What or who is the 30,000 or more?

 

349

Rep. Hunt

That is not changed; it is taken out of another section of the existing statutes.  The substantive change is “as the urban growth boundary is acknowledged on December 1, 2002”.

 

352

Rep. Hass

This is amendment is a good add, the amendment talks about rural areas, even though amended into UGB.

 

356

Chair Shetterly

Does this require a sunset?

 

365

Burton

Will address date next session.  As to who is 30,000, that is Corvallis, Albany, Bend, Klamath Falls, Portland, Salem, Eugene and Medford.

 

375

Malik

Can we say “latest” as part of definition?

 

378

Chair Shetterly

The department will keep tabs on this on a biennium to biennium basis.

 

385

Burton

The -5 amendment benefits those areas that have been rural and have been recently changed to urban due to recent changes in metro boundaries.

 

418

Burton

Discussed removal of exclusion of electrical generating facilities from strategic investment program.

 

425

Burton

Discussed enterprise zone statute changes.

 

458

Burton

Discussed productivity incentive.

 

410

Burton

Explained requirements for and what an enterprise zone does. HB 2299-A simplifies, provides fixes.

 

 

TAPE 136, SIDE B

 

060

Burton

Discussed bill relative to enterprise zones; increasing investment or increasing employment.

 

072

Burton

Discussed controversial aspect of HB 2299-A relates to construction period exemptions.

 

097

Burton

Amendment proposes change to remote investments to be capped at $12.5 million.

 

122

Burton

Discussed extension of sunset on long term rural exemption for a couple of years, only used once due to down economy.

 

134

John Pascone

Provided history and need for -6 amendment which will require additional changes.

 

170

Pascone

Discussed good faith effort by a company (Exhibit 9), that invested and did not qualify for exemption based on reduced employment in the face of declining economy, September 11, and the recession.  Explained rules require company make first year of exemption or would not qualify for exemption years 2 through 5.

 

188

Pascone

Amendment to look at year-by-year basis so that in a year the company did not make numbers it would pay taxes.

 

125

Burton

Department in conceptual agreement with Pascone. Do not have problem with first year. Amendment does propose that the DOR pass judgment on whether this would happen.  DOR would rather have legislature have a policy decision on year-to-year basis, so it does not have to pass judgment.

 

224

Pascone

That language was written by legislative counsel.  Art Fish provided some language that would put it back on the sponsors which is where it should be.

 

225

Chair Shetterly

Clarifies would apply same rules that currently apply to a company that meets qualifications, yet fails to meet in second or third year. The amendment puts that same standards to a company that makes the investment, but fails to make its first year, allows them to be eligible for another year.

 

235

Burton

Certification becomes year-by-year.

 

237

Rep. Hass

Is this similar to Sumco Wafer has?

 

239

Burton

It’s similar.  There is already a fix for very large investments.  This is a different fix for a different problem, but is related.

 

248

Rep. Hass

It raises the issue in declining economy, in light of best of intentions, also do have to guard against higher than realistic claim.

 

257

Burton

An existing firm would not be able to qualify. 

 

262

Pascone

Discussed experience as enterprise zone manager; companies try to be conscientious in projecting numbers.

 

270

Chair Shetterly

Bottom line is if they don’t make the projections, they don’t get the benefit.

 

272

Pascone

It’s a shame that this company which was looking forward to five years of enterprise zones is locked out the first year and then forever.

 

274

Chair Shetterly

Is it your intention to make this retroactive?

 

275

Pascone

Answered affirmatively.

 

279

Rep. Barnhart

If we accept enterprise zones and incentives, want to make transparent so future businesses aren’t afraid of being shut out if don’t make it the first year.

 

297

Chair Shetterly

Closed public hearing on HB 2299-A.

 

 

 

301

Chair Shetterly

Meeting adjourned at 10:20 a.m.

 

 

 

 

 

Tape Log Submitted by,

 

 

 

Kathy Tooley, Committee Assistant Reviewed by Kim Taylor James

 

Exhibit Summary:

1.       Malik, “Staff Measure Summary HB 3610”, 1 page

2.       Kosesan, Powell, “Presentation on behalf of Lifeline Renewable Energy”, 11 pages

3.       Phillips, “SB 874/HB 3610 Questions, observations and analysis”, 5 pages

4.       Malik, “Staff Measure Summary HB 2299-A”, 3 pages

5.       Malik, “HB 2299-A5 Amendment”, 1 page

6.       Malik, “HB 2299-A6 Amendment”, 1 page

7.       Burton, “HB 2299 Testimony”, 2 pages

8.       Burton, “Proposals by A-Engrossed House Bill 2299 – With Material Effect on Business Development Tax Incentives”,

9.       Pascone, “Letter to Rep. Betsy Close; Subject:  Enterprise Zone Rule Amendment HB 2296 or HB 2890”, 6 pages

10.   Oregon Revenue Coalition “Written Testimony HB 2299”, 1 page