PUBLIC HEARING ON HB 3633, SB 362-A  

 

TAPE 163, 164 , AB

 

HOUSE REVENUE COMMITTEE

MAY 14, 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:                        Tom Tuchmann, US Forest Capital

                                                Doug Goe, Orrick, Herrington

                                                Representative Tom Butler, District 60

                                                Senator Ryan Deckert, District

                                                Patrick Green, AFL-CIO

 

Staff Present:                            Paul Warner, Legislative Revenue Officer

                                                Richard Yates, Legislative Revenue Office

                                                Lizbeth Martin-Mahar, Legislative Revenue Office

                                                Kathy Tooley, Committee Assistant

 

TAPE 163, SIDE A

 

004

Chair Shetterly

Calls meeting to order at 8:35 a.m.

 

OPENED PUBLIC HEARING ON HB 3633

 

018

Richard Yates

Provided description and background on HB 3633, discussed -1 (Exhibit 1) and -2 (Exhibit 2) amendments, -2 replaces -1.

 

030

Tom Tuchmann

Spoke in support of HB 3633, (Exhibit 3).  Looked at financing large scale forest acquisitions that bring conservation community, local officials and timber industry together.

 

100

Tuchmann

Discussed creation of forest authority as having broad support, although no specific transaction in Oregon to date. Need the legislative authority in case a transaction does take place.

 

133

Tuchmann

Discussed technical amendments and difference between -1 and -2.

 

141

Rep. Verger

The municipality creates the authority, does it own the land?

 

143

Tuchmann

No, it is quasi public/private. Municipalities create the authority and hire a private company to manage the land.  There is no recourse back to the municipality financially or with the land.  It is a private transaction, the bondholders hold the property and it would be auctioned off.

 

152

Doug Goe

Described bill establishing forest authority is based on statutes written for a hospital authority; where without the hospital’s participation could not take advantage of the tax code.

 

172

Rep. Verger

How much authority does the city have if it creates an authority, in determining where forest is cut?

 

196

Tuchmann

None the authority would run as an independent body.

 

199

Chair Shetterly

Under Section 5, the governing body can appoint and remove the board at will; they would not get too far out of line because the municipality could pull them off the board.

 

215

Tuchmann

There is a requirement for a member of the municipality governing body to be on the board.

 

217

Rep. Barnhart

Why is this useful?

 

220

Tuchmann

Discussed historical creation of municipal financing vehicle and application of that concept to forest acquisitions.

 

262

Rep. Barnhart

There are several issues; this is another mechanism for getting conservation and economic interests to work together for economic and environmental, and conservation purposes.

 

259

Tuchmann

And community development.

 

272

Rep. Barnhart

It is financed because of the scale issues, to get debt costs at lower rate because of tax exempt bond funding.

 

276

Rep. Hass

What are the clear public benefits?

 

278

Tuchmann

Described the bill as putting in place a board that defines the public benefit.

 

294

Rep. Hass

Sounds like a national forest, isn’t that mechanism in place?

 

311

Tuchman

It is not a national forest.  In the end it’s the public land manager that makes the decision influenced by people all over the nation.  This bill is affected by a local municipality to a group of people that make that decision.

 

332

Goe

The other point is HB 3633 provides flexibility to create non profit authority to loan the proceeds to a non-profit corporation set up for the purpose of having balance of local business/community interests.

 

336

Rep. Farr

Funding for communities, potentially money could go to Lane County’s general fund?

 

363

Tuchmann

Nodded affirmatively.

 

364

Rep. Farr

If a municipality were to engage in this activity, would it typically be out of the urban growth boundary?

 

355

Tuchmann

Answered affirmatively, hadn’t thought of that, typically large scale forests are outside the urban growth boundary.

 

375

Chair Shetterly

There’s no geographic limitation, Lane County could buy land in Clatsop?

 

391

Goe

Answered affirmatively. Have drafted the bill to the extent that there was a forest authority between two counties, both counties would work on an intergovernmental agreement basis.  The bill contemplates multiple counties that overlap such as central Oregon.

 

397

Rep. Berger

Has anyone done this?  Is there a model?

 

429

Tuchmann

Yes and no.  Described an agreement with Weyerhauser outside Seattle a year ago, which fell through because of clarification on private use did not come through in time and Weyerhauser sold it to another company.  Financing associated with this works, described relationships, need is for the forest authority.

 

490

Tuchmann

Described Catch 22.  Landowner would not engage with buyer if could not close a deal within six months.  If authorized can transaction be completed.  Need authority upfront based on experience in Washington.

 

496

Rep. Berger

Under this enabling piece what prevents Multnomah County from buying a forest in Coos County?

 

 

TAPE 164, SIDE A

 

040

Goe

That is something that could be addressed as a technical matter.

 

052

Goe

Discussed technical issue under federal tax law, requiring an elective body where community is being financed is located. Coos County would have to approve a bond issue for Multnomah County to do tax exempt financing.

 

068

Chair Shetterly

That’s a defacto requirement in federal law.  Need to see an amendment addressing that concern.

 

079

Chair Shetterly

Is there anything limiting ownership to the State of Oregon?

 

086

Goe

Section 2 discusses providing the people of Oregon with renewable forest resources. That language is taken from hospital facility statute. Intended to mean State of Oregon, can tighten that language as well.

 

098

Chair Shetterly

Not sure I would be bothered by the authority to invest out of state.

 

101

Chair Shetterly

This forest land owned by a non-profit, does it stay on the tax role?

 

099

Goe

Nothing in the bill that addresses the property tax exemption.  That is something that is otherwise governed by state law.  Don’t know if that’s consistent with the intent.

 

112

Tuchmann

Our cash flows always include property taxes and every other tax.  That is the intent and the practical application.

 

123

Chair Shetterly

From Section (13), a community forest authority is deemed a municipal corporation, all assets and income and bonds are exempt from all taxation in Oregon. Section (2), discusses leases to a third party, how the management arrangement is set up may affect the taxation.

 

135

Goe

Earlier comments address a situation where the authority loans the proceeds of revenue bonds to a non-profit corporation. 

 

141

Rep. Barnhart

The purpose of organization is to hold forest land and manage it?  Defined forest land. Could this organization set up a park?

 

153

Tuchmann

Forest authority is an issuing authority; revenue is generated from the forest harvest. Can set aside a portion.

 

171

Barnhart

A conservation set aside?

 

167

Tuchmann

Answered affirmatively.  Can issue debt on behalf of private non-profits who do not have ability to issue debt?

 

186

Goe

Answered affirmatively.

 

188

 

 

200

 

Question and discussion relating to restrictions in federal rules that allow for nontaxable interest on these bonds. 

 

Discussion regarding need for federal tax code clarification.

 

235

 

Question and discussion regarding language in Section 13 as it excludes income from taxation.

 

240

Goe

The intent is where the authority is the owner that it be excluded from property taxes; also contemplates leasing.

 

279

Chair Shetterly

If have authority within own jurisdiction is one thing, a requirement is needed for host authority.

 

286

Rep. Barnhart

Being cautious on first go around on this to make it transparent makes sense. If it is being used for production it should be taxed, if used in a way that is not normally taxed it should receive an exemption.

 

295

Chair Shetterly

What percent of forest land is public vs. privately owned in Oregon, County, Federal and State?

 

311

Tuchmann

Believe its 55/45.

 

313

Chair Shetterly

This creates a new municipal investment in what is currently a private forest land market.  Do we want to expand public ownership under the guise of authority in these non-profits into minority private ownership of forest lands?

 

327

Rep. Barnhart

Does not believe the case has been made for large scale financing of private forest lands. Model is interesting, but does not solve a problem.

 

320

Rep. Farr

This seems like a good transition between private and national forests; it gives the best of both. Local governments get another revenue source.

 

333

Chair Shetterly

On public vs. private, is private investment disadvantaged in forest land by creating purchases with tax free bonds?  Would there be an imbalance in the market?

 

347

Tuchmann

There is a cost to the purchaser for using lower cost of capital which is the cost of providing a public benefit for roads or schools, or taking property and using lighter forestry approach.  Private sector can still meet or exceed price that a nonprofit that can pay.  Most large forest landowners are disposing of industrial forest lands and fragmenting forests.

 

425

Chair Shetterly

Closed Public Hearing HB 3633.

 

OPENED PUBLIC HEARING ON SB 362-A

 

409

Lizbeth Martin-Mahar

Provided description and background of SB 362-A3, (Exhibit 4).  Discussed -3 amendments before the Committee as “not being brought forward”, Exhibit 5); staff summary and revenue impact noted –A3, remain valid. Described revenue impact of SB 362-A3 (Exhibit 6).

 

 

TAPE 163, SIDE B

 

040

Rep. Tom Butler

Spoke in support of SB 362-A as “a great jobs bill” for Western Oregon, providing seed money for intellectual and venture capital to come to Oregon.  One other state legislature has adopted a similar bill.  Described special tax exemption for new to Oregon business.   This is intended to attract those who will invest large amounts of income into Oregon.

 

118

Senator Ryan

Deckert

SB 362-A focused on venture capital flight from Oregon, discussed success stories of Boston, Seattle, Silicon Valley.  SB 362-A is one of six bills to encourage new start up companies, (Exhibits 7, 8, 9, and 10).

 

149

Sen. Deckert

Cited tight language, with subsequent “but for” language companies must meet in order to receive credit. Discussed venture capitalists starting up in the 1990s and affects on Oregon’s economy.

 

181

Rep. Verger

$2 million, that’s not the initial investment?

 

184

Sen. Deckert

Answered affirmatively.  It is the seed money before marketing the product.  The key is access to money to grow product.

 

187

Sen. Deckert

Cited Gatorade as an example of company developed from seed money and grown.

 

200

Rep. Butler

$2 million per annum is the minimum amount of investment required.  Anticipate companies establishing business in Oregon with $75 million investment will likely make larger investments.  Key person in that firm can apply to Oregon Council of Knowledge and Economic Development (OCKED) to get an annual exemption.

 

225

 

242

Rep. Berger

 

Sen. Deckert

 

Can you discuss the nano technology/university faculty piece of this?

 

OCKED people doing research; described MIT affect on Boston economy.  This tries to incent researchers on projects unique to Oregon.  Cited growth in biotech.

 

255

Rep. Butler

This is for new to Oregon business, may only have 10 employees. When business moves to research the pyramid gets larger. Described high end jobs.

 

295

Rep. Verger

Closed public hearing on SB 362-A

 

 

REOPENED PUBLIC HEARING ON SB 362-A

 

304

Patrick Green

Spoke in opposition to 362-A.  Sen. Deckert gave examples of companies that received venture capital from venture capital firms without tax incentives, because it was a good idea worth funding.  Concerned about offering a tax incentive for something that is already going to happen.  Bill says investment will produce a good, but it could produce a loss.  Concern there is no measure for job creation; is it possible eto have job guarantees as a part of the bill?.

 

360

Rep. Verger

Because companies are leaving the state and taking jobs with them, is the tradeoff for a tax exemption inclusion of a job guarantee, would you support?

 

380

Green

If the point is to create jobs, there should be an economic development strategy about creating jobs.  Discussed one to one federal match to generate more jobs in the health care industry.  A venture capitalist can invest $2 million a year; the venture may not take off and this person would not be paying taxes.  Cited strategic investment program as an example of program that is local in nature with guarantees.

 

450

Rep. Verger

If you were a company, do you believe Oregon is friendly to job creation and companies coming here?

 

 

TAPE 164, SIDE B

 

013

Green

Answered affirmatively.  Oregon has the lowest business tax burden of the 11 Western States.  Cited Paul O’Neil, Treasury Secretary/businessman, never made investment decision based on tax code.  Said there were lots of reasons to move to Oregon.

 

035

 

045

Rep. Verger

 

Rep. Verger

Would agree, but there are a lot of places to go in competition with Oregon.

 

Closed the Public Hearing on SB 362.

 

 

050

Rep. Verger

Adjourned the meeting at 10:04 a.m.

 

 

Tape Log Submitted by,

 

 

 

Kathy Tooley, Committee Assistant

 

Exhibit Summary:

1.       Yates, “HB 3633-1 Amendment”, 1 page

2.       Yates, “HB 3633-2 Amendment”, 1 page

3.       Tuchmann, “Written Testimony HB 3633”, 5 pages

4.       Martin-Mahar, “Staff Measure Summary SB 362”, 2 pages

5.       Martin-Mahar, “SB 362-3 Amendments”, 2 pages

6.       Martin-Mahar, “Revenue Impact SB 362”, 1 page

7.       Sen. Deckert, “Testimony SB 362-A”, 2 pages

8.       Sen. Deckert, “OCKED Executive Summary, December 2002”, 5 pages

9.       Sen. Deckert, “Langeler Written Testimony SB 362“, 1 page

10.   Sen. Deckert, “Chen Written Testimony SB 362”, 1 page