HOUSE COMMITTEE ON TRADE AND ECONOMIC DEVELOPMENT

February 26, 2002 Hearing Room D

1:00 PM Tapes 18 - 19

MEMBERS PRESENT: Rep. Patti Smith, Chair

Rep. Vicki Berger, Vice-Chair

Rep. Mary Gallegos, Vice-Chair

Rep. Mark Hass

Rep. Dave Hunt

Rep. Steve March

Rep. Dennis Richardson

STAFF PRESENT: Kimberly A. Medford, Committee Administrator

Linda K. Gatto, Committee Assistant

ISSUES HEARD: Informational Meeting

Sandy Cutler, PhD, Oregon Small Businesses Dev. Center Network

HB 2299 Public Hearing

Work Session

Introduction of Committee Bills

These minutes are in compliance with Senate and House Rules. Only text enclosed in quotation marks reports a speaker’s exact words. For complete contents, please refer to the tapes.

TAPE/#		Speaker		Comments
TAPE 18, A
004		Chair Smith		Calls the meeting to order at 1:05 p.m. and opens the informational meeting.
INFORMATIONAL MEETING
009		Sandy Cutler		State Director, Small Business Development Center Network, (SBDC). Recalls that in 1982 – 1983 Lane County unemployment was 16-percent and the prime lending rate for businesses to borrow money was 21-percent. Submits (EXHIBIT A).
033		Cutler		Highlights Oregon small business facts: Over half of the workforce in Oregon is employed by small businesses. Over half of the small businesses in Oregon were founded after 1985. 62 percent of businesses in Oregon survive the first year; 76.5 percent survive 2 to 5 years, and 81.2 percent survive 6 to 10 years.
065		Cutler		Notes that although these are small operations that gross $500,000 or less a year, small businesses are vital to Oregon’s prosperity. Discusses firms by industry and size.
090		Cutler		Reviews the decline in firms between 1998 and 2002. Explains the zero category; sole proprietorships started by laid-off workers. Comments on the resiliency of small businesses.
134		Cutler		Reviews OECDD’s small business assessment evaluation. Provides an overview of the SBDC’s funding, purpose and activities.
194		Chair Smith		Asks if there has been a decline in entrepreneurships due to recent economic conditions.
195		Cutler		Responds that it is because of the economic challenges being faced today that there is an increase in new entrepreneurships.
206		Rep. Gallegos		Asks if there is a focus on traded sector jobs.
214		Cutler		Responds affirmatively.
227		Rep. Hunt		Asks how will the SBDC’s services change in upcoming years.
230		Cutler		Notes that E-commerce has become an important component of most business operations and they will provide more services electronically. Adds that acquiring a qualified workforce is a challenge for small businesses.
258		Rep. Hunt		Asks what can the Trade and Economic Development Committee focus on that could provide assistance.
265		Cutler		Answers regulatory reform and adequate funding for community colleges and universities.
300		Rep. March		Asks about the source of the survival rate data.
304		Cuter		Responds that this is the David Birch study.
339		Rep. March		Asks if this is the same data source used in the figures for new business startups.
342		Cutler		Responds affirmatively.
371		Rep. Richardson		Refers to the loss of firms in the last year that employed ten or more employees and asks what was the basis for those losses.
383		Cutler		Responds that he will get some examples of what happened from the employment department. Explains that due to confidentially laws the specifics are not available.
399		Rep. Richardson		States that the reason for the question is to identify what happened to lessen losses in the future. Asks does the SBDC assist existing businesses.
411		Cutler		Responds that 70-perent of the SBDC’s clients are existing small businesses.
427		Rep. Richardson		Asks do businesses know to contact SBDC.
432		Cutler		Responds there are a number of ways. Notes the SBDC works closely with local Chambers of Commerce and economic development districts as well as the Small Business Association and may receive referrals from the OECCD.
450	Rep. Richardson			Asks about developing new markets.
458	Cutler			Responds that there are special programs for different industries depending on the expertise and resources available.
TAPE 19, A
028	Chair Smith			Closes the informational meeting and opens the public hearing on HB 2299.
HB 2299 PUBLIC HEARING
033	Mike Burton			Assistant Director, Oregon Economic and Community Development Department, (OECDD). States that today’s focus will be on the Strategic Investment Program and the Small Cities Business Incentive Program. Submits (EXHIBIT B).
061	Burton			Submits (EXHIBIT C). Comments on the Strategic Investment Plan and Intel’s relationship to the program.
093	Burton			Begins review of the Small Business Development Program. Reviews proposed amendments clarifying boundaries of a city
120	Burton			Reviews proposed amendments regarding timing.
136	Rep. March			Clarifies that a community that could not qualify today could look back two years and now qualify.
150	Burton			Responds affirmatively.
160	Burton			Explains the comment period and precertification on page 4, lines 28 and 29.
176	Rep. Hass			Asks why not allow for a year.
180	Burton			Explains the preference for the language “reasonable period of time” and adds that it can be adjusted under rule, (EXHIBIT D). Explains the intent is to allow a business to respond to the incentive, make their decision to invest, complete the investment and open for business.
197	Rep. March			Requests an example of what “reasonable” entails.
203	Burton			Discusses page 3, lines 29 – 31 regarding location of operations.
218	Rep. Hunt			Asks where “substantially” is defined.
219	Burton			Responds it is defined in rule, (EXHIBIT D). Notes that normal standards are 10-percent.
260	Burton			Begins a review of exemptions under the Strategic Investment Program. Notes that these projects are negotiated and includes the impact on public services such as fire departments and schools.
326	Burton			Comments on the characteristics of the exemptions in place.
342	Rep. March			Asks if there is information on the total value of the exemptions to the firm relative to the firm’s investment.
352	Burton			Responds that the investments are over $100 million and run into the cap on annual service fees. States he will get the figures.
360	Burton			Begins review of the proposed changes; allowing electrical generating facilities.
409	Burton			Explains the second change is to create a scaled down version in rural communities.
430	Burton			Discusses the option for special districts to opt-out. Explains this is limited if an exemption is already in place.
485			Burton	Reviews change #5 page 4, (EXHIBIT B).
TAPE 18, B
043			Rep. Gallegos	Asks what criteria defines the term “eligible project”.
057			Art Fish	Enterprise Zone Coordinator, OECCD. Responds that the current definition of an eligible project is on line 22. Notes that all large investments are eligible except electrical generation facilities.
096			Kimberly Medford	Committee Administrator. Refers to lines 34 - 37 stating that this is the current statute and explains that the department has the ability to determine the eligibility of a project.
103			Burton	Notes that the change being proposed is to allow electrical generation facilities. Comments on the threshold of size as criteria for qualification.
113			Rep. Hunt	Asks how industries other than semi-conductor facilities are being addressed.
140			Burton	Responds that the $100 million threshold is semiconductor fabs. Notes that at the $25 million threshold there would be a broader range of investments that could qualify.
163			Rep. Hunt	Asks if consideration has been given to counties that have significant unemployment levels but have been unable to meet the threshold.
171			Burton	Responds that OCEDD is responding to this request and notes that reducing the threshold statewide would encourage a number of projects.
185			Rep. Hunt	Comments on large population centers that are not defined as rural and asks if there are tools available to them.
201			Burton	Responds that the tax rolls could be surveyed for large investments and reported back to the committee.
209			Medford	Reads the definition of rural area contained in ORS 285A0107.
224			Rep. Hass	Asks what prompted the change for rural areas.
228			Burton	Responds that the $25 million level arises periodically and may provide a fit for smaller communities.
240			Rep. Hass	Asks what are the mechanics to this program, how does it look in 15-years.
243			Burton	Responds that the potential is for a 15-year property tax exemption and a 15-year exemption on income taxes subject to minimum thresholds and annual service fees.
255			Fish	Clarifies that in this program they do get the income.
268			Rep. Gallegos	Comments that the investment is huge but the life cycle is short. Asks if companies that are currently in down cycles benefiting from exemptions if in order to receive the tax credits certain goals need to be met
279			Burton	Responds affirmatively.
300			Rep. March	Notes that the contracts are reviewed each year and the designation can be withdrawn if the goals are not being met.
312			Rep. Richardson	Asks would county representatives claim there is a negative impact on the municipalities.
321			Burton	Responds that so far this program has applied to Multnomah and Washington counties and both have been willing participantes. Notes there is a tax impact but it is limited, representative of the huge investment.
340			Duke Shepard	Representing Multnomah County Chair Diane Linn. States that he managed the Strategic Investment Program agreements with LSI Logic, Intel and IDT in Washington County and Microchip in Gresham. Comments that the program is working as intended.
370			Shepard	Notes concerns with HB 2299: Ability over time for special districts to opt out potentially complicating the tax structure. Notification requirements to shareholders and a 30-day notice can be problematic.
435			Rep. March	Asks what parties have to agree in negotiations.
455			Shepard	Explains the process and provisions.
TAPE 19, B
027			Rep. Hunt	Asks how many special districts are there.
032			Shepard	Responds he does not know.
035			Rep. Hass	Comments on the net tax gain.
038			Shepard	Notes that the tax abatement for LSI Logic has been between $4 - $6 million in a given year and Microchip is expected to be $1.6 million next year.
050			Hacina Squires	Special Districts of Oregon. Notes that most of the special districts in Multnomah do not have permanent rate authority, however, it is an issue in Clackamas and Washington counties.
066			Chair Smith	Closes the public hearing on HB 2299 and opens the work session for the purpose of introducing committee bills.
WORK SESSION – Introduction of Committee Bills
072			Medford	Recaps that LC 3185 is the bill that was discussed during the SUMCO meeting on February 5. Explains LC 3185, (EXHIBIT E). Explains the process of introducing committee bills noting that the vote is for the purpose of moving the LC draft on to the next process.
092			Rep. Gallegos	MOTION: Moves LC 3185 BE INTRODUCED as a committee bill.
095				VOTE: 7-0
			Chair Smith	Hearing no objection, declares the motion CARRIED.
105			Chair Smith	Closes the work session and adjourns the meeting at 2:31 p.m.

EXHIBIT SUMMARY

A – Oregon Small Business – Informational material, Sandy Cutler, 20 pp

B – HB 2299, written testimony, Michael Burton, 10 pp

C – HB 2299, comparison chart, Representative Tom Butler, 6 pp

D – HB 2299, Enterprise Zone Administrative Rules, staff, 2 pp

E – LC 3185 draft dated 2/24/03, staff, 2 pp