PUBLIC HEARING:

HB 3453, HB 3454-A SB 415

 

TAPES 144, 145, 146 A-B; 147 A

 

SENATE REVENUE COMMITTEE

JUNE 20, 2005   1:00 PM   STATE CAPITOL BUILDING

 

Members Present:                  Senator Ryan Deckert, Chair

                                                Senator Gary George

                                                Senator Rick Metsger

                                                Senator Floyd Prozanski

                                                Senator Charles Starr, Vice Chair

           

Witnesses Present:                Rep. Tom Butler, District 60

                                                Shawn Miller, PPM Energy

                                                Norman Ross, PPM Energy

                                                Mike Roberts, PPM Energy

                                                Gil Riddell, Association of Oregon Counties

                                                Sen. Doug Whitsett, District 28

                                                Al Switzer, Klamath County

                                                John Phillips, Oregon Dept. of Revenue

                                                Bill Linden, City of Klamath Falls

                                                John DiLorenzo, Washington State public utilities

                                                Gary Conkling, Northwest Regional ESD

                                                Scott Corwin, PNGC Power, Portland

                                                Sandy Flicker, Oregon Rural Electric Cooperative Assn.

                                                Michelle Deister, League of Oregon Cities

                                                Ozzie Rose, Oregon Assn. of Education Service Districts

                                                Tricia Smith, Oregon School Employees Assn.

                                                Rob Myers, North Central ESD

 

Staff Present:                          Paul Warner, Legislative Revenue Officer

                                                Steve Meyer, Economist

                                                Mary Ayala, Economist

                                                Barbara Guardino, Committee Assistant

 

 

TAPE 144, SIDE A

005

Chair Deckert

Calls meeting to order at 1:07 p.m.

 

PUBLIC HEARING, HB 3453

012

Mary Ayala

Gives overview of HB 3453 (EXHIBIT 1). Exempts from property tax any tangible or intangible property whose use arises between qualified government entities and energy marketing companies. Gives background of court case, PPM vs. Oregon Dept. of Revenue.

 

PUBLIC HEARING, HB 3454-A

065

Rep. Butler

Gives background of the PPM Energy bill, which was concerned with how far the intangibles tax should be extended. Much of intangible tax came about as a mistake. HB 3454-A, which spawned out of this issue, relates to use of the Pacific Northwest AC Intertie. Expresses concern that Oregon is unique in its tax treatment of these kinds of intangibles.

 

112

Rep. Butler

Has asked House leadership to address the overall issue of intangibles. These two issues are a question of fairness.

 

122

Chair Deckert

Asks if SB 3453 contains anything precedent-setting that could be used as a future model.

 

129

Rep. Butler

Responds, the City of Klamath Falls would like to remain an economic engine. Addresses the issue of precedent setting.

 

 

 

 

177

Shawn Miller

Testifies in support of HB 3453. Explains, the state taxed PPM’s contract with the City of Klamath Falls. PPM claims the facility is wholly owned by the city. See EXHIBIT 5.

 

197

Norman Ross

Testifies in support of HB 3453 on behalf of PPM Energy. This bill was drafted to address a narrow assessment issue. PPM was not notified of this process until a few days before the assessment notice was sent. Contends the assessment is unfair. Gives reasons:

1)      Similar parties are not treated the same

2)      Assessment represents poor tax policy

 

248

Ross

Counters what he believes Association of Oregon Counties and DOR will claim.

1)      PPM is not a part-owner of this facility.

2)      Passage will not create hardship to taxing districts.

3)      PPM’s relationship with the city is not equivalent to ownership.

4)      DOR did not follow statutory mandate in its assessment.

 

358

Ross

Summarizes, the DOR has followed an unsound assessment practice which is discriminatory and in conflict with the Oregon Constitution. Asks committee to pass HB 3453.

 

 

 

366

Mike Roberts

Gives background on the plant and the relationship between PPM Energy and the City of Klamath Falls.

 

449

Roberts

Notes, a business venture of this size is not necessarily economically viable. This project went forward with what people understood to be Oregon’s tax laws. They were surprised to be asked to pay property tax.

 

TAPE 145, SIDE A

035

Miller

Responds to whether to let the Supreme Court decide this issue, which is on appeal. PPM does not believe this tax ever should have been paid. The contract with the city can be renegotiated, but the city would end up paying the county’s property taxes. This public-private partnership could not have happened under this tax situation.

 

061

Sen. George

Asks if the city owns the facility and did the people vote on a bond to buy it.

 

072

Miller

Responds, it is wholly owned by the city and bonded.

 

078

Sen. Metsger

Asks the panel if PPM is doing well financially. Follow-up questions concerning tax certainty and other pending energy company sales.

 

143

Chair Deckert

Sees both sides of this issue. Asks panel whether the bill clarifies the law or if it sets a new policy.

 

161

Ross

Responds, PPM needs to be looked at as an isolated extension of DOR’s assessment practices. DOR has never extended its assessment reach to capture this type of intangible asset.

 

171

Chair Deckert

Is there something similar to this partnership in Oregon?

 

174

Miller

This has only occurred once, and that is this project. The bill will only affect PPM.

 

197

Ross

This type of assessment is a matter of bad tax policy in that it is tied to a commodity. The Supreme Court issue is whether the DOR had a constitutional right to assess PPM, not the value assigned.

 

214

Chair Deckert

Follow-up questions and discussion with panel on whether other similar partnerships would be formed as a result of this bill.

 

259

Ayala

Was under the impression that all centrally assessed property is based on an income approach.

 

269

Ross

Responds, in this instance there’s been no attempt to look at the income. The DOR assumed that PPM owns 47% of the facility.

 

 

 

325

Gil Riddell

Reads testimony in opposition to HB 3454 (EXHIBIT 6). Exhibit includes an editorial against the bill from Klamath Falls newspaper, The Herald & News. Let the Supreme Court do its work; AOC is confident the state will prevail. This bill will change the tax policy landscape.

 

390

Sen. Doug Whitsett

Testifies in opposition to HB 3453. Oregon statute never intended to exempt generation facilities owned by a city. Believes this precedent would result in many new private-public ownerships. Urges the committee to vote no.

 

422

Sen. George

Asks question concerning the newspaper article.

 

449

Sen. Whitsett

Responds, Klamath County’s tax assessor believes this is a method of excluding PPM from the tax roles.

 

 

 

TAPE 144, SIDE B

020

Al Switzer

Reads prepared statement why Klamath County Board of Commissioners opposes HB 3453 (EXHIBIT 7). The bill will cause significant revenue losses for other local districts. The bill promotes unfair competition. Compares PPM with Co-gen and Cobb.

 

069

Chair Deckert

Asks who built the Cobb plant.

 

071

Switzer

It has not been built yet, but it is sited and going through the process. It is a private project.

 

073

Sen. George

Refers to the first bullet point in Riddell’s testimony.

 

076

Riddell

Responds, Sen. George has an old handout. The new one supersedes, AOC is not implying it is ownership. AOC’s purpose is to address general statewide policy. Policy change would affect typical tax treatment of private use of public property.

 

092

Sen. Prozanski

Asks, what is PPM’s actual use of the facility?

 

107

Sen. George

Asks about the 53% of the facility that is not contested.

 

115

Riddell

Believes none of the power generated at the facility is sold locally.

 

118

John Phillips

DOR is neutral on this bill. Clarifies interpretations. DOR believes the property is taxable. It is owned by a public entity and is under contract for use by a private entity. The private entity is taxable.

 

147

Sen. George

Asks, is this a lease of the facility or an agreement to purchase the power generated by that facility?

 

151

Phillips

PPM generates electricity and sells the energy for its own purposes. The question is whether to exempt one entity from taxation.

 

160

Sen. George

Follow-up questions and discussion with Phillips.

 

206

Phillips

Points out, there’s a lot of discussion about intangible property. It is the tangible property that’s being taxed. DOR uses three approaches and decides which best fits the property.

 

216

Sen. George

Asks if any money has ever been collected from this tax and transferred to a school district or to the county.

 

 

 

221

Switzer

Answers no, the money is in an agency account and will not be disbursed until the lawsuit is settled.

 

228

Chair Deckert

Asks Phillip to summarize the tax court decision.

 

241

Phillips

The judge ruled that the property is taxable, and that decision was appealed. Parts of the opinion DOR didn’t agree with, part PPM didn’t agree with, but DOR agrees with the end result.

 

249

Chair Deckert

Asks Ayala to get a copy of the opinion.

 

256

Phillips

Summarizes, DOR disagrees with PPM’s claims.

 

276

Bill Linden

Testifies in favor of HB 3453. The City of Klamath Falls came to the Legislature for authorization to construct this plant. There is no question that the facility is 100% city owned. Gives background.

 

 

 

326

Linden

This bill is drawn as narrowly as possible to affect only this facility. This is a dispute between Klamath County and the City of Klamath Falls. “Significant revenue losses” is an overstatement. “You can’t really lose what you never had.” Strongly encourages the committee to move this bill. It restores parties to the status quo.

 

371

Sen. Prozanski

Asks Linden how an enterprise zone would work in this situation.

 

383

Linden

Responds, if the facility had qualified under the enterprise zone statute, there would have been a tax exemption.

 

406

Sen. Metsger

Asks Linden his feelings about an assumption, made in good faith, to amend the bill to reflect this project only, and assure it would not change tax policy.

 

445

Linden

Would not object to making it narrower.

 

465

Acting Chair Metsger

Closes public hearing on HB 3453. Opens public hearing on HB 3454-A.

 

TAPE 145, SIDE B

CONTINUE PUBLIC HEARING ON HB 3454-A

025

John DiLorenzo

Reads written testimony in support of HB 3454-A (EXHIBIT 8). Discusses fair treatment of entities out of Oregon, and similar cases currently in litigation in Seattle and Tacoma, Washington.

 

074

DiLorenzo

Page 3: ORS 307.090 exempts city property from taxation. Gives possible outcomes of a ruling. The court and parties are awaiting legislation from Oregon Legislature.

 

113

DiLorenzo

Page 4: HB 3454-A would not affect the tax status of any contract signatory other than Seattle and Tacoma. Explains why.

 

131

DiLorenzo

Explains why the Washington companies that he represents oppose the amendments. Directs members’ attention to chart on property taxation of entities with contractual rights (EXHIBIT 9).

 

212

Gary Conkling

Testifies in support of HB 3454-A (EXHIBIT 10). Proposes an amendment, SB 3454-A3 (EXHIBIT 11) to treat Snohomish PUD, Seattle City Light and Tacoma Power alike in exempting them from property taxation in Oregon.

 

280

Conkling

Explains the core of the Snohomish case – the policy question is one of nexus. Does it make sense for Oregon to tax these utilities which are not even doing business in Oregon? Asks to add Snohomish PUD to HB 3454-A.

 

316

Chair Deckert

Asks, what would be Snohomish’s position without the amendment? Follow-up questions.

 

332

Conkling

Without HB 3454-A3 amendment, Snohomish would be left as the only remaining plaintiff in tax court.

 

358

Sen. George

Comments on the AC Intertie. Asks, is it possible to identify which electrons have gotten to California, or to even tax it?

 

413

Conkling

Agrees, tracking electrons to a destination is probably not what anyone does.

 

429

Sen. George

Expresses concern about taxing power to and from its destination. This would be a significant change that could hurt a system that functions well. It is not possible to identify where the electrons are.

 

445

Sen. Prozanski

Refers to DiLorenzo’s chart. Oregon PUDs are taxed. Is hearing that Conkling wants Oregon to treat two similar situations differently.

 

 

 

TAPE 146, SIDE A

025

Conkling

Responds, Oregon’s tax statutes refer to people’s utility districts, and Snohomish is a public utility district. This bill is written narrowly to apply only to property rights associated with the intertie. This is a unique circumstance.

 

046

Sen. Prozanski

Follow-up questions and discussion with Conkling. Asks Conkling to comment about gas pipelines.

 

058

Conkling

Responds, these interests, if they were in Washington, would not be subject to tax. Comments on natural gas pipelines.

 

088

Sen. George

Notes that if Snohomish PUD had physical facilities here, they’d be taxed.

 

113

Sandy Flicker

Testifies in support of HB 3454-A2 amendment (EXHIBIT 12), which includes in-state and out-of-state PUDs and electric cooperatives. Agrees with Rep. Butler that this bill is about equity. Agrees with DiLorenzo’s testimony that the issue is about locally driven, nondiscriminatory tax policy. Sen. George captured this issue.

 

140

Scott Corwin

Reads testimony in support of HB 3454-A2 amendment (EXHIBIT 13). Gives background and reasons why the bill should be amended to exempt cooperatives’ rights to the intertie.

 

228

Corwin

Comments on DiLorenzo’s testimony and chart. Would have drafted the chart slightly differently.

 

275

Vice Chair C. Starr

Asks, what services are being provided with the taxes received?

 

278

Corwin

Can’t name any services.

 

296

Vice Chair C. Starr

Follow-up questions and discussion with Corwin and Flicker. If there’s a tax due, they should be liable for the tax.

 

358

Vice Chair C. Starr

Is persuaded to move HB 3454-A2 amendment and the bill.

 

367

Sen. George

Agrees, this is not a fair way to achieve revenue.

 

416

Phillips

Believes this bill extends the same benefits to municipalities of other states that are extended to municipalities of Oregon. DOR is neutral on this policy choice. Clarifies comment by DiLorenzo concerning tangible property. In regard to who’s using the property, it’s all challenging because of new technology. DOR is trying to apply the Legislature’s policies.

 

TAPE 147, SIDE A

032

Chair Deckert

Asks Phillips how DOR arrived at the assessment point.

 

035

Phillips

Responds, DOR noticed years ago that one entity reported substantially different assets from year to year. It turned out they were including use of the property in the intertie. That’s how the DOR realized there was a problem.

 

055

Chair Deckert

Why are municipalities filing with Oregon Dept. Revenue in the first place?

 

058

Phillips

Responds, there was other activity in Oregon.

 

072

Sen. George

If federal government wouldn’t give Oregon the information, it must assume Oregon wouldn’t be taxing.

 

079

Phillips

Is not sure the feds are under any obligation to share information.

 

084

Riddell

Testifies in opposition to HB 3454-A. See written testimony (EXHIBIT 14). Notes, if an Oregon city uses property in Washington state, it would be taxed if owned by a private entity. They have a parallel statute. Asks the committee to let current law stand and to let the tax courts work through this. Slow down, it’s gotten very complex and there are potential unintended consequences.

 

138

Sen. George

Also believes there could be major retaliation.

 

144

Michelle Deister

League of Oregon Cities opposes HB 3454-A2 and HB 3454-A3 amendments because they convey exemptions to entities that currently pay property tax in Oregon.

 

164

Chair Deckert

Closes public hearing on HB 3454-A. Opens hearing on SB 415.

PUBLIC HEARING, SB 415 

168

Chair Deckert

Gives background of SB 415 which changes the school funding formula.

 

185

Steve Meyer

The SB 415-2 amendment (EXHIBIT 23) replaces the original bill. It increases the school district’s share of state and local revenue from 95% to 95.25%, and drops Education Service Districts’ share accordingly. The bill also reduces maximum administrative costs allowed.

 

214

Meyer

Directs members’ attention to ESD Finance Distribution chart (EXHIBIT 24). Responds to questions about the chart.

 

 

 

252

Ozzie Rose

Testifies against SB 415-2 amendment on behalf of Oregon Assn. of ESDs. The bill moves $20 million from ESDs to school districts, about $15 per child. This change will result in cuts to ESDs and they’d have to fund the services elsewhere. Each district would be affected differently, and small districts would suffer the most. COSA and OSBA don’t support this measure.

 

 

 

314

Chair Deckert

ESDs have not gone through the tough cuts that school districts have. This bill would at least have some partial benefit to schools.

 

334

Rose

Has no idea of the impact on many of these districts. Gives examples.

 

378

Vice Chair C. Starr

Comments on a meeting held with Douglas County ESD. Cannot believe they could continue to operate if a 50% cut in administration is mandated.

 

390

Chair Deckert

Clarifies, it’s 50% of the .25% revenue cut.

 

417

Sen. Prozanski

Agrees, Douglas ESD would suffer. Is waiting for additional information.

 

438

Conkling

Refers to written testimony of Northwest Regional ESD Superintendent Jim Mabbott (EXHIBIT 28), who opposes SB 415-2 amendment. Draws attention to the third paragraph.

 

TAPE 146, SIDE B

038

Conkling

Finally, in Douglas County school districts, 85% of ESD revenues go toward education of special needs students.

 

055

Chair Deckert

Asks if Conkling would support reducing the school funding figure by $24 million.

 

061

Rose

Responds, the school funding number is irrelevant to this discussion. The issue is how it’s distributed. In Douglas County there is no place to increase efficiencies. They won’t be able to replace the service cut out of ESD. This does not address the issues. It will create disarray and make it harder to give services to children, especially in smaller districts.

 

092

Chair Deckert

Counters that there are economies of scale at the larger districts.

 

103

Tricia Smith

OSEA opposes this amendment. Disagrees with the belief that there are inefficiencies in ESDs. This is moving deck chairs around on the Titanic. Don’t cut some to feel like you’re helping others.

 

113

Rob Myers

Was not aware the amendment included a 50% reduction in administrative costs. In smaller ESDs there are no savings to be had. Three of the five small ESDs returned more money to the state than they received.

 

135

Chair Deckert

Will not move this bill today for lack of support. Asks committee for their opinions.

 

138

Sen. Prozanski

Agrees. We must realize ESDs are different in size and performance.

 

155

Chair Deckert

Comments on the Legislature’s current school funding hearings. Closes public hearing on SB 415. Adjourns meeting at 4:02 p.m.

 

 

 

Tape Log Submitted by,

 

 

 

Barbara Guardino, Committee Assistant                                                      

 

Exhibit Summary:

1.      HB 3453, Staff Measure Summary, Ayala, 6/20/05, 1 pp.

2.      HB 3453, Revenue Impact of Proposed Legislation, Ayala, 6/20/05, 1 pp.

3.      HB 3453, Staff Measure Summary, Ayala, 4/27/05, 1 pp.

4.      HB 3453, Revenue Impact of Proposed Legislation, Ayala, 4/21/05, 1 pp.

5.      HB 3453, PPM Energy, Miller, 1 pp.

6.      HB 3453, testimony of Gil Riddell on behalf of AOC, 6/20/05, 2 pp.

7.      HB 3453, testimony of Al Switzer, 6/20/05, 1 pp.

8.      HB 3454-A, testimony of John DiLorenzo, 6/20/ 05, 7 pp.

9.      HB 3454-A, Property Taxation of Entities chart, DiLorenzo, 6/20/05, 1 pp.

10.  HB 3454-A, Memorandum from Gary Conkling, 6/20/05, 3 pp.

11.  HB 3454-A, Amendment HB 3454-A3, Conkling, 6/17/05, 1 pp.

12.  HB 3454-A, Amendment HB 3454-A2, Legislative Counsel, 6/1/05, 2 pp.

13.  HB 3454-A, Statement of Scott Corwin for PRC, 6/20/05, 2 pp.

14.  HB 3454-A, testimony of Gil Riddell on behalf of AOC, 6/20/05, 1 pp.

15.  HB 3454-A, Staff Measure Summary, Ayala, 6/20/05, 1 pp.

16.  HB 3454-A, Revenue Impact of Proposed Legislation, Ayala, 6/20/05, 1 pp.

17.  HB 3454-A, Staff Measure Summary, Ayala, 4/27/05, 1 pp.

18.  HB 3454-A, Revenue Impact of Proposed Legislation, Ayala, 4/21/05, 1 pp.

19.  HB 3454-A, Revenue Impact of Proposed Legislation for HB 3454-A2, Ayala, 6/20/05, 1 pp.

20.  HB 3454-A, Staff Measure Summary for HB 3454-A2, Ayala, 6/20/05, 1 pp.

21.  HB 3454-A, Staff Measure Summary for HB 3454-A3, Ayala, 6/20/05, 1 pp.

22.  HB 3454-A, Revenue Impact of Proposed Legislation for HB 3454-A3, Ayala, 6/20/05, 1 pp.

23.  SB 415, Amendment SB 415-2, Legislative Counsel, 6/16/05, 4 pp.

24.  SB 415, ESD Finance Distribution, Meyer, 6/15/05, 1 pp.

25.  SB 415, Revenue Impact of Proposed Legislation, Meyer, 6/17/05, 1 pp.

26.  SB 415, Staff Measure Summary, Meyer, 6/20/05, 1 pp.

27.  SB 415, Staff Measure Summary, Taylor, 4/14/05, 1 pp.

28.  SB 415, testimony by NWRESD Superintendent Jim Mabbott, 6/20/05, 1 pp.