What is the SIP?
Oregon lawmakers created the Strategic Investment Program in 1993 to lure big manufacturers like Intel. It exempts their expensive production tools (Intel is spending more than $3 billion to build and equip each of two phases of its new D1X research factory) from property taxes other businesses pay.
This is Intel's fifth SIP (there were two in 1994 and one each in 1999 and 2005. The 2005 deal didn't kick in until 2010, when exemptions from the 1999 deal began to expire.)
What's in this SIP?
The 30-year agreement exempts up to $100 billion in Intel tools and equipment from property taxes. Intel will pay regular property taxes on its land and buildings (actually, a "fee-in-lieu" of the same amount) and on the first $100 million of its equipment. It will also pay $2.9 million annually for 20 years, plus a $2 million "community service fee," and make a $100,000 charitable contribution (allocated by Washington County commissioners) in each of the next six years.
How was this pact negotiated?
It's been obvious for some time that Intel's last SIP, which took effect in 2010 and exempted up to $25 billion in spending from property taxes, would run out long before its 15-year limitation. Intel quietly approached the county March 21 for an extension.
In the talks, Washington County was represented by county commissioner Roy Rogers, county administrator Robert Davis, assistant administrator Rob Massar, deputy administrator Sia Lindstrom, county counsel Alan Rappleyea, consulting attorney Dan Olsen and assessment and taxation director Rich Hobernicht.
Hillsboro was represented by Mayor Jerry Willey, city manager Michael Brown, economic development director Mark Clemons and finance director Suzanne Linneen.
County negotiators say they modeled the new deal on Intel's most recent SIP. The new agreement's payments and structure are the same, though negotiators say they pressed Intel on the distinction between buildings and equipment.
Why don't voters get to weigh in on this deal?
State lawmakers gave the authority to negotiate and approve SIP agreements to local cities and counties. Voters don't have a direct say, but they elect the county commissioners and city councilors who do vote on the agreements.
Voters can speak their mind at a public hearing on Intel's SIP deal Aug. 26. Washington County commissioners and the Hillsboro City Council will vote on the deal immediately afterward.
How much will the deal save Intel?
The amount depends on how much Intel invests, when it makes those investments, and overall property tax rates. Two prior SIP agreements still in effect saved Intel $122.6 million last year, according to Washington County.
In 2005, the last time Intel negotiated a SIP agreement, Washington County estimated the company's $25 billion exemption would save Intel $579 million. Four years after that SIP went into effect, that estimate appears to be holding up.
This new deal is four times that size. So while Washington County has declined to estimate the value of the pending agreement, simple math suggests that the savings are likely to be four times as great – more than $2 billion – and the current rate of savings under Intel's 2005 SIP appears to confirm that.
Does Intel have to pay back its money if it doesn't invest the $100 billion?
Unlike tax subsidies that pay companies up front out of public coffers, the SIP only grants tax breaks on investments Intel actually makes. So the state doesn't get any refunds if Intel doesn't come through -- but Intel doesn't get any tax breaks, either.
How many jobs does the deal require from Intel?
There are no job requirements in this deal (a separate deal last year requires 500 jobs.) Intel says it will use these tax breaks on equipment upgrades, not expansion.
What does Intel pay in property taxes?
Since Intel is charged regular taxes on its land and buildings, it's still the largest taxpayer in Washington County. The company paid around $33.5 million in property taxes last year, including taxes on land and buildings that would otherwise have been covered by the SIP, more than triple the county's second-largest property taxpayer, Nike, which paid about $9.5 million. (The actual payments aren't clear; some big taxpayers lower their bills by challenging the county assessments. Washington County reports taxes levied, but not taxes paid.)
How are schools affected?
About 40 percent of local property taxes go to schools, and an investigation by The Oregonian earlier this year found that 20 years of Intel SIP agreements have cost Washington County schools about $300 million. But the state uses personal income taxes to compensate the schools for the lost revenue.
Schools do not get a formal say in SIP agreements. Because Intel does not plan
additional hiring in conjunction with the deal, Hillsboro schools say they don't anticipate the agreement will bring additional families – and additional costs – to the district.
Oregon's taxes must be too high if we need this special program to attract manufacturers, right?
Oregon actually fares pretty well in national rankings of state tax climates. That's partly due, of course, to tax breaks like the SIP that benefit certain businesses with lots of economic leverage, but not others.
Whether Oregon's tax code is good for business depends a great deal on the type of business. In addition to property taxes like the SIP, big companies like Intel that sell most of their products out of state are largely exempted from corporate income taxes.
And Oregon has no state sales tax. Other states, including Washington, exempt big manufacturers like WaferTech (in Camas) from sales taxes on their manufacturing equipment.
Oregon's relatively high personal income and capital gains taxes weigh on company founders and owners. Some have argued that has inhibited startup activity in the state.
The SIP is statutorily limited to 15 years. How did Intel get a 30-year deal?
The new deal envisions a succession of deals, a new one kicking in when the old one hits a limit in spending or duration. Intel sought that provision so it wouldn't have to negotiate a new deal every few years as prior ones run out.
Intel is getting tax breaks on its equipment. Who makes that equipment?
Suppliers such as Applied Materials make the tools at factories around the world. None of the chip industry's major suppliers make their tools in Oregon.
What would happen if Oregon refused to extend Intel's SIP?
Intel has not suggested it would scale back its Oregon investment without a new SIP, but it has said that it would have not made its prior, huge investments in Washington County without a SIP.
As a practical matter, Intel is not likely to walk away from the new, D1X research factory now under construction in Hillsboro. It's essential to Intel's manufacturing process development, the company's key strategic advantage. Even if Intel could repurpose another factory elsewhere to serve the research role, it would be an enormous task to relocate the thousands of Oregon researchers who craft each new generation of Intel microprocessor.
That said, the Oregon research factories also engage in high-volume production once Intel has perfected its latest chip recipes. That work might shift elsewhere, more quickly, if Oregon manufacturing tools faced a higher tax rate.
For the same reason, Intel might shift more research to its facilities in Arizona or in Israel, which heavily subsidizes the chipmaker's operations, if its Oregon costs suddenly rose.
Intel has long complained that New Mexico's corporate tax structure is less favorable than in other places where it operates. That may be one factor why the company has passed over the state for Intel's last three upgrades in chip production technology, putting its factories there at risk of obsolescence and leaving the future of its New Mexico operation in doubt.
Where can I read the complete agreement?
Washington County has it online.
-- Mike Rogoway; twitter: @rogoway; 503-294-7699