Oregon Tax Credits Face Day of Reckoning

Statesman Journal
April 25, 2011

This year is different.

While supporters of education and human services pack a hearing room at the west end of the Capitol's suite of hearing rooms — a common sight as lawmakers get serious about the state budget — advocates of business and professions pack another hearing room at the east end.

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Their goals are different, but they do have something in common.

Those in the first group want lawmakers on the budget committee to spare or ease cuts in direct state spending on their programs.

Those in the second group want lawmakers on tax committees to preserve indirect state spending in the form of tax breaks.

Although lawmakers have given more attention to the budget in the past, they have turned a spotlight on the tax breaks because in addition to the $3.5 billion gap between estimated tax collections and projected spending levels, there's a 2009 law that compels them to.

The 2009 law requires automatic review of about 50 tax credits, which are subtracted directly from taxes owed, over the next six years. There are 23 up in the two-year cycle starting July 1, and the way the law is written, lawmakers must vote to renew or change them — or they will expire.

The law exempts from review a few credits, including the biggest one used by most individuals on their income taxes.

This session, the credits up for review have to compete against each other — and for a share of an as-yet undetermined amount that is not now in the budget framework unveiled March 29 by the Legislature's chief budget writers.

"We hope we will have some resources left, and we can say here's the money they can use for tax expenditures in priority order," said co-House Speaker Arnie Roblan, D-Coos Bay.

Unlike Gov. John Kitzhaber's budget, which assumed that all 23 credits would continue at a cost of $38.6 million, the Legislature's framework has them at zero.

Spotlight on film break One of the largest up this cycle is the tax credit for Oregon film and video production, which started eight years ago. Individuals and businesses contribute to an investment fund, for which they receive a tax credit of between 5.3 percent and 11.1 percent.

Money from the fund is rebated to filmmakers to pay up to 10 percent of wages for work done in Oregon (nonresidents qualify) and 20 percent of production-related goods and services from Oregon vendors.

The fund is capped at $7.5 million annually. Kitzhaber wants to increase it to $20 million annually; a maximum of $500,000 would go to a single production.

"I would be surprised if they eliminated the film credit," Kitzhaber told the Statesman Journal editorial board on April 6. "We have a lot of big film companies looking for a place to land, and Oregon has a lot of advantages. It's in the same time zone as Los Angeles, we have a lot of people interested in working — and these are union jobs — and diverse scenery." About 40 states offer incentives that vary widely. Kitzhaber said he wants Oregon to take advantage of a decision by New Mexico's new Republican governor to reduce that state's credit.

The House Transportation and Economic Development Committee, on a split vote April 1, endorsed renewal but removed the cap.

Now it's up to a joint House-Senate committee specifically assigned to review all the credits once the policy committees finish with them.

The pro side Last week, the joint committee heard testimony largely from those who want to expand the film and video credit contained in House Bill 2167.

The room was full of advocates. But Rep. Vicki Berger, R-Salem, a House co-chairwoman of the joint committee, said she wants to hear from people who can tell her specifically what a tax break means in terms of jobs or economic activity.

"We did not want to hear from Vince Porter," Berger said referring to the director of the Governor's Office of Film and Television. "We want to hear from the hardware store owner who speaks to what it does for him."

Berger said she was fascinated by the testimony of Bruce Lawson, who has made a living for 30 years as a key grip — the technician in charge of cameras in a production.

Lawson said the tax incentive has spurred the industry's growth in Oregon. He and his two brothers have joined to form Elite Camera Cars, and they are able to hire more people when a specific show is in production. On a full-time basis, he said, he would earn $31 per hour.

"This year has the best potential in the 30 years I've been doing this," he said. "It would be a shame to kill this momentum."

Direct spending on qualifying film and television projects for the past four years, through Dec. 1, is pegged by the state film office at $178.5 million. Such projects' average pay is a third above the state per-capita figure. Among the bill's supporters are the Oregon AFL-CIO labor federation, Oregon Business Alliance, and Oregon Restaurant and Lodging Association.

"We got the message, loud and clear, that we are a creative center for this industry and poised to have a lot of economic development and good jobs," Berger said. "But they don't go to states without some sort of incentive."

A good use? Chuck Sheketoff, executive director of the Oregon Center for Public Policy based in Silverton, said taxpayers would be better off if the state gave direct grants to production companies rather than tax incentives to those who pay into the production fund.

"The film companies get subsidies based on how much they spend in Oregon," he said in an interview. "The person who gets the tax credit is smarter than us, and shows up at the (state) film office to buy at 90 or 95 cents a credit worth $1 on the tax return. These people have nothing to do with films, but they get the money for the credit."

He also said the resulting jobs are dependent on a continuing tax break, as opposed to incentives for startup manufacturers that can be phased out.

Sheketoff testified when the bill was in the economic development committee on Feb. 9, a day after his think tank released a report.

A paper issued by the Center on Budget and Policy Priorities, based in Washington, D.C., said so many states offer such incentives — the number is up from just five states in 2002 — that it is not a good investment.

"Nearly every state could do a better job of evaluating tax expenditures against their original goals and determining whether or not they are cost effective," they wrote. "Ideally, tax expenditures should be considered in the same manner as the general-fund budget — all spending subject to similar scrutiny and to similar reductions in times of deficit — as part of a balanced approach to closing budget gaps."

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