Is Intel Bluffing Washington County Commissioners?
Chuck Sheketoff
Washington County Commissioners are proposing to sign a new "Strategic Investment Program" agreement with Intel, hoping the deal will foster job retention, not new jobs.
As noted by the County, "significant new employment is not anticipated." Never mind that state law at ORS 285C.603 provides that "[t]he Legislative Assembly declares that a significant purpose of the strategic investment program . . . is to improve employment in areas where eligible projects are to be located." In fact, while the County and Intel like to point to the fact that "growth directly attributable to the proposed 2005 SIP agreement is projected by Intel to be 1,500 new jobs," because Intel's current employment is 500 below its peak of a few years ago under the current SIP, the new SIP buys the hope (no promise) of only 1,000 new jobs over the 15 year period.
The County is telling The Oregonian that it has calculated that they are giving up a total of $579 million in local taxes over the 15 year period if Intel were bluffing. That is, if the new SIP were not signed and Intel still made the investments that might happen under the SIP (remember, Intel is making no promises in order to get the tax break), the Intel would have to pay an additional $579 million. Remember, this is the Intel who's leadership that should be ashamed of itself because Intel asks for tax breaks with threats of moving overseas while Intel simultaneously decries "the sorry state of our K-12 education system" in the US.
The County commissioners think that without this new tax break the investments in equipment covered under the SIP would very likely not occur, leading Intel to pull out of Washington County as their technology becomes outdated.
Should we really think the investments would not occur if the County does not sign the new SIP?
Consider this: Let's assume that Washington County chooses the high road of preserving funding for schools and other public services, calls Intel on their bluff, and doesn't sign the new deal. And assume for a moment that Intel stays in Washington County anyway and makes the same investments.
According to County staff calculations, Intel's property tax liability would go up over the 15 year life of the new SIP by $579 million, or $39 million per year. However, those property taxes are deductible from the 35% federal corporate income tax, so Intel's out-of-pocket costs to Washington County would be 65% of $39 million, or $25 million per year.
Intel had about $34 billion in worldwide sales in 2004; its worldwide expenses were about $24 billion. Oregon is Intel's largest US production facility by a long shot.
Is my "Intel stays...and makes the same investments" a crazy assumption?
How likely is it that a company with $24 billion in annual expenses is going to disrupt its US operations in any way, shape, or form over $25 million (one-tenth of one percent) in annual expenses? How likely is it that a company that pays its Oregon employees $1.2 billion annually is going to sacrifice that trained workforce over a $25 million annual fee and not continue to upgrade its resource in Oregon?
The answer to both is "not likely." And if they did, Intel stockholders should sue.
You can email the five Washington County commissioners and express your views here.
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connect with blueoregon
6:17 p.m.
Apr 23, '05
I guess the point of blackmail.....er.....bluffing is that the other guy can't tell if you'll make good on your threat.
What if Intel does what thousands of multi nationals are doing and moves offshore? I sure agree with you that this kind of stuff is destructive and will ultimately lead to the "leveling down" of all but the very wealthy in this state and in the US.
At best it's a rearguard action, but I really don't see that the commissioners can afford to be wrong.
I think that we need legislation on this one, but that's a can of worms too.
7:11 p.m.
Apr 23, '05
I would feel better about the SIP deal if:
1) They got some commitment from Intel about something, anything.
2) I thought the commissioners really did their due diligence in figuring out the true likelihood and cost for Intel to pick up and move elsewhere, or funnel their future new investment to other locations. Are there other locations that Intel could realistically funnel future expansion to at lower overall cost than Washington county?
I don't know much about the history of negotiations between Intel and Washington county, but I have the impression that the county has pretty much rubber stamped every request Intel has made over the past 15 years or so. When Intel says “jump!,” Washington country says, “how high?”
Has there been any push back at all by Washington county over the years? Any bluff calling on anything at all during the negotiations? What are Intel's reasons for asking for all these breaks, other than they want to save their shareholders a few bucks, and they figure they might as well ask because Washington county is likely to say yes?
Perhaps someone closer to the negotiations or someone who has followed this more closely over the years can enlighten me.
11:09 a.m.
Apr 24, '05
Here's a radical thought. Intel has many many options regarding its future and have made Oregon their first choice. Maybe Oregon should feel honored.
Even with the tax deferral, Intel still pays 4X as much property tax per employee as any other employer in Washington County.
Apr 24, '05
I believe that Intel would invest most of their $25 billion in other states where they have similar agreements to SIPC.
I also consider this SIPC to be an extension of previous agreements as linked in Chuck's post:
" If approved, the proposed new agreement would provide a framework for potential additional Intel investment in Oregon of up to $25 billion over a 15-year period expected to begin as soon as 2008 or as late as 2012. The new agreement would also establish a method for dealing with investment that might occur during an overlapping period covered by both the 1999 agreement and the 2005 proposal. "
Intel's justification for these SIPCs (In addition to it's $1.5 billion payroll and thousands of employees.) is that they cover high value manufacturing assets that are replaced, sometimes in a few years, with newer and more valuable assets. With such assets valued in the billions it is reasonable to assume Intel would make most of their new investments in more tax-friendly states.
2:40 p.m.
Apr 24, '05
Intel chose to come to Oregon knowing it would be making significant capital expenditures that would relatively quickly need replacement. They did that in 1974, and Oregon's taxes were not at issue. See Milk Matters?.
Oregon's site does not compete directly with other sites, and Intel has a history of refurbishing plants, not opening greenfields. See STATE ENACTMENTS OF THE "SINGLE SALES FACTOR" TAX INCENTIVE HAVE HAD LITTLE IMPACT ON INTEL CORP.’S MAJOR PLANT LOCATION DECISIONS.
The Strategic Investment Program was is now a dinosaur of a tax break, given Oregon's switch to single sales factor, where the investments in people and property will no longer count in calculating what percent of Intel's profits are subject to Oregon's income tax.
Come 2008 when single sales factor is fully implemented, will Intel be a $10 corporate income tax taxpayer? If so (based on precious few sales in Oregon AND use of research and development and other tax credits), should Intel be taken seriously when its leadership complain about Oregon's disinvestment in education and other public services?
If state law says the strategic investment program is to "improve employment," how is an agreement designed merely for job retention (and no guarantee of restoring the 500 jobs lost under the prior SIP) okay?
I hope that if any Intel employees are commenting they will be transparent about their connections to the company.
Apr 24, '05
Is OCBP an offshoot of COBAP?
Apr 24, '05
"Oregon's site does not compete directly with other sites, and Intel has a history of refurbishing plants, not opening greenfields." Intel has several manufacturing facilities with fabs (the most expensive type of plant) in sites in NewMex, Az, Israel and Ireland among others. Any of these sites could be a competitor for Intel's investment dollars.
Why does someone being an Intel employee give them any less valid an opinion? If he is/isn't an Intel employee does that really chage the substance of his point or is this a chance to launch into an ad hominem attack?
10:05 p.m.
Apr 24, '05
"gus" wrote "Is OCBP an offshoot of COBAP?" I do not know who COBAP is, and I am not sure what an "offshoot" means. OCPP (not ocBP) is an independent, Oregon non-profit corporation.
"Steve" wrote "NewMex, Az, Israel and Ireland. . . . Any of these sites could be a competitor for Intel's investment dollars." In theory, but in reality investments in Oregon have historically outstripped Arizona and New Mexico. Moreover, that comment does not address the economics issue: would they really walk away from the trained workforce (or pay to move some of it) over so little money? They are telling the folks in Arizona the same thing - that they are competing with Oregon. Can both states be winners?
Steve also asked why I asked Intel employees to identify themselves. Transparency is good and puts comments in perspective. Don't impute "an ad hominem attack."
Apr 24, '05
Sorry for all the trackbacks from Portland Metroblogging. I didn't realize everytime I edited my post I was sending another trackback.
It won't happen again.
Apr 25, '05
It does feel like a poor deal for Washington County. But in all honesty, Oregon needs Intel. Not just for the jobs and money that Intel itself brings in, but as a signal to other companies that Oregon is a reasonable alternative to California and Washington. I was just reading that Google is eyeballing some land out in the gorge somewhere. I have no doubt that Oregon's taxes and laws as shaped by Intel have something to do with that.
Apr 25, '05
Chuck:
An offshoot is something that branches out or derives its existence from a particular source.
COBAPP refers to Center On Budget And Policy Priorities which you linked to above.
I did some googling and it appears to me that OCBP is an offshoot of COBAPP
I have no ties to Intel.
9:52 p.m.
Apr 26, '05
OCPP was created by the Human Services Coalition of Oregon (HSCO) after seeing how the initial groups that were part of the State Fiscal Analysis Initiative (SFAI) were having positive impacts on the debates about budgets and taxes in their states. A little over one year after the OCPP became operational with seed funding from the Stern Family Fund, OCPP applied for and was accepted as part of the SFAI. We enjoy a mutually beneficial working relationship with the Center on Budget and Policy Priorities (CBPP). Given OCPP's independence, I don't know if I'd ever consider OCPP an "offshoot," but we we do partner with them on a variety of matters.