Where is Dr. No when we need him?
John Calhoun
Why did the Oregon constitution grant governors a veto? There are many reasons that can justify such a power. For example, the governor is head of the executive branch and is the only one in the legislative process that is elected statewide. But one fundamental reason has to be to provide our legislative process a chance to correct itself when a bad bill gets pushed through in the rush to recess by lobbyists who represent a very small group of very rich people.
SB 817 has been discussed here before while the bill was moving through the legislature; SB 817: Will Wall Street Score an End-of-Session Win? By Chuck Sheketoff and More Handouts For Millionaire Investors? Let’s Get Our Priorities Straight By Scott Moore.
SB 817 provides matching tax credits to a federal program that, in theory, helps fund economic development in low-income communities by providing project investors with a federal tax credit matching 39% of the cost of the project. The SB817 credits are capped so that no project will get state tax credits of more than $1.56 million, but the total cost to Oregon could be $78 million in lost revenue.
The justification for this bill is that investors need an incentive to invest in low-income communities.
Unfortunately projects have managed to somehow end up in places that are not low income. The poster child in Oregon is The Nines luxury hotel at Pioneer Square which received a $27 million federal credit. Now those of us who live in Portland may feel that it was helpful that the Meier and Frank building did not sit empty and blight our city, but I doubt that tax payers in Woodburn think that their tax money should go to such a project and the people in East County would surely scratch their heads about the definition of low income neighborhoods. The other justification for the state tax credit is that it will encourage more federal money to flow to Oregon. Since we already get 3 times the national average it is doubtful that we will be able to continue to increase our share. Lastly, for a project like The Nines, the $1.56 million would not make the difference between a project moving forward or not.
It is just throwing away our tax dollars.
As a Democrat, business entrepreneur, and investor, I know there are times that government intervention pays big dividends for economic development. But I am also a taxpayer and I know when I am being ripped off by New York financiers. Legislators wanted to vote for job creation and economic development. The lobbyists knew this and packaged this legislation to appeal to that interest.
There are a lot of ways to provide economic development assistance that I could support and which would minimize the cost to the tax payer while providing real economic incentives. Unfortunately, no one was paying a lobby group to provide these alternatives. Our legislators ended up in the position of having one option in front of them at the end of the session and the choice ofvoting for or against jobs and economic development. Those facing a tight race do not want to be the one who killed a jobs bill. Some of the legislators that voted for this bill know that it is not good legislation, but they felt they had no choice.
Which brings us back to the Veto. Governor Kitzhaber has time to work with Business Oregon, the legislature, and the business community to come up with better alternatives. He can save the legislature from itself, and the state $78 million. He needs to veto SB 817.
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10:02 a.m.
Jul 11, '11
Onward Oregon has asked its readers to encourage the Governor to veto SB 817
11:46 a.m.
Jul 11, '11
I should have mentioned that there was a budget process in the House that debated various tax credits. The goal was to weigh the various alternatives and budget the total tax expenditure. SB 817 did not go through this same budget control and should have.
11:57 a.m.
Jul 11, '11
Actually, SB 817 did go through the Joint Tax Credits Committee. Watching was dumbfounding. The committee worked hard to live within their tax credit budget, ending some tax breaks entire and cutting or capping others. They worked for days, with great care.
Then they passed SB 817, as though after a diet they deserved an ice cream sundae.
They could pass SB 817 and still be within their “tax credit budget” because the bill is cleverly designed to have no effect until next biennium.
The national investment group that pushed this bill has used the same ploy in other states. That doesn't make it a good bill.
4:36 p.m.
Jul 11, '11
Jody, when bills are moving through Congress, we talk about CBO estimate that covers the cost over 10 years.
Are you saying that the fiscal impact only counts in Oregon for the current budget year?
6:53 p.m.
Jul 11, '11
Usually the Revenue committees receive longer projections. For example, for HB 3672, the big bill cutting back on all the tax credits this year, the Revenue Impact statement shows the General Fund impact for each year in the coming biennium and for the two biennia following.
For SB 817 they had a Revenue Impact report for three biennia as well. But their "tax credit budget" was $10 million for the coming biennium, and SB 817 shows zero for that period. That was what mattered for the committee.
If not vetoed, SB 817's tax credits will start being passed out in July of 2012. But they cannot be used for the first two years. In the third year 7% of the credits can be claimed, and 8% in each of the four years following that.
12:37 p.m.
Jul 11, '11
Veto should be a no-brainer for Governor Kitzhaber.
While some investments that would qualify under the NMTC program would not qualify for this additional state credit, every investment that qualifies under the state NMTC would qualify under the federal program. Thus, this is mere expensive, wasteful gravy for investments that otherwise would occur.
Just as Governor Kitzhaber supported ending renewable energy investment subsidies that were otherwise subsidized and would likely happen anyway, he should support a veto of this state credit that merely subsidizes a program that gives the investors federal subsidies.
The tax credit has an unprecedented unlimited time period for carry forward of unused credits. That's a policy that the Governor should not support. And there's no mechanism for the state to calculate the out year costs of credits carried forward into future years. There is nothing requiring an accounting to the Department of Revenue.
The Joint Tax Committee chose to push a tax credit program that has out year costs without looking at other options for whom to help with such a scheme. For instance, as they considered this program a proposal to expand a tax credit for low- to moderate-income working families with children, the state EITC, languished in the Senate revenue committee. Certainly Governor Kitzhaber would agree that, if the legislature is going to commit out-biennia funds to a new tax credit program, low- and moderate-income working families ought to be a higher priority than the Wall Street investors and insurance companies who already will receive the federal New Markets Tax Credits.
Oregon has been getting more than its fair share of NMTC investment without the state credit. The new spending is not needed and ought to be vetoed by Governor Kitzhaber.
12:58 p.m.
Jul 11, '11
he's free to speak for himself, but Rep Jules Bailey included this in his end-of-session message to constituents:
as someone who is ignorant of the issues, i'm torn between trusting my Rep, who has the hard job of actually having to vote on these issues and being responsible for the outcomes, and other Oregonians whose judgment i also respect (Calhoun, Sheketoff, Wiser). i don't know who is right on this; i just wanted to share the Rep Bailey had reasons for voting Yes on this bill that he believed were solid -- and to point out that his first choice was a freaking state bank (one of many victims of Bruce Hanna's allegiance to Corporate America at the expense of Oregonians).
12:04 p.m.
Jul 12, '11
T.a., I too got this message from our rep. Jules Bailey, along with a couple of others addressed to me. He told me to "read the bill" and so I did read SB 817 carefully.
There is no definition of "small business" and so that must mean the fed definition of no more than 500 employees.
In spite of the laughably deceptive title of "Oregon Low Income Community Jobs Initiative," there are no job creation requirements--just a reporting requirement in case any are created. And so on, and so on.
I saw on Jules's website that he's especially interested in "public-private partnerships." Perhaps in Ivy League economics that's defined as "tax revenue flowing quietly from the public to the private sector"? Or, alas, in your words above, "allegiance to Corporate America at the expense of Oregonians."
1:44 p.m.
Jul 13, '11
As Patrick implies, Jules states that he supported this bill because it would help small business during a time when they have difficulty getting financing because banks just aren't loaning money. If so, why did the tax credits not start for two years? Answer; to avoid the tax credit budget cap. The legislators thus avoided a budget hit this coming biennium and are hopeful that by the time the tax credits start being used the economy will be in a far different place.
Furthermore, this program does not provide funds directly to businesses for investment but flows them through financial institutions that capture much of the benefit. This is a very wasteful way to get funds to a very limited number of small businesses. As Patrick points out since the credits are not limited to truly small businesses, say less than 100 employees, my guess is that most of the tax benefits will end up in the hands of larger businesses. I expect that the classification of small business will also be distorted by corporations set up for tax benefits, but which will be controlled by bigger organizations.
8:19 p.m.
Jul 11, '11
Clearly John Kitzhaber is a different person now,colder and more cynical, and more deferential to wealthy interests. His initial budget of T.A.N.F. (Temporary Assistance for Needy Families) was going to kick many women and children to the curb. Fortunately the Leg changed that. The decimation of the Salem/Keizer schools is not a problem for this governor.
"Dr. No" was willing to do battle with the barbaric GOP and moneyed interests for the sake of the needy, and for the sake of the environment. That person seems to be gone.
9:52 p.m.
Jul 11, '11
Bailey’s letter says: “This bill severely restricts the use of this program for building capital projects (like hotels)” There are two problems with this comment. First, the amendment to which Rep. Bailey refers should keep a real estate firm from getting a new sales office. But it wouldn’t restrict a medical group, hotel, auto dealer or Wal-Mart from getting Oregon tax credits for building a new building. Second, unfortunately the restrictions can easily be gamed. For example, in the Federal NMTC law there are restrictions against museums, but a car museum in Tacoma got NMTCs. Using the same mechanism – someone else owns the building and leases it to the real estate group – even a real estate office could benefit under Oregon’s law.
“…the size of the investment targets it at small businesses.” There is nothing in the bill that targets it to small business. Ask Intel if they’d walk away from $1.56 million. Texas has targeted investments to firms with fewer than 100 employees, with 80% of payroll in their state. Oregon law doesn’t, though there was time to add an amendment that would have done so.
“The program will sunset in five years so we can review it for effectiveness.” Unfortunately, five years from now $78 million will likely already be spent. That’s a little late for review.
1:52 p.m.
Jul 13, '11
As a community activist, registered democrat, a black man, and A NE resident I'm disgusted at the treatment of "low-income communities" in this state. Time and time again we are exploited under the guise of "job creation" or "investment", when really our politicians our padding the pockets of their rich friends. SB 817 is a prime example of how monied interests continue to hoard our wealth with the promise of trickled down benefits. (pssst...it's not working)
Governor Kitzhaber, I hope you veto this bill.
Look up Pareto Global, giving the public's money to private interests for "capital" projects is literally Rep. Jules Bailey's job.
from the website:
"Founder Jules Kopel Bailey works at the intersection of economics, public policy, the environment, and urban development and brings a specialization in public private collaboration and stakeholder integration."
-Nuff said