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Oregon lawmakers see edge in energy tax credit
Mar 29 - McClatchy-Tribune Business News Formerly Knight Ridder/Tribune Business News - Gail Kinsey Hill The Oregonian, Portland, Ore. >State officials want to take Oregon's biggest business income tax break and make it bigger. The energy tax credit is just a piece of Gov. Ted Kulongoski's plan to take economic advantage of projects tied to wind, solar and biofuels. But it has become a cornerstone of an ambitious policy for adding solid-wage jobs to payrolls and greening the state's economy. Renewable energy is fast becoming a powerhouse industry, fueled by market demand, mandates and subsidies. Kulongoski wants to tap into that growth. And the support he has found so far speaks to the unifying force of global warming, which has made allies of Democrats and Republicans, earnest environmentalists and corporate titans. Even as it is, Oregon's income tax break, enacted in 1979, looks pretty juicy. It allows businesses to take a 35 percent credit, spread over five years, on eligible projects costing up to $10 million. "If you look across the U.S., this is probably one of the most innovative and aggressive tax incentives on the books," said Ron Pernick, a principal with Portland-based research firm Clean Edge. The expansion, contained in House Bill 2211, would double the size of eligible projects to $20 million and increase the tax credit to 50 percent taken over five years. Multifaceted projects that crack the $20 million limit might qualify for the credit several times over, further lowering investment costs. Yet, Oregon isn't the only state with designs on the budding green energy industry. "Clean tech" has become the darling of policymakers, venture capitalists, businesses and consumers across the country. States already trying to paint themselves a darker shade of green include California, Colorado, Minnesota, Texas and New Mexico. Each is beefing up various forms of incentives. Given stiff competition and the intricacies of corporate decision making, outcomes are unpredictable. Oregon lost a big one recently when Denmark's Vestas Wind Systems picked Colorado for a $60 million turbine-blade manufacturing plant that will employ 400. Then it scored with Germany's SolarWorld Group, which has announced plans to make solar cells and wafers at a long-vacant plant in Hillsboro. Uncertainties haven't dulled the enthusiasm. With predictions from Clean Edge that global renewable energy markets will quadruple in a decade, state policymakers are lining up to play the odds. Oregon's business energy tax credit saves companies a total of almost $12 million annually in income taxes, money that otherwise would flow to the state general fund, the state estimates. Expanding the credit is expected to increase business savings -- and reduce state revenue -- by more than $18 million annually. Often corporate tax breaks like this one prompt furious debates about whether they're really needed to prompt investment. Arguments sharpen when budgets are tight and the immediate trade-offs clear: savings for businesses mean less money for schools, health care and other state programs. Yet the bill to enhance the tax credit has stirred barely a puff of controversy. The popularity of green-tinged legislation certainly helps. But flush budget forecasts also have given Kulongoski a rare opportunity this session to test his economic agenda without facing a big political fight about spending priorities. State officials say the expanded credit not only would increase investment in conservation projects, which have dominated the program in the past, but would attract new development, including manufacturers of products such as solar wafers and wind turbine blades. "It's a major step forward," said Michael Grainey, director of the Oregon Department of Energy. "We're hoping for a big impact." A study by Portland-based economic consulting firm EcoNorthwest analyzed the credit's effect in 2003 and found a net increase in business spending, energy savings and job growth. Not everyone's on board. Some economists tend to discount the benefits of state economic development incentives such as tax credits. National and international forces, they say, are far more powerful. The state shouldn't back one type of business over another, said John Charles, president of the Cascade Policy Institute, a Portland-based nonprofit that favors personal freedoms and low taxes. "This year the fad du jour is sustainable industries -- whatever that means," Charles said. "Picking favorites, it's all very counterproductive. It wastes a lot of time and effort." When SolarWorld announced plans for Hillsboro, it cited several reasons for picking Oregon: a bargain price for an empty chip plant, a pool of skilled workers and state income-tax and property-tax breaks. Bruce Laird, national business development executive with the Oregon Economic and Community Development Department, led a yearlong effort to snag SolarWorld. The tax credit, he said, is just one of an astounding array of variables companies juggle when assessing expansion plans. What's more, foreign countries have jumped in with massive incentive packages, further diluting local efforts. "It's a great program," he said, "but it is extremely anemic on a global scale." Even on U.S. turf, competition keeps escalating. More than 20 states require utilities to increase their use of renewable energy, mandates intended to drive clean tech development. Oregon doesn't have a "portfolio energy standard" yet, but a bill to create one is pending in the Legislature, and Kulongoski has tagged it a priority measure. While Oregon offers one of the most aggressive income-tax incentives on the books, other states offer sales tax exemptions or property tax breaks of comparable heft. Yet Oregon has some natural advantages. Wind in close proximity to power supply lines is one of them. Portland-based PPM Energy, one of the country's largest wind-farm developers, is enjoying unprecedented support from policymakers as wind-rich states rush to enhance incentives, said Kevin Lynch, PPM's policy and regulation director. Utah lawmakers recently passed a production tax credit much like the national subsidy that has fueled an ongoing wind farm boom. Wyoming just extended a sales tax exemption for renewable energy equipment. Washington also offers a sales tax break. Oregon, absent a sales tax and willing to provide income tax and property tax breaks, ranks well in PPM's eyes. PPM plans to take advantage of the tax credit with its Klondike III wind farm in Sherman County, the company's biggest project in the state. It expects to use the credit three times for different parts of the $300 million, 221-megawatt project. Over a five-year period, then, it can recoup about $30 million, or 10 percent of its investment, if the enhanced credit becomes law. Other factors are much more important, such as wind speeds and transmission access, he said. Still, Oregon's energy tax credit is "very useful," Lynch said. "It's not an insignificant amount of money." |