Analysts and politicians divided over waivers.

Byline: Sherri Buri McDonald The Register-Guard

A growing number of academics and economists pan property-tax waivers for business. Last year, two academics wrote a book on the subject, broadly slamming enterprise-zone tax waivers as unnecessary and ineffective.

But an increasing number of politicians - in Oregon and elsewhere - brush aside such criticism and dole out the breaks to a ballooning number of firms.

In recent years, most academics studying whether it makes sense to offer property tax waivers to induce companies to build factories and create jobs have decided they're a foolish proposition for a community.

Many companies admit that tax waivers are much less important than good workers, low wages and convenient locations. Many of the firms that get tax breaks would have located in the community anyway - and if not those firms, then perhaps others - so why make tax concessions when you don't have to, the academics ask.

But politicians meeting with executives scouting for factory sites typically talk up tax-break packages. That's especially true if a town is economically depressed and politicians feel pressure to prove to constituents that they're taking action. And with so many U.S. cities and states now offering the waivers, politicians figure that their town must offer tax breaks, too, just to stay competitive.

Neither the debate nor the handouts seems likely to go away soon - regardless of local economic conditions.

"In good times, the arguments are that taxes are high and we need to do things for business," said Anthony Rufolo, a professor of urban studies at Portland State University. "In bad times, the argument is unemployment is high and we need to do things for business." Rufolo says he thinks tax breaks are a costly way for a community to try to create jobs.

An academic's view

Peter Fisher, a professor of urban and regional planning at the University of Iowa, is co-author of "State Enterprise Zone Programs: Have They Worked?" a book published last year by the W.E. Upjohn Institute for Employment Research, a nonprofit group in Michigan.

Fisher and colleague Alan Peters studied 75 enterprise zones in 13 states. They didn't examine Oregon, but the size and type of waivers in Oregon are probably average for the study group, Fisher said.

These are among Fisher's and Peters' conclusions:

A few studies years ago asserted that enterprise zone tax breaks were effective at creating jobs, but most of the recent evidence, after many years of experience, suggests that the breaks have almost no influence on local job growth.

In most communities, 70 percent or more of the jobs created by companies that get tax waivers are jobs that the companies would have created anyway, Fisher, Peters and others calculate. In that scenario, giving the tax waivers ends up being a drain on state and local coffers, they said. The tax waivers don't spur the creation of enough new real estate development and jobs to offset the tax revenue lost by exempting the many companies that would have done their expansions anyway, the researchers said.

Most of the tax breaks are too small to materially affect the investment and location behavior of most firms. Consider Monaco Coach Corp. in Coburg. The firm has received property-tax waivers that saved it $1.3 million from 1997 to 2002. In that same period, the company reported profits totalling $190.7 million on sales of $4.9 billion. The tax waivers are so small that Monaco doesn't even mention them in its filings with the U.S. Securities & Exchange Commission. Monaco has a policy of not commenting to The Register-Guard, so it is unclear how much importance the company places on the breaks.

Wages are a much larger part of a company's costs than taxes - about 14 times larger, on average - and much more likely to influence a location decision.

The waivers are a "very expensive way to get jobs," Fisher said. "I think most of the incentives end up going to firms that would have been there anyway," he said. "Then you wonder if the only ones that you influenced are the ones that came and left after the tax break was up, and then move to where they really should have located."

Tax-break advocates - including Springfield Mayor Sid Leiken - argue that waiving property taxes on a new business for a few years is a small price to pay for the continued stream of property taxes that will flow in after the waiver expires.

But that logic unravels when a company leaves soon after its tax breaks expire, Fisher said.

"We did some analysis of the life-cycle of firms," Fisher said. "You discover fiscally it's a losing proposition" for a municipality to offer the breaks, he said. "With a lot of (companies) you don't get the property taxes you were expecting."

A politician's perspective

Leiken thinks these academics are out of touch.

"I haven't known very many economists that have created jobs in their lifetime," said Leiken, a bank employee and formerly owner of dry cleaning firms in Springfield, Eugene and Roseburg for 10 years.

Under the property tax structure created by Oregon Measures 47 and 50 in the late 1990s, recruiting new firms that build factories is a key way to increase the property tax base and help generate new tax revenues for local governments, Leiken said.

"We have to, now, base our budget on expanding the (tax) base, and if we can find opportunities to expand the base, then in the long run we'll be better off," he said.

With recent local business shutdowns, Leiken said he feels pressure to recruit out-of-area companies.

Tax breaks are essential in this, he said. "Once you can get them in the door by throwing (incentives) out there, then I truly believe you can market your work force and community," he said. "You have to have something to entice a company to look."

Oregon lacks some of the attractions of neighboring states, such as major ports or military bases, he added.

Leiken admits that some smaller companies might come to or expand in the Eugene-Springfield metro area without tax breaks. "But for the most part, if you want to be competitive to a firm offering 300 to 500 jobs, you have to have the tools and resources," he said.

In the period that the Sony plant was waived from paying property taxes, the company paid wages and made charitable donations, Leiken added. "The amount of money they spread throughout this community to nonprofits and different charitable events was enormous, and if not Sony, who was it going to be?" he asked.