Bill would end some business tax credits.

Byline: Joe Harwood The Register-Guard

SALEM - State Rep. Randy Miller whacked a political hornet's nest Thursday when he proposed eliminating several tax credits whose beneficiaries include business, labor, political and minority groups.

With the state in the midst of a $2 billion revenue shortfall, Miller, R-West Linn, said he floated House Bill 3129 in an effort to spark a review of the state's 350 tax breaks.

Those deductions, credits and deferrals will deprive state and local governments of a combined total of $27 billion in the 2003-05 biennium.

While Miller's bill seeks to eliminate credits worth only $23 million in the next two-year budget cycle, it also would create a new state charitable contribution credit that would reduce state and local coffers of $109.3 million during the same period.

The tax credits Miller wants to scrap include the controversial pollution control credit for businesses, a credit for businesses that install alternative energy equipment or equipment that conserves electricity, the state political contribution credit popular with Democrats and labor groups and a credit for those who build farmworker housing.

Miller, who testified before the House Revenue Committee at the start of the bill's first public hearing, said lobbyists who showed up to speak against the measure "speaks volumes about special interests looking to protect their niches."

The bill would allow single or corporate tax filers to take a credit of up to $100 for making voluntary contributions to churches, foundations and other charitable organizations. Those filing jointly could take up to a $200 tax credit.

Under the current state income tax rules, only taxpayers who itemize their deductions on their federal tax return get a state tax benefit from charitable contributions, by having their state taxable income reduced by the amount of the charitable contributions.

Miller said a state charitable tax credit available to all taxpayers would be good for society - even though it would batter the state budget.

"I think this would empower citizens to direct some of the money that would otherwise go to the state to causes they believe are meritorious," Miller said. "If the state watched the pattern of where those contributions are going, we could learn something about the desires of our citizens."

The proposal came under fire from a collection of interests.

The business energy tax credit, for example, has proved popular with small and large businesses in the state. The credit is worth up to 35 percent of the cost of buying and installing renewable energy equipment such as solar or geothermal systems. It also rewards those businesses that invest in energy conservation equipment such as high-efficiency lighting.

"We understand the need to find solutions to the budget problems, but this is one (credit) not to cut because it is so effective," said Joe Schweinhart, a lobbyist for Associated Oregon Industries.

Schweinhart said with fuel and electricity costs rising, the state should be encouraging energy efficiency.

"It is effective for business, schools, nonprofits and the environment," he said. "You have win, win, win down the line."

Libby Henry, a lobbyist for the Eugene Water & Electric Board, said $20 million has been invested in local conservation projects eligible for the credit during the past five years.

The efficiency measures undertaken by Eugene businesses have cut the need for electrical generation by almost 7 megawatts. That accumulated reduction resulted in a savings of 13 percent of the utility's generation capacity.

Henry said that savings was significant, especially in light of the energy crisis that swamped the West in 2000 and 2001.

Several Eugene business owners who installed the equipment have told The Register-Guard that they could not have done so without the help of the tax credit.

Another business-related tax credit on Miller's chopping block allows firms that install equipment in order to reduce pollution into the air and water to take a credit worth up to half of the cost of the project. The credit is spread over 10 years.

Critics have long maintained the pollution control tax credit rewards businesses for installing equipment already required by state and federal environmental laws.

John Ledger, another AOI lobbyist, said the credit "is one of the few things we have left to help industries here in Oregon."

How far Miller's bill will go is unclear. Miller admits it will undergo drastic alterations before it leaves the Revenue Committee.

State Rep. Pat Farr, R-Eugene, who sits on the Revenue Committee, agreed that the bill needs work.

Farr said he was particularly concerned with eliminating the credits for business energy conservation equipment and farmworker housing. But he said the committee will have to consider doing away with some tax credits before the session ends.

"Every tax credit has proponents, but we are not going to be able to keep the tax credit system intact," Farr said. "We're going to have to make some very difficult decisions here."

But history is not on Farr's side, nor Miller's.

In 1999, a legislative panel exhaustively reviewed every tax break on the books and agreed on only one that should be eliminated: the fish-gleaning tax credit.

TAX CREDITS ON THE BLOCK

Tax credits proposed for elimination under House Bill 3129. Revenue impact for 2003-05 is in parentheses.

Trust for cultural development tax credit ($5.8 million)

Political contribution tax credit ($6.2 million)

Farmworker housing construction tax credit: ($400,000)

Farmworker housing lender's tax credit ($300,000)

Pollution control equipment tax credit ($5.1 million)

Business energy facilities tax credit ($600,000)

Telecommunications infrastructure tax credit ($3.2 million)

Electronic commerce enterprise zone tax credit ($1.4 million)

Total: $23 million

Cost of proposed charitable contribution credit: $109.3 million

- Legislative Revenue Office