City OKs Hynix tax break.

Byline: SHERRI BURI McDONALD The Register-Guard

The west Eugene Hynix plant may get a fresh tax break after all, courtesy of a sharply divided Eugene City Council.

The council on Wednesday said it is willing to reduce Hynix's property taxes on the company's recent plant upgrade from $4.8 million over the next three years to $1.1 million, plus a payment from Hynix of $1.5 million to local schools. In all, the deal would save Hynix $2.2 million in property tax payments.

Hynix had been seeking waivers of $5.8 million in tax payments due over five years.

The compromise was struck after Mayor Jim Torrey cast a tie-breaking vote that killed an alternate proposal, which would have denied any tax breaks for Hynix and devoted to economic development initiatives the taxes the company would have paid on the plant refurbishment.

Councilors backing the tax waiver said they value the jobs and other economic benefits of 650 Hynix workers and 338 employees of other companies contracted to work at the computer-chip factory.

But several councilors said the fate of those jobs is out of the council's hands.

A tax break "of $4 million is not going to keep those jobs for a company with a $4 billion (debt) problem worldwide," Councilor David Kelly said. Hynix's South Korean corporate parent is struggling to survive under $6.6 billion in debts and is in talks with Boise-based Micron Technology Inc. to sell the Eugene plant and six memory-chip plants in Korea.

With the council's motion, the council and the Lane County Board of Commissioners now appear united in their bargaining with Hynix. At a board meeting Tuesday, commissioners said they were leaning toward granting Hynix a partial tax break, with a majority of commissioners apparently backing a proposal that would require Hynix to make a cash payment to local schools in lieu of some of the waived taxes. Action by the commissioners on the matter hasn't yet been scheduled, said county administrator Bill Van Vactor.

Last summer, Hynix began a $156 million upgrade to its factory and asked for five years of property tax waivers worth $5.8 million under the west Eugene enterprise zone program.

The city and county are joint sponsors of the zone and both must agree in order for Hynix to receive a tax waiver.

Ordinarily, under enterprise zone rules, Hynix's retooling work would have been waived from property taxes for three to five years, as long as the company increased its work force by 10 percent. But Hynix, which employs 650 workers - down from a peak of 900 early last year - says it can't do that. So it's asking for an exception from the employment rule under a rarely used provision in the enterprise zone law for projects of $25 million or more. In exchange for the tax break, Hynix has pledged not to let average annual employment dip below 650 workers during the term of the tax waiver.

City and county elected officials aren't interested in giving Hynix the full waiver of $5.8 million over five years. But they do appear willing to give Hynix credit for those 650 jobs by offering a partial tax break over three years.

The motion approved by the council also specified that each year, Hynix would deposit an amount equal to that year's tax break into an interest-bearing escrow account.

At the end of the exemption period, if the company meets all the terms of the agreement, then the company would receive the $2.2 million, plus interest.

"If Hynix doesn't meet the conditions, I think this community will be well-served by that guarantee," Torrey said.

Continuing the tax break into a fourth and fifth year is now out of the question because the city council struck down a two-year extension in a 6-to-2 vote Wednesday.

With the city and county appearing to be in general agreement on the three-year partial tax break, the ball is now in Hynix's court.

Steve Doran, Hynix's spokesman in Eugene, declined to comment Wednesday on whether the company would agree to write a $1.5 million check to local schools as part of a tax-break deal.

Hynix officials have told city and county representatives in discussions earlier this week that the company opposes making a mandatory contribution to schools, said Denny Braud, a city development analyst.

Mayor Torrey said he would urge Hynix to agree to make the contribution to education.

Torrey and many councilors said they viewed a Hynix education donation as a plus for local schools.

Hillary Kittleson, finance director for the Eugene School District, said the district would welcome the money. Eugene schools would receive most of the contribution - $1 million of the $1.5 million.

Under state education equalization rules, local property tax revenues earmarked for education are channeled through the State Board of Education to be distributed equally to districts throughout the state. However, when a company makes a direct contribution to a district, the money stays with the district.

Proposals like the one Eugene and Lane County are considering are legal and have been done in other communities, said Ozzie Rose, executive director of the Confederation of Oregon School Administrators. But they do create problems for equalization of education funding statewide.

"It becomes a thorn," he said.

If Hynix is waived from property taxes, then the pot of funds for education statewide is that much smaller, he said.

Rose said he wondered how elected officials in Eugene and Lane County would feel if their counterparts crafted a similar deal with a major taxpayer in another county, reducing the amount of money available for students statewide, including those in Lane County.

WHO WOULD GET WHAT IN THE PROPOSED HYNIX TAX-BREAK DEAL?

Hynix: $2,155,680 property tax waiver

Eugene School District: $1,009,745 contribution from Hynix

Bethel School District: $290,255 contribution from Hynix

Lane Community College: $170,000 contribution from Hynix

Lane Educational Service District: $60,000 contribution from Hynix

City of Eugene: $943,431 in Hynix tax revenues

Lane County: $170,889 in Hynix tax revenues

- City of Eugene