Council to tackle enterprise impasse.

Byline: Edward Russo The Register-Guard

One of Chris Pryor's colleagues on the Eugene City Council calls him an eternal optimist.

But even Pryor admits that his rosy outlook is being tested by the divide between Eugene and Lane County governments. City councilors and county commissioners are tussling over the best way to dispense property tax breaks to businesses in a designated area of west Eugene called an enterprise zone. Councilors are planning to wrestle with the issue again at a meeting tonight.

A majority of councilors have said they want to reward companies only to the degree they create new jobs. A majority of county commissioners want to be more generous with the breaks, rewarding companies for keeping jobs, as well as creating new ones.

The dispute is bitter, with each side philosophically entrenched.

"I am still supportive of trying to keep an enterprise zone," Pryor said. "I'm trying to figure out the least contentious way to do that, but I don't know if that can happen."

The disagreement with commissioners may thwart Eugene's attempts to create its own highly customized business tax-break program. Under state law, cities can adopt a standard tax-break system crafted by the state, or craft their own plans.

With its own plan in limbo, the city is now in the position of being governed by the standard state tax-break rules - which in certain cases can be more generous to some businesses than are the rules the city was trying to create.

That's forcing the council to ask: Does it want to keep the tax-break program at all, if it can't create a customized one?

The dispute isn't helping city-county relations.

Pryor, from southwest Eugene, blamed the quarrel partly on poor communication.

The enterprise zone argument "really points out what has been a deteriorating relationship between the county and city," Pryor said. "But there is interest in stopping that, and this can be an opportunity to attempt new ways of doing things. Or we can fall back in the same old pattern."

In enterprise zones, firms that build new facilities or buy new equipment and create jobs can get three or five years of property tax waivers on their new investments. Local governments are willing to give up the property taxes for that period in the hope of spurring job growth.

The city and county are colliding over the details of how to limit waivers.

State officials recently approved Eugene's request to re-establish an enterprise zone in the west and northwest part of the city. The zone took effect July 1.

County commissioners have a say in how the program is run because some of the land in the zone lies in the county, outside the city limits.

One west Eugene firm, Heli Tech, already has submitted an application for tax breaks because it plans to build a $2 million manufacturing plant and add five jobs at Danebo Avenue and Pacific Street. The firm, which makes tools for helicopters, now employs 15 people.

On a $2 million facility, Heli Tech would pay about $36,000 in property taxes a year. Under all three competing sets of tax-waiver rules - the city's, the county's and the state's - Heli Tech would receive the full waiver.

In tonight's meeting, councilors are likely to debate the merits of acceding to the county's demands. City Manager Dennis Taylor favors this approach because it would establish local rules, and give the city and county a chance to develop permanent local guidelines later.

But some councilors, including those who recently directed Taylor to see if the city could scuttle the zone, aren't receptive to the idea.

Southeast Eugene Councilor David Kelly said he "reluctantly" favors trying to end the zone because county commissioners have been "unable to compromise."

Commissioner Bobby Green disagrees. "That would send a really bad signal," he said. "Also, I'm not sure that is the method of governing that I would choose; that if we did not get our way, that we took our ball and went home."

Before the city submitted its enterprise zone application to the state, councilors spent much time debating rules for dispensing tax breaks.

Some past foes of enterprise zones on the council, notably Kelly and south-central City Councilor Bonny Bettman, agreed to support the zone only if the breaks were limited to firms that were building on existing or former industrial sites.

`The way we composed the application (to the state) was very beneficial to the community, and I stand behind it 100 percent,' she said. "It would have been a very successful economic development tool because it was strategically targeted and designated in a way to bring the broadest possible community support."

In April, Bettman persuaded the council to consider limiting the size of tax breaks that firms could receive. On June 27, the council approved interim rules for the zone, allowing firms to receive up to $30,000 per job created over the three-year life of the tax break, or $10,000 a year.

State law requires that firms increase jobs by at least 10 percent before they can be eligible for tax breaks.

Under the city's proposal, only new jobs would be counted when figuring out how much in property tax breaks a company would receive.

County commissioners balked at that. They said that if a firm increases employment by 10 percent, then all of its employees - both current and new - should be counted in calculating the maximum possible tax break.

In Heli Tech's case, by creating five new jobs, the company, under the city's cap, would be entitled to up to $50,000 worth of tax breaks a year on the new facility. The new facility's annual tax bill would be only $36,000, so the entire tax would be waived.

However, if Heli Tech instead spent $4 million on a new facility and still created only five jobs, it would not be entitled to a waiver of all taxes, under the city's proposal. The taxes on a $4 million facility would be about $72,000 a year, and under the city's rules the company would be entitled to a waiver of only $50,000.

But under the county's proposal, Heli Tech's $4 million facility would get the full $72,000 break, because the company's existing work force of 15, plus the five new jobs - or a total of 20 jobs - would be used to calculate the maximum possible tax break, of $200,000 a year.

Green said the council's rules would treat an out-of- town company that opens a new factory in Eugene more generously than a local firm that expands.

"We need to give local, existing businesses as much opportunity as a new business coming in," Green said. The county wants to "make sure the playing field was at least level," he said.

Jack Roberts, director of the Lane Metro Partnership, a nonprofit business recruitment agency, agreed. "So far ... every incentive and every benefit we have for new companies is also available on the same terms and conditions to existing businesses," he said. "If the City Council has their way, that will change."

But Kelly, the city councilor, said that in the vast majority of cases where local firms are expanding, the $30,000 tax break per job created would ensure full waivers of all taxes. Only a few companies with lopsidedly large capital investments and scant creation of new jobs would still have to pay some taxes on their property, he said.

In the 10 years the city previously ran its enterprise zone, 74 companies received tax breaks, Kelly said. Only four would have been limited in their breaks if the $30,000-per-job cap had been in place at the time, he said. The biggest one that would have been affected is the Hynix computer chip plant in west Eugene, which has received about $51 million in tax breaks, or about $60,000 per job created.

Enterprise zones should help firms create jobs, Kelly said, not reward companies for retaining employees.

"I am extremely disappointed that the county's action is being spun by some folks as saying that the City Council wants to put local business at a disadvantage relative to out-of-town businesses," he said. "That is utterly wrong. The standards are applied equally to every applicant. The bottom line is: create a job, get a tax exemption."

Angered by the county, the council late last month voted 4-3 to direct Taylor, the city manager, to cancel the zone.

Eugene and Lane County are co-sponsors of the Eugene zone, so they both would need to agree in order to end it, said Bob Warren of the state Economic and Community Development Department.

North Eugene City Councilor Gary Pape said he will to ask councilors today to delay the effort to terminate the zone in hopes of reaching agreement with county commissioners.

`I'm fine with two or three weeks' (delay), whatever works,' he said. "It may even take a mediator to help us out."

Dave Hauser, president of the Eugene Chamber of Commerce, said councilors should remember they agree with commissioners on all but one point.

"When I look at it from that point of view, I am hopeful that there might be some movement on the part of council ... to put this important economic development tool in place for our community," Hauser said. `And then (officials should) get to the important process of developing permanent standards in a thoughtful and fair way.'

IN THE ZONE

A recent history of Eugene's enterprise zone:

1997: After 10 years, City Council lets zone lapse amid criticism of magnitude of tax breaks to Hynix.

March 2004: Panel appointed by Mayor Jim Torrey meets to develop ideas for boosting local economy.

July 2004: Committee recommends re-establishing enterprise zone in west and northwest Eugene.

October 2004: After debate about a new zone, with Torrey breaking a 4-4 tie, the City Council rejects Councilor Bonny Bettman's proposal to give property tax breaks only to companies that build on existing or former industrial sites. Instead, councilors favor breaks also for development on empty fields.

March 2005: Council, with a new mayor and two new members, overturns the previous decision, so tax breaks would go only to firms that build on existing or former industrial sites.

April 2005: Council votes 7-1 to apply to the state to create an enterprise zone. Council also agrees to limit the amount of property tax breaks per job created, but opts to specify the exact limit later.

June 27, 2005: Council approves temporary tax-break and job-creation standards until permanent standards can be developed later in year. Temporary standards include a $30,000 tax-break cap for each job created, or $10,000 per year for three years.

June 29: Lane County Board of Commissioners, co-sponsors of the zone, approve temporary standards, but delete the tax break cap. Commissioners vote 4-1, with Peter Sorenson dissenting.

June 29: City councilors vote 4-3 to direct city manager to take steps to terminate the zone. Voting for the direction: councilors Bettman, David Kelly, Andrea Ortiz, Betty Taylor. Voting against: councilors Jennifer Solomon, Chris Pryor, George Poling.

July 12: County commissioners reinstate tax break cap, but say both new and retained jobs must be considered in tax break calculations.

Tonight: Council to revisit topic.

CAPTION(S):

"This can be an opportunity to attempt new ways of doing things." - CHRIS PRYOR, EUGENE CITY COUNCILOR