Property tax breaks worthwhile, study shows.

Byline: Guest Viewpoint By Bruce Blonigen For The Register-Guard

CORRECTION (ran 8/15/03): Due to an editing error, an Internet address for a study cited in Bruce Blonigen's Aug. 14 guest viewpoint was incorrect. The study can be found at economics.uoregon.edu/honors/. The study, by two University of Oregon honors students, compared the economic benefits provided to the community by Hynix to the tax breaks the company received.

Despite the headline in the Aug. 10 Register-Guard (`Unlucky Breaks'), the articles on the effects of the local enterprise zones most likely left the objective reader with a sense of ambiguity regarding what we know about the effects of such incentives on our community.

The reporters detail the tax breaks, initial jobs, and job creation of the many firms that have benefited from the enterprise zone's tax breaks. They also note that small companies seem to be flourishing, but that it is less certain the substantial tax breaks given to the largest firms are worth it to the Eugene-Springfield area.

Lots of questions remain. What has been the employment history of area firms not enjoying enterprise zone benefits? Which firms would be here regardless of the tax breaks? (Interestingly, it may be the small firms, not the large ones.)

Given the (in)conclusions of the evidence presented in The Register-Guard's articles, one possible reaction is a frustration that no one has done a systematic study of the positive and negative effects of offering large tax breaks to a particular firm of interest in the Eugene-Springfield area. Ironically, there has been such a study - one that The Register-Guard knew about a least a month before the articles appeared.

This past spring, two honors students in the University of Oregon economics department, Jennifer Witt and Melinda Rowan, completed an economic impact study of Hynix Semiconductor on the Eugene-Springfield area under supervision of professor Bill Harbaugh and myself. Our preconception was that tax breaks and extra infrastructure afforded Hynix would outweigh its benefits. The students' careful analysis provides evidence that strongly suggests otherwise.

The study focused on the period from 1997 through 2002 - in other words, the impact of Hynix even if it had shut their doors in 2002. During that time, Hynix received $46 million in tax relief, or $9.2 million annually. However, Hynix also averaged 644 employees during that same period with an annual payroll of more than $33 million. Thus, the local wages generated each year far outweighed the annual tax break. And it's not clear that the tax breaks are a cost if they were crucial in Hynix's decision to locate in Eugene, since we would have collected no tax revenues from Hynix without the company being here.

The study examines other positive and negative impacts from the presence of Hynix that are often much debated, but not researched. First, people are concerned with the effects such a large firm may have on our electricity and water bills. Despite the impressions one may get from local news stories, Hynix has paid for essentially all the infrastructure it uses, and EWEB has gone to great pains to make sure that other customers' water and electricity bills are not affected by Hynix's usage.

Another controversial concern is environmental impacts.

The study reports that Hynix paid for all wetlands mitigation and restoration connected with its plant construction that is required under the law.

After considering a wide variety of potential effects and alternative scenarios, the study finds that "when one sums up the negative and positive economic impacts on Lane County from Hynix's presence in the community, the net impact has been quite positive, totaling approximately $225 million using standard methodologies."

Importantly, these numbers consider only the impact from Hynix's operations and do not consider the short-run local impacts from the plant's initial $1.2 billion construction, a portion of which surely benefited local construction companies!

For those interested, a copy of the students' Hynix study is available at www.economics.uoregon.edu/ honors/.

The Hynix case has been an important and controversial one for the Eugene-Springfield area. This makes it all the more puzzling that The Register-Guard articles did not even mention the Hynix study. Instead, the articles seem intent on showing that tax breaks of the large firms in our area, such as Hynix, are the best examples of how costly enterprise zones can be.

The evidence strongly suggests the community has more than recouped its investment and is benefiting from Hynix's presence here.

Bruce Blonigen is a Knight Professor of Social Science in the University of Oregon Economics Department and a research associate with the National Bureau of Economic Research.