Sun to set on pollution tax credit.

Byline: David Steves The Register-Guard

SALEM - It paid $21 million to a private utility for storing the utility's radioactive waste.

It has discounted the cost of woodchippers for hundreds of yardwork professionals and do-it-yourselfers.

In its 40 years on Oregon's law books, the pollution control tax credit has cost the treasury, and saved corporations and individuals, $730 million - largely for following the law.

And on Dec. 31, it's going away.

The tax break was originally intended to last 10 years. But when the tax credit's expiration date first came due, the Legislature extended it - a pattern that would be repeated for decades.

When the tax credit's latest "sunset" date approached, however, the 2007 Legislature broke with tradition.

"We didn't do anything with the pollution control tax credit, except let it go," said House Revenue Committee Chairman Phil Barnhart, D-Eugene.

So by year's end, one of Oregon's original and largest corporate tax breaks will vanish from the books.

Policy from a bygone era

When Oregon adopted this environmental credit, it was hardly among the vanguard of states using the tax code to ease the cost of pollution controls for companies. When Oregon's tax credit was adopted in 1967, 23 other states and the federal government already offered such incentive programs.

"But they pared them back as (limiting pollution) became a part of doing business" because of requirements to control pollution, said Maggie Vandehey, the state's environmental tax credit program manager.

Not so in Oregon, where the Legislature expanded the credit over the years as it continually postponed its expiration. In that time, businesses and individuals found inventive ways to use the tax credit - which covered half the cost of an approved "pollution control facility" or equipment - that were never envisioned by its originators.

Take, for example, the $9,206 tax break to Waste Connections Inc., based in Folsom Calif., in 2005 for its purchase of 700 yard-debris carts for its Florence customers' use.

Oregon environmental regulators ruled that providing such carts would result in the "material recovery of solid waste" - one of the qualifying pollution controls that the Legislature added as it expanded the tax-credit program over the years.

Thanks to the Legislature's repeated renewal of the pollution control tax credits throughout the 1970s, '80s, and '90s, Oregon's largest investor-owned utility was able to enlist the help of Oregon taxpayers as it grappled with the costs of storing radioactive waste from its ill-fated nuclear power plant.

The state Environmental Quality Commission ruled in 2004 that Portland General Electric was eligible for a tax credit of $21 million - half the cost of PGE's plan to move nuclear waste from a storage pool to a system of air- and water-tight stainless steel canisters, which would be safehoused in concrete storage casks.

Not just for big business

Since 1967, the state has issued 11,413 tax credits. They've ranged from the $39.6 million awarded in 1998 to Georgia Pacific West to the $560 claimed by Steven Strain of Junction City.

Georgia Pacific West's credit covered half the cost of its waste paper recycling plant in Toledo.

Strain's subsidized the tractor-pulled woodchipper his homeowners association uses to put down chips on footpaths throughout its 120-acre commons.

"It's an alternative to creating the smoke and pollution of burning. Instead, we use this," he said.

Strain said he'd learned through his professional associations as a Eugene firefighter that chippers were being used to avoid burning - and that the tax code could give people enough back on their taxes to cover 35 percent of the cost.

Strain said he can understand why some people would want the tax credit to die off.

He said the government seems to use the tax code to encourage people and businesses to make certain choices - getting solar water heaters, for example - but then ends the tax breaks after a few years.

But many of the biggest beneficiaries of the pollution control tax credit say it's as valuable today as it ever was when it comes to keeping manufacturers and other employers in Oregon.

"The program has provided us with a competitive advantage, and when this does go away, it's going to make it tough for us to stay competitive, nationally and internationally," said Mike Moskovitz, an Oregon spokesman for Weyerhaeuser.

The forest products giant has collected 153 tax breaks for pollution controls worth $30 million since its first in 1968 - a $4,291 credit against the costs of improvements to a pollution-containing lagoon at its Springfield mill.

Still good for Oregon?

Business-friendly lawmakers have championed the tax credit for years in Salem - both under the Legislature's Democratic majorities of the 1970s and '80s and when the Republicans controlled the House and Senate in the 1990s and early this decade.

No data exist on how many businesses have used the tax credit to go beyond the pollution controls required by environmental laws, the DEQ's Vandehey said.

But, given that businesses can get it if they only do what's legally required, critics have charged that it rewards corporations for actions they would be taking anyway - hurting education, health care and other programs through lost tax revenues.

"The last thing you want to do is pay them for something they're going to be doing anyway. You get no benefit for those tax credits," said Jeremiah Baumann, a lobbyist with Environment Oregon.

Such criticism went largely unheeded until 2001, when Democratic Gov. John Kitzhaber negotiated with top lawmakers to extend the tax credit through 2007, but at a phased-down rate and the understanding that it was really going away this time.

By 2005, with that expiration deadline looming, Kitzhaber was no longer governor. The Republican-led House was committed to extending the pollution control tax credit once again.

But the Senate - which was by now controlled by Democrats, many of whom considered the tax credit an unwarranted corporate giveaway - refused.

Early showdown

While it was the 2007 Legislature that allowed the credit to die, the showdown really came at the end of the 2005 session.

In its waning days, the House had taken one of the Legislature's top environmental priorities, a package of incentives to expand biofuels, and inserted an amendment extending the tax credit's lifespan.

The Senate had a choice: swallow that bitter pill in order to get the biofuels bill, or leave the entire package on the table to die.

It chose the latter.

That, said American Electronics Association lobbyist Jim Craven, served as "the writing on the wall" that, with Democrats fully in control of the 2007 Legislature, the pollution credit was dead.

"I think it's a very defensible program but it became everybody's whipping boy," said Craven, who was among its chief lobbying advocates during the 1980s and '90s fights to keep it alive, but acknowledged leaving the issue largely alone in 2007.

Now that businesses no longer will qualify for state tax breaks to offset the costs of controlling their pollution, advocates are warning that employers could think twice about remaining in, or expanding to, Oregon.

Rep. Tom Butler, R-Ontario, said Oregon is putting out an "unwelcome sign" for businesses looking to locate in the Pacific Northwest.

"Those folks who would like to come will come to the Northwest," he said.

"They'll land in Vancouver, Washington and Payette, Idaho. And they'll get the business."

Washington has exemptions in its property and sales taxes for pollution control equipment. Idaho offers both these exemptions as well as an income tax credit similar to Oregon's soon-to-be-expired one.

Additionally, Idaho statute prohibits the adoption of environmental protections laws that exceed the stringency of federal regulations.

Vandehey said she's not equipped to say whether the demise of the pollution tax credit will have a measurable effect on the number of good jobs in Oregon.

But she said she has discovered that the three small firms that specialized in helping businesses qualify for the credits are no longer in Oregon.

They've relocated to states that still offer a pollution control tax credit.

TOP BENEFICIARIES: 1997-2006

Several of the top 25 have

a Lane County presence:

4. Willamette Industries, $10.76 million

5. Hynix Semiconductor Manufacturing America, $9.31 million

9. Umpqua Bank Leasing, $4.09 million

11. Weyerhaeuser, $3.57 million

12. HMT Technology, $3.4 million

13. Georgia Pacific, $3.12 million

24. Monaco Coach, $1.41 million

Oregon Department of Environmental Quality