Tax incentives for manufacturers provide a boost to Oregon’s economy, according to an analysis commissioned last year by the state’s economic development agency. But tax breaks for data centers are money losers, the report found, giving away more than they bring in from personal income taxes.
Oregon doesn’t rank who gets the biggest incentives. So, with a major tax break program up for renewal during the current legislative session, The Oregonian/OregonLive compiled its own listing of the largest tax break recipients by calling individual county assessors all over the state.
The tally shows the vast majority of Oregon property tax breaks go to wealthy technology businesses. Intel, Amazon and Elon Musk’s Twitter are among the big winners. The money they save on taxes would otherwise go to local communities to spend on public safety, health care, roads, parks and school construction.
In some cases, the tax breaks likely attracted corporate spending that would otherwise have gone to other states and other countries. In other cases, the tax incentives appear to have played no role in site location decisions — or Oregon may have awarded bigger tax breaks than necessary to win the investment.
Oregon’s program of “enterprise zone” tax breaks, aimed at attracting investment to specific industrial sites, is set to expire and lawmakers are debating this session whether to extend the incentives. Advocates for reviving the state’s chip industry have made extending the program one of their top priorities, arguing it’s a key tool for bringing large semiconductor manufacturers to Oregon.
The analysis by The Oregonian/OregonLive, though, finds that almost none of the state’s current enterprise zone tax breaks go to chipmakers. (Intel’s big tax breaks come from a different program.)
Instead, the enterprise zone program has had the opposite effect of what semiconductor advocates say they want. Enterprise zone incentives largely go to data centers and e-commerce warehouses, which have consumed hundreds of acres of industrial land in the Portland area over the past 15 years.
Economic development officials are frantically searching for properties just like that to make room for more chipmakers, which employ far more people at much higher wages than the data centers and warehouses.
Tax watchdogs are pitching reforms that would limit the types of businesses that can receive the incentives and require more accountability from the public officials who award them.
“We should stop subsidizing data centers in urban areas because they will come anyway and they use up valuable land for few well-paid jobs,” said Jody Wiser of Tax Fairness Oregon. “And we need more transparency about the deals local governments are making with businesses.”
Tax Breaks Growing
Oregon’s property tax breaks come from two similar programs that give cities and counties the authority to negotiate tax breaks over a period of five to 15 years, though incentives can be extended in some circumstances.
Oregon property tax breaks totaled $2.5 billion from 2007 to 2020, according to a recent state report. The scale of the exemptions is increasing — tax breaks awarded in the three years since are worth at least another $1 billion, according to the analysis by The Oregonian/OregonLive.
Since Oregon has no sales tax, and its corporate tax structure exempts data centers and some large manufacturers like Intel from most business income taxes, property taxes are often the only thing left to give away in recruitment efforts.
The tax breaks are very popular with cities and counties across Oregon, in both urban and rural areas. Local governments welcome the authority to negotiate their own deals and customize them to meet the needs of their communities.
“The state largely depends on local governments, whether they be county or city, for economic development. And that has historically been Oregon’s approach to attracting new businesses and new investment from existing businesses,” said Jim McCauley, legislative director for the League of Oregon Cities.
“We’ve got a proven tool that many communities have had success with,” McCauley said.
Oregon’s enterprise zone program dates to the 1980s, originally envisioned as a way to help economically distressed communities attract small manufacturers.
Beginning in 2006, though, the nation’s biggest technology companies discovered the tax incentives and began using them to finance data centers in communities from Hillsboro to Hermiston.
Data centers didn’t exist when Oregon created the enterprise zone program, and most of the companies now running them didn’t, either. No one imagined huge buildings full of computers collectively worth hundreds of millions of dollars, and no one put an upper limit on the size of the communities’ tax break authority.
An analysis this year by the real estate firm Cushman & Wakefield reported that the Hillsboro data center market is among the hottest in the country, tied with Northern Virginia at the top of the rankings. The study found that Oregon’s tax climate is among the most favorable in the world for data centers, behind only Hong Kong.
An analysis last year byThe Oregonian/OregonLive found that three-quarters of enterprise zone tax breaks go to data centers. Updated figures show these server farms saved more than $180 million last year alone.
In the 1990s, Oregon created a separate set of incentives, known as the Strategic Investment Program, specifically to help attract big investments from Intel and other large chip manufacturers. The SIP incentives have more rigid requirements for tax payments and service fees, but also place no upper limit on the tax abatements.
SIP incentives have helped attract billions of dollars in Intel spending over the past 30 years, helping establish Intel as the state’s largest corporate employer, with 22,000 employees assigned to its Washington County campuses. SIP deals have also saved Intel more than $780 million in the past five years alone.
In the past few years, some local communities have shifted from negotiating enterprise zone agreements with data centers to using SIP incentives. At least partly as a result of that shift, the communities have negotiated deals that are more favorable to public coffers and less lucrative to the tech companies.
Value Scrutinized
Business Oregon commissioned a study last year to assess the property tax incentives. The report found they all contribute to the state’s economy, though to widely varying degrees depending on who receives the incentives.
For example, Oregon’s “standard” enterprise zone program offers tax breaks from three to five years. The state study found it generates $1.35 in personal income tax revenue for each dollar in property tax breaks. And in total economic output, it generates $29 for each dollar in foregone taxes.
Contrast that with the long-term rural enterprise zone program, used for data centers in small communities like Morrow County and Prineville. The state study found these 15-year deals roughly break even in terms of economic output.
In terms of personal income taxes, though, such long-term incentives lose 84 cents for each dollar in property taxes they forgo.
“This program certainly is maybe not paying its way back as well as some of the others might,” Art Fish, incentives coordinator for the state’s economic development agency, told a legislative committee last year.
A 2016 state audit reached a similar conclusion. Standard enterprise zones awarded $4,200 in incentives per job created. But the long-term enterprise zone deals, 15-year exemptions used primarily by the biggest data centers, give away $54,500 in tax breaks for each job created.
That probably reflects the fact that data centers aren’t major employers. Some data centers in Hillsboro employ just one or two people. Amazon has about 740 employees at its data centers in eastern Oregon and Google employs 200 at its data centers in The Dalles.
That’s miniscule from a statewide perspective — Oregon has 2 million workers — but is meaningful in communities with populations of 12,000 and 16,000.
“This has been a boon for our area, an absolute boon to have these tax incentives,” Rep. Bobby Levy, R- Echo, said at a legislative hearing last year.
Property tax breaks in her Umatilla County district and neighboring Morrow County benefit Amazon, a major French fry processor, wind farms and Portland General Electric’s gas-fired generating plant near Boardman.
“On my side of the state this has been an absolute joy to have these companies come in,” Levy said.
Oregon’s incentive programs typically don’t forgive a company’s entire property tax payment and may require other fees in place of the taxes they would otherwise pay. So while Amazon saves $75 million a year on its data centers in Morrow and Umatilla counties, the company says it pays $35 million in local taxes and fees.
Data centers generate other kinds of revenue as well. In Prineville, a local franchise fee generated by the electricity in Facebook and Apple’s data centers is a significant contributor to the city’s revenue.
And most tax breaks eventually expire, meaning data centers may eventually come onto the tax rolls and begin paying regular taxes. For example, Google’s first Oregon data center in The Dalles began paying property taxes last year after its 15-year exemptions expired. That generated a $5 million tax bill.
It’s not clear, though, how long companies will continue operating older data centers that face full property taxes rather than build new ones that are exempt from most taxes.
Tax watchdog and economic development officials broadly agree that Oregon’s incentives play a role in attracting data centers and other businesses. But the state has not sought to quantify just how big the tax breaks have to be to win those investments – or whether tax breaks might be unnecessary in some cases.
A 2021 Oregon economic development study found that incentives “are ultimately always secondary to a business firm’s basic location/operational factors.” The study concluded, though, that tax breaks and other incentives may play a bigger role when companies are choosing among states for new or expanded operations.
Fish, Oregon’s incentives coordinator, told lawmakers last fall that there may be “free riders” collecting tax breaks that might have located in Oregon whether or not the state offered incentives.
“There’s always the question of, ‘What would have happened anyway?’ " Fish said.
Since Oregon places no upper limit on how large the tax breaks can be, big companies have leverage in the negotiations and have pitted communities against one another to maximize their incentives. Local officials in neighboring Morrow and Umatilla counties, for example, say Amazon insists each county match the incentives the other offers.
The result is extremely large tax breaks awarded by some extremely small communities, which are negotiating with some of the world’s biggest corporations. For example, Amazon’s incentives in Morrow County — population 12,000 — totaled nearly $53 million last year.
Amazon’s incentives in Morrow County have attracted additional scrutiny because some of the county and Port of Morrow officials who awarded the tax breaks purchased the company that provides fiber to Amazon’s local data centers. That put them in a position to profit, personally, from tax breaks meant to encourage Amazon’s growth.
An investigation byThe Oregonian/OregonLivelast year found some of those officials continued to discuss and vote on enterprise zone tax breaks and land sales to Amazon even after buying the fiber provider. The Oregon Department of Justice and the Oregon Government Ethics Commission have each launched investigations.
Renewed Questions
The Oregon law authorizing enterprise zones sunsets in 2025, and supporters want the Legislature to renew it this year to prevent any lapse in the program.
They say an extension is especially important now because it would give the state another tool to recruit chipmakers and land a share of $52 billion in federal funding for the chip industry. (Tax breaks that companies have already secured will remain in place, regardless of whether lawmakers act.)
Competing bills before the Legislature would either simply extend the enterprise zone program or its extension contingent on reforms. And they arrive as Oregon is contemplating tax credits and other incentives to attract more chipmakers to the state.
In some ways, the enterprise zone program actually has worked against that effort.
Hillsboro data centers received $16 million in property tax breaks last year, benefitting Twitter, LinkedIn, Adobe and businesses that lease data center space to other companies. Some of these data centers employ only a handful of people on property designated for the tax breaks, regardless of what type of business moves in. (Twitter, which received $5.6 million in tax breaks last year, employs 18 at its Hillsboro data center. Digital Realty Trust, which received tax breaks worth $3.8 million, reports just three Hillsboro employees.)
A Kansas company called QTS is building a massive data center for Facebook on 92 acres of industrial land in Hillsboro.
That’s the kind of prime industrial land Oregon now says it needs to attract semiconductor manufacturers and win a share of $52 billion in federal funding of the chip industry. But much of the land is already occupied by companies like QTS, recipients of enterprise zone tax breaks.
Warehouses present a similar issue. From Troutdale to Salem, local governments have awarded millions of dollars in enterprise zone tax breaks to Amazon and other companies that operate regional distribution centers on hundreds of acres of industrial land.
Collectively, the warehouses employ thousands. But it’s not clear the tax breaks played any role in their decision to operate in the Portland area. The companies must put their warehouses close to their customers, regardless of incentives.
“Amazon locates these distribution centers to better serve their customers, which is a smart decision for them, but I am not sure we should be subsidizing their decisions when they are competing with brick-and-mortar stores, many of which don’t enjoy a property tax break,” Rep. Khanh Pham, D- Portland, wrote in an email to The Oregonian/OregonLive.
“That seems unfair and potentially harmful to local economies,” Pham wrote.
House Bill 3011 would exclude new warehouses from the enterprise zone program, and would likewise make data centers in the Portland area ineligible for future tax breaks. It would leave the enterprise zone program in place in rural areas but require transparency from local officials about whether they could personally benefit when they award tax breaks.
The Legislature hasn’t scheduled that bill for a hearing, though. A competing bill, HB 2199, would provide a straightforward 10-year extension of the enterprise zone program. It’s set for a committee hearing Tuesday afternoon.
Sen. Tim Knopp, the Senate’s Republican leader, says he would prefer “a clean extension” of the enterprise zone program.
“I think we want to create opportunities for all types of businesses,” said Knopp, who represents a district in Bend. “I don’t want to narrow the field too drastically on the tools that are helpful to get businesses to expand and locate in Oregon.”
Pham, by contrast, said Oregon should consider cutting the duration of the long-term enterprise zone program that data centers use from 15 years to seven or eight. Alternately, she said the state could eliminate long-term enterprise zones altogether in favor of SIP incentives that require companies to pay offsetting fees and mandate that companies continue making tax payments on some of their property.
“Given that these incentives were designed before we had data centers and huge retail businesses operating out of fulfillment centers,” Pham said, “we should be looking at what changes to make to deal with this new reality.”
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