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5 Green Policy Mistakes in 2009

November 4, 2009

Dr. Eric Fruits,
Econinternational Blog

The Oregonian reports that Oregon state officials deliberately underestimated the cost the governor’s tax credit scheme to attract  “green” companies and to encourage “green” projects.  The Business Energy Tax Credits (BETC) are huge give-aways: Enterprises that don’t pay taxes (like nonprofits and government entities) can sell the credits to tax-paying companies to reduce their tax bills. The only way to get the legislature to extend the credits was to fudge the estimated costs of the program.

However, the state officials made a big batch of fudge: The tax credit program program that cost 40 times more than unsuspecting lawmakers were told it would cost. None of this is news.  Throughout the year, this blog has been reporting on BETC’s budget busting and number fudging.

Here are four more mistakes:

Oregon’s incredible expanding energy tax breaks
: First reported earlier low-balling of the costs of the BETC program.

BETC: Do Oregon’s energy tax credits help or hurt the economy? Reported that earlier reports of low-balling were too low.  Highlighted a consultant’s offer to hide the fact that some of the BETC spending actually lowered employment in the state.

Oregon’s large and growing “green” tax credits are busting the state budget: Reported that BETC credits reduce state corporate tax revenues by 22 percent.

Portland’s bus pass giveaway will cost the State of Oregon as much as $3.64 million: Highlighted the use of the BETC by non-taxpaying entities.  In this case the City of Portland is giving away bus passes to high school students, paid for with the tax credits.

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Mark Fitz November 4, 2009

I’ve been following the coverage in the Oregonian and had quite a few conversations with conservative friends. It raises a real question. Why is Oregon so scared of real job creation and private sector investment?

There is such a zero sum approach to calculating anything in this state even for the free-market conservatives. As if allowing people to forgo income tax by investing their own money in this state is theft. The BETC is funded by privately earned profits. It isn’t government’s money but that of indviduals.

The money mentioned in the BETC debate is private sector money invested in developing Oregon. This being the only development I’ve seen in Oregon over the last decade beyond condo towers in Portland (which face it are a real boondoggle of tax breaks).

The Business Energy Tax Credit brings permanent private sector capital improvements to Oregon. This being stable long term revenue growth for both local counties as well as the state’s General fund. A windmill farm, an ethanol plant, a solar panel manufacturer, as well as a host of small projects triggering reaccessed property values throughout the state. These capital improvements are here to stay. If the solar plant goes away the building is still here and paying property taxes.

Here is one fact of the BETC left out by every reporting on it I’ve seen.

Its primary use (and supposed abuse) is for capital improvements tied to land. Someone taking advantage of a BETC must be spending money on a sufficiently “green” project which they get a discount off of their corporate income tax. This money is not funnled out of the state but actually turns back over and pays itself back very quickly.

A $5 million project under the BETC gives a tax break taken over five years of $1,750,000. This pays back in well under a decade in property tax alone. The income tax for an employer like Solar World or Pacific Ethanol further bolsters the pay back in the five year BETC period. These projects wouldn’t be happening in Oregon without this incentive.

The money from these projects also comes from the private sector. It comes from people taking a profit on their taxes off-set by the BETC. These profits wouldn’t likely be realized in Oregon if it wasn’t for the BETC as a device to better realize ROI for projects. Instead of playing hide the profit with an accountant they take the profit and reinvest the cash in Oregon.

Beyond the fact that the BETC is private money avoiding taxes it also pays its way locally beyond the State’s general fund.Furthermore it enables large one time profit gains (say from a capital gain) to be reinvested in the state keeping a great deal of out of state corprate money here in Oregon. It makes it easier for businesses to shed assets and update their own efficiency in this state.

There is also a local impact. Namely an immediate boost in fees, permits and construction jobs tied with the state’s loss of Income tax money. This boost far exceeding the Stimulous efforts lauded by the Oregonian as job creators.

I don’t get the hate for this program I see from fellow Republicans who typically demand tax cuts and a reduction in the cost of doing business in this state. Just because the liberal leadership puts stipulations on a tax cut for their pet projects does not mean the tax cut is a bad thing. Additionally this is the only sector signifcantly growing in Oregon right now. We should be pointing out what tax cuts do for growth instead of arguing along with the ‘zero-sum’ economic tax grabbers.

NOTE: I am in private business and am not a lobbyist or policy person on this. I have two ethanol vendors and one biodiesel vendor who wouldn’t have been possible without the BETC. It was not a subsidy but an incentive that drew investment to projects in Oregon where a capital gain tax would usually scare them off. The BETC should be capped far below its current maximum. As a concept though it makes sense and should be expanded to other economic development efforts.

Alpha Dog November 4, 2009

If it is green it can’t be wrong, say it ain’t so.

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