And the tax watchdogs blasting the proposal from two Portland-area Democrats have a vocal ally—another Portland-area Democrat who agrees that now isn’t the time for more tax credits, when the Legislature faces a $3.5 billion revenue shortfall.
The debate centers on the so-called “CAPCO Bill,” House Bill 3227.
“I have yet to see any redeeming social value [in HB 3227],” Rep. Jefferson Smith (D-Portland) told his colleagues on the House Transportation and Economic Development Committee during a hearing last week. “I’m just not convinced that it adds any value.”
Smith’s position was noteworthy for two reasons. First, his committee was not being asked to decide the merits of the legislation, which would give investors $180 million in tax credits over the next six years. Rather, the proposal from sponsoring Reps. Jules Bailey (D-Portland) and Tobias Read (D-Beaverton) was simply to move the bill to Bailey’s Tax Credit Committee without a recommendation. And Smith’s dissent marked a rare split between him and Bailey.
Two watchdog groups—Tax Fairness Oregon and the Oregon Center for Public Policy—also dislike CAPCO intensely. CAPCO stands for “capital company,” and the concept has boomeranged around the country after beginning in Louisiana in the 1990s. That state, Colorado, Florida and Washington, D.C., have all tried variations of CAPCOs with little or no job creation and very high costs.
As written, Bailey’s bill would give tax incentives to investors—typically insurance companies—to invest up to $30 million annually in local venture capital companies, which would then invest in green energy. The investors would get a dollar’s worth of tax credit for each dollar invested.
That incentive is even more generous than the infamous Business Energy Tax Credits, which at their peak allowed investors 50 cents of tax credit for every dollar invested. (Bailey says he hopes a tweaked version of his bill will become part of redesigned BETCs.)
“We’re talking about something that is even more obscene than the BETCs,” says Chuck Sheketoff of the Oregon Center for Public Policy. “I don’t think of insurance companies as being needy, and I don’t see any metrics around job creation that give any element of accountability.”
In written legislative testimony her group submitted, Tax Fairness Oregon director Jody Wiser noted that the bill would allow investors to claim credits for making loans, which carry far less risk than equity investments. And Wiser said the measure could let investors earn tax credits for money parked in U.S. Treasury bills rather than invested in Oregon startups.
“The ‘investments’ can just be five-year loans, or they can be any combination of venture capital equity investments or hybrid investments,” Wiser wrote. “The other half of the $15 million of insurance company money never needs to be put at any risk with any Oregon company, it can be safely put into federally insured bank accounts or state or federal bonds.”
Bailey says critics of his bill need to be patient. He says the Tax Credits Committee he co-chairs is working on revamping energy tax credits so some version of the CAPCO concept can play an effective role at the same time as putting stricter controls on BETCs.
“I don’t expect 3227 to move forward alone,” Bailey says. “I think it would be part of a BETC bill.”
Bailey says investors will still require an incentive to put their money into Oregon’s green-energy industry.
“The bill calls out insurance companies,” he says. “What we are saying is, you invest through a venture capital fund [i.e., a CAPCO] that will invest in clean energy. You are taking a higher risk, but there is a public good that comes from that and we are willing to provide an incentive.”
Sheketoff disagrees. He notes that Oregon’s renewable-energy law already lets utilities recover the costs of building green-energy generation, and that much of the wind power the state subsidized flows to California.
Smith wants all tax credits and other kinds of tax breaks to be evaluated with the same rigor lawmakers use to examine general fund appropriations, such as K-12 education, the Oregon Health Plan or prisons. Currently, newly proposed tax breaks—such as the CAPCO concept—give away money the state has not yet taken in and may never collect.
He got outvoted on CAPCO—it did move to the Tax Credits Committee, where the bill remains very much alive. But Smith hopes his colleagues will keep an eye on the bigger picture.
“We’ve got to look at
tax expenditures [i.e., credits and other tax breaks] like ordinary
expenditures,” Smith says, “because it’s easy to spend money when it
feels like free money.”
FACT: A second new tax credit measure, Senate Bill 817, would establish state-level New Market Tax Credits. Oregon has already proven wildly successful at attracting projects funded by a federal version of the program. Originally conceived to combat blight in poor neighborhoods, the federal credits have subsidized Portland’s Nines Hotel and the Indigo, a luxury apartment complex at 430 SW 13th Ave.