Eugene -- Hyundai may think it got attractive tax breaks for locating in west Eugene.
But by Nucor Corp. standards, it didn't.
If North Carolina-based Nucor, as proposed, builds a $280 million steel mill in Coos Bay, the company would pay not a penny in property taxes for 15 years. Hyundai's Eugene chip factory is promised only a three-year property tax waiver.
And Nucor would be required to pay only a fraction of the state income taxes due on profits generated by the plant for up to 20 years. Hyundai received no special income-tax breaks.
In fact, the breaks being offered to Nucor are by far the most generous in Oregon history, when measured in relation to the number of jobs created.
For each of the 250 people Nucor has said it would hire for the Coos Bay mill, the company would be exempted from paying an estimated $228,000 in taxes, according to the Oregon Economic Development Department.
By contrast, Hyundai's package equates to $24,750 in breaks for each of the 1,200 jobs Hyundai is expected to create in the $1.4 billion first phase of its chip-making complex.
The magnitude of the Nucor abatement has sparked intense debate. The breaks are permitted under a bill the Legislature passed last month and Gov. Kitzhaber signed into law this week.
Supporters concede the breaks are unprecedented. But they argue that they're vital to luring high-paying jobs to Oregon's economically ailing rural communities. Nucor has said it would pay average annual wages of $54,000 in Coos Bay ‹‹ more than twice the current average there. And Nucor supporters figure other manufacturers would follow the steel maker to Coos Bay.
A pipe manufacturing company with no current interest in Coos Bay has indicated it would move there if Nucor builds the mill, economic development officials said. The firm, which officials declined to identify, would hire as many as 100 workers.
The new tax-break law is "dramatic, it's big time and it's the only way we are going to solve double-digit unemployment in these rural counties," said Rep. Mike Lehman, R-Coos Bay, a key advocate.
Others are sharply critical. State Rep. Cynthia Wooten, D-Eugene, brands the package a "special-interest giveaway of the highest magnitude."
Nucor, an expert at winning big tax favors for itself, played a major role in crafting the Oregon legislation, which applies to 18 rural counties statewide. Nucor would be the first company to use the law.
Under the law, firms willing to make an initial investment of at least $50 million in a rural location, pay higher than average wages and hire at least 100 full-time workers are eligible for tax breaks far greater than anything Oregonians have ever seen.
For Nucor, the package of income and property tax breaks would be worth an estimated $57 million over the next 20 years.
But as the company considers Coos Bay, a location in St. Helens, and a site in the Washington port of Hoquiam to build a mill, some worry Oregon has entered a high stakes game of financial chicken.
Nucor is "pitting one community against another to see how much they can extract," griped state Sen. Bill Dwyer, D-Springfield, who voted against the law.
Immediately after winning passage of the new Oregon law, Nucor asked Washington to beat Oregon's terms, said State Sen. Veral Tarno, R-Coquille.
One Washington official complained that Oregon "gave away the store" to Nucor.
Certainly, Nucor hasn't blinked thus far.
A "hard-nosed" company
Nucor first approached Oregon with its mill proposal four years ago. The company was shopping for a West Coast location where it could recycle scrap steel into steel rolls for shipment to regional markets. But Nucor passed over concession packages offered by Oregon and Washington and turned its sights to the Southeast, to Virginia and South Carolina.
The company ended up securing a hugely lucrative deal in Berkeley County in South Carolina.
Along with providing a 30-year property tax break worth $250 million and sales tax concessions, South Carolina officials pledged cut-rate electricity from a state-owned utility to feed the gluttonous electric arc furnaces that make steel.
Though no estimates are publicly available for the cheaper electricity, the concession is believed to be worth millions of dollars a year.
"Nucor is very hard-nosed in going after tax breaks because it knows the benefits it brings to communities," said Berkeley County Executive Jim Rozier.
"With spin-off (jobs), and smaller companies that followed them, Nucor has brought in between 2,500 and 3,000 jobs."
Nucor in January opened the $500 million Berkeley mill, which employs 500 people. The company is preparing to spend another $300 million expanding the mill and will hire an additional 200 to 300 workers, Rozier said. Nucor pays an average wage of $55,000, he said.
"If I was starting the process all over again today, knowing what I know, I'd do it all over again," Rozier said. "If I was fighting Oregon for that mill, I'd give you a run for your money."
Instead of the 16 percent unemployment projected for the area after the federal government closed the nearby Charleston Naval Base in 1993, Berkeley County has been hovering at about 4 percent annual unemployment.
"What you are prepared to offer really depends on how desperate you are for jobs," Rozier said.
In Oregon, all 18 rural counties covered under the new tax-break law are considered areas of chronic unemployment.
That suits Nucor, which builds mills in small rural towns, among people who are handy with machinery.
"We only build in rural areas," said Larry Roos, general manager of a Nucor mill in Indiana and head of the project to find a West Coast location. "That's where we started because we are comfortable with people in rural areas."
Neither Roos nor John Correnti, chief executive officer and president of Nucor, make apologies for the company pitting states against one another.
"If we didn't approach it that way, our competitors certainly would," Correnti said.
Correnti praised the Oregon Legislature and Gov. Kitzhaber for their work on the concessions, but he graded Oregon and the Northwest as merely average in terms of granting incentives acceptable to Nucor.
"They did a fine job for us," Correnti said. "But is this the best tax package we ever received? Not even close."
What price jobs?
For public officials, deciding whether the new jobs are worth the tax breaks is no easy task.
The new law's tortuous journey through the Legislature ‹‹ at one point it all but died Ð reflects the ambivalence of many lawmakers.
"Initially, I felt we were giving up too much," said state Sen. John Lim, R-Gresham, chairman of the Senate Trade and Economic Development Committee. "But, considering the local economy (in Coos Bay), it was worth it."
One reason for the anxiety was the state income-tax waiver, the first time the state has ever offered such a break, said Lehman.
Existing tax-break programs offered to high-tech firms such as Hyundai, Sony Corp. and Intel Corp. waive local property taxes for set periods of time. But the new law waives all or most of the income taxes a company ordinarily would pay beyond a $1 million-per-year minimum payment. That would save Nucor roughly $20 million in income taxes over 20 years at its Coos Bay mill.
"The long-term benefits outweigh the short-term costs," Lim insisted. "They will pay some income tax, and eventually the state will get its money back."
Proponents argued that to let Nucor slip away would saddle Coos Bay with continued high unemployment for years to come. "We have lost 1,500 industrial jobs on the south coast in the last 15 years," said Lehman, the Coos Bay lawmaker.
Lehman, who grew up in Coos Bay, watched friends and neighbors lose their jobs when the bottom fell out of the timber industry in the early 1980s and 12 area mills shut down.
The port city has never recovered. Last year, the unemployment rate in Coos County was 9.2 percent, more than double the state rate of 4.2 percent.
"You have to weigh the tradeoff between jobs and tax breaks," said Katy Coba, a spokeswoman for Kitzhaber. "In this instance, the benefits to rural Oregon outweigh the costs." Coba said she doubted other high-wage companies would come to Coos Bay without incentives.
Advocates stress that the new law includes safeguards: The income tax waiver for each company is subject to the governor's approval; and the entire package for each company is subject to a vote by county commissioners.
Also, under the new law, the state would give the county 30 percent of the $1 million annual income tax payment. Plus, the county is free to haggle with the company for cash donations to cover infrastructure work.
Still, critics worry that the new law takes Oregon deeper into the interstate bidding wars that amount to corporate welfare for already-prosperous firms.
Nucor, with 6,600 employees, earned 1996 profits of $248 million on sales of $3.6 billion. Its stock value has increased 16 percent in the past 12 months.
"The larger public policy question for me is, at a time when so many people are worried about corporate tax giveaways, why should we create this irresponsible special program for one company?" said Wooten, the Eugene lawmaker. "This is not smart public policy."
Wooten, along with the rest of Lane County's legislative delegation, voted against the bill.
Dwyer, the Springfield lawmaker, balks at Nucor playing Oregon against Washington. "I don't want to get into that and I don't think the state should, either," he said.
Dwyer supported the enterprise zone programs that brought Sony and Hyundai to Lane County as well as the strategic investment program that brought LSI Logic Corp. and Intel Corp. expansions to the Portland area. The investment program has lured $8.7 billion in high-tech investment and over 5,000 jobs to the area since 1993.
But the incentives to Nucor are beyond lavish, Dwyer said. "I'm tired of welfare for the wealthy," he said. "We have a wonderful state here, so let them come and pay their own way like everybody else."
Economic recruiters in Cowlitz County, Wash., recently attracted steelmaker BHP to Longview without any property or income tax breaks. Nucor shopped the area back in 1993, but didn't find the incentives it wanted.
BHP will build a $220 million mill and hire 280 workers at an average annual wage of $38,000, said Clint Page, president of the Cowlitz Economic Development Council. The only concession Washington granted was a sales tax exemption on machinery installed.
"To give up your tax base on a long-term basis like Oregon is doing is foolhardy," Page said. "Not only does it hurt your schools, but it alienates existing industry."
Page said he and his peers in other Washington counties try to stay away from the "auction block mentality" of bidding for business against other states. "We don't let companies run our decision-making process here," Page said. "What Oregon has done is horrible public policy."
A chilly reception
o Even for state representative Lehman, who along with Tarno and Sen. Randy Leonard, D-Portland, guided the package through the Legislature, the breadth of the abatement for Nucor is staggering.
When Oregon Economic Development Department officials and Nucor's lobbyist in Salem, John Powell, first floated the proposal past South Coast lawmakers, the response was chilly, Lehman said.
"We all cringed," Lehman said. "The length of the deal was tough to swallow and even tougher was the income tax break."
"For the first time, we would be giving a tax break that affected the whole state of Oregon solely for a local development," he said.
With Powell in tow, Jim Whitty Jr. of the state Economic Development Department, began making the rounds in Salem trying to sell the plan in late April.
"John and I were joined at the hip for three months," Whitty said. "We wanted to do something that would turn these timber-dependent communities around, and this should help."
In its original form, the bill simply tidied up current enterprise zone rules, which provide for three-year tax breaks, and was passed by the House in June. When the Nucor amendments offering 15-year property tax breaks plus 20-year income tax breaks were introduced in the Senate on June 30, the bill died, 15-13.
"This was one of the few bills that senators were laughing about because it was so bad," said Jim Stembridge, a policy analyst with the legislative staff in Salem. "They couldn't believe it was such a big give-away."
Lim, the Gresham lawmaker, teamed up with Tarno and Leonard to salvage the bill.
After adding the wage and job guarantees, veto power by the county and the governor as well as the minimum investment criteria, it passed the Senate 26-2 on July 4. Later that same day, the House passed it, 47-11.
In a private ceremony on Monday, Tarno joined other legislators to watch as Kitzhaber signed the bill into law.
Tarno says he supported the bill mainly because constituents want it. "From my perspective, it's too large," he said. "But you have to listen to the people back home."
Now, however, Tarno is angry because Nucor is asking Washington to beat Oregon's offer. Nucor has hired Seattle lobbyist Randy Ray to buttonhole Washington lawmakers.
Washington's Legislature doesn't meet until January 1998, and it is doubtful Gov. Gary Locke would call a special session. An aide to Locke has said Oregon "gave away the store" in authorizing the new tax breaks.
Nucor's Correnti said he has no firm timetable on choosing a West Coast site, but noted that the new law puts Oregon a step ahead of Washington. "We are not going to wait two years to see what Washington is going to do," Correnti said. "By then, they (Washington) will be looking in the rearview mirror wondering what happened."
No rural infrastructure
One goal of the new tax-break law was to spread Oregon's economic boom to areas outside the red-hot, high-tech Willamette Valley. Rural interests, strong in both chambers of the GOP-dominated Legislature, stress that many counties in Eastern Oregon and along the south coast still have high unemployment.
Yet, many of the targeted rural areas ‹‹ there are a total of 20 tax-break zones in the 18 counties that qualify for the new abatements ‹‹ lack infrastructure for huge factories.
Coos Bay, for example, has neither the natural gas nor the electric capacity to serve the mill Nucor would build.
Tarno was able to push through a bill that takes $4 million out of lottery revenues over the next two bienniums to help with the estimated $25 million it would cost to run a gas pipe from Millersburg to Coos Bay.
Wooten calls that allocation "pure pork."
The $4 million is from a pool of lottery funds that otherwise would go to schools, gambling addiction programs and the Economic Development Department, according to the state Legislative Fiscal Office.
The private sector, most likely Portland-based Northwest Natural Gas, would pay the remaining $21 million for the pipeline.
It's also uncertain who would pay for the $120 million, 90-mile electrical line that would run from Roseburg to Coos Bay and provide Nucor with the 500 kilovolts it would need for the mill's electric arc furnaces. Existing local lines can handle only 115 kilovolts.
Nucor and Portland-based utility company PacifiCorp are negotiating the cost of the extension as well as a possible long-term contract, said Nucor's Roos.
"We recognize the value of Nucor to the community, but it's too early to tell where we are in the negotiations to comment," said Erin MacLellan, PacifiCorp spokeswoman.
Other impacts
Nucor's arrival in Coos Bay would likely spark increased demand for government services, as more people and businesses moved to the area. Yet, how those services would be funded is unclear.
If Coos County approves the Nucor deal, the company would be exempt from property taxes, including any local bond measures passed in the 15-year exemption period.
A study by the state Economic Development Department of Nucor's likely impacts on Coos Bay and North Bend projects increased need for everything from road improvements and education to police and fire protection.
In the study, ecomomist Art Ayres predicts the costs for these services would fall on new residents who move to the Coos Bay area, as well an on existing taxpayers in the form of increased taxes as property values increase.
The broad costs "should be considered by local officials and weighed carefully against the revenues available to pay for these additional costs," Ayres wrote.
Thus far, no one has performed a comprehensive study of the issue.
Despite the possibility of having to pay more in property taxes, retired Coos Bay businessman Robert Hale believes Nucor will enhance the community.
"There are very little employment possibilities for young people leaving our school system here," Hale said. "They want to come back, but we don't have anything to attract them."
Hale, who ran a downtown office supply store for 35 years, said tax abatements are the only way to lure a company such as Nucor. "It's being done all over the country," he said. "These days, you have to give something to get something back."
Meanwhile, the new law has already caught the attention of other firms.
"We know of some potentials already," said Whitty, director of industry for the state Economic Development Department. "The floodgates haven't opened yet because we haven't and probably won't advertise it."
NUCOR DEAL DETAILS
Property taxes on Coos Bay mill: Nucor would pay none for 15 years, for a total savings of $37 million.
Income taxes on mill profits: Nucor's income tax liability would be capped at $1 million a year for 15 years. On any taxes due above that amount, Nucor would receive tax credits that it could apply over a 20-year period. Estimated savings to Nucor over the 20-year period: $20 million.
Pipeline costs: State would pay $4 million of an estimated $25 million for a gas pipeline to the mill.
Wages: Nucor would have to pay at least 50 percent above the county average of $22,000.
Jobs: Nucor would have to create at least 100 jobs at the mill in order to keep the breaks in place.
Contributions: Coos County could negotiate with Nucor for cash donations from Nucor.
Oregon Economic Development Department