2014 Intel SIP

The Strategic Investment Program (SIP) was authorized by the 1993 Legislature to increase Oregon's ability to attract and retain capital-intensive industry and high-wage jobs. Projects approved for the SIP must pay full property taxes on the first $100 million invested, or first $25 million in a rural area, a cap that increases 3 percent each year. An annual Community Service Fee equal to 25 percent of abated taxes, up to $2 million in an urban area or $500,000 in a rural area, must also be paid. Additional fees can be negotiated.
 

The Strategic Investment Program is a partnership on several levels. In terms of inter-governmental cooperation, the process involves the Governor's Office and Business Oregon working together with local governments to recruit major employers and support economic development. Public-private partnership is also at the heart of the process where local governments negotiate with capital-intensive businesses to create employment in areas where major investment would occur. These partnerships are critical for working through the details and complexities of such an investment.

SIP agreements have allowed local governments throughout Oregon to attract and retain capital-intensive businesses and high-wage jobs. Since 1993, agreements in Washington County have resulted in nearly $30 billion in investment and 18,000 jobs locating here. In the case of Intel, ECONorthwest, a private consulting firm, recently identified the following: 

• In 2012, Intel had an annual payroll of $2.8 billion and 16,500 employees, making Intel the single-largest private-sector employer in Oregon. 
• For every one Intel job, three additional jobs were created statewide. 
• This ripple effect added up to nearly 68,000 jobs; about 4 percent of the state's workforce. 
• Intel's total economic impact was also measured at $26.7 billion in 2012, or about 8.7 percent of the state's total. 
• This ripple effect of economic impact has led to gross payments totaling $327.7 million in state income taxes and local property taxes in support of public services statewide.  

The 2014 SIP agreement requires Intel to make payments under two categories, those required by state law and those negotiated locally. The statutorily required payments would total to an estimated $122 million in property taxes and fees over the life of the agreement. Additional fees would total to an estimated $228 million over the same period. Actual amounts would vary depending on how much and over what timeline Intel invests. 

The agreement is focused on investments in the company's unique cycle of equipment replacement and retaining the 17,500 employees working in Washington County at the time the 2014 agreement was adopted. The multi-million-dollar machinery and equipment used in Intel's manufacturing process can become obsolete within a few years as the technology rapidly evolves. As with earlier SIP agreements, property taxes would be partially abated for investments in these leading-edge tools.

In 2005, Washington County and the City of Hillsboro negotiated a SIP agreement with Intel that set the stage for up to $25 billion of investment over 15 years beginning in 2010. Here is a side-by-side comparison of the 2005 SIP with the 2014 agreement: 

The 2014 SIP agreement requires Intel to pay an estimated $350 million in property taxes and fees over the life of the agreement. This is significantly greater than the amount required by Oregon law under the Strategic Investment Program. 

The agreement follows a precedent established with other Washington County SIP agreements of requiring fees equal to full property taxes on all land and buildings. 

The exact amount of taxes and fees would depend on the level and timing of investment under the 2014 agreement. Intel has consistently said that a SIP agreement would be required before the $100 billion investment in its Washington County facilities would be considered. Without this investment, there would be no "tax savings." 

The 2014 SIP agreement creates a fee structure that ensures Intel would pay an amount equal to full property taxes on new buildings and land with any tax savings stemming from Intel's investment in machinery and equipment. Intel estimates that most of its investment is intended for equipment upgrades and new equipment investment required by rapidly changing technology. 

Under the Intel SIP agreements approved in 1999 and 2005 -- and not including the fees associated with these agreements -- Intel was levied more property taxes than any other property tax payer in Washington County in 2013-2014. 

On a per-employee basis, Intel was levied substantially more than other industrial/manufacturing businesses operating in Washington County in 2013-2014. The 2014 agreement continues the approach from the 1999 and 2005 agreements, although the precise amounts of taxes and fees would depend on the timing and nature of Intel's investment under the 2014 agreement. 

Notes and Sources: Property taxes levied for Industrial and Machinery and Equipment categories from Washington County Department of Assessment and Taxation for the 2013-2014 tax year;manufacturing employees in Washington County from Covered Employment and Wages, Oregon Employment Department 2013. These employers are routinely reported by the Oregon Employment Department within the 300 series of the North American Industry Classification System (NAICS) as manufacturing businesses: food, beverage and tobacco product, textile mills, textile product mills, apparel, leather and allied product, wood product, paper, printing and related support activities, chemical, plastics and rubber products, nonmetallic mineral product, primary metal, fabricated metal product, machinery, computer and electronic product, electrical equipment and appliance, transportation equipment, furniture and related product, miscellaneous. 

Actual payments under the proposed 30-year SIP agreement would depend on the nature and timing of Intel's investment. Nonetheless, based on a scenario of two $50 billion investment packages focused on the replacement of semiconductor manufacturing equipment, Intel's total estimated property tax and fee payments for the full 30-year period are projected in the table below. Other investment scenarios would result in different estimates than those shown here.  

The 2014 agreement would continue a practice of concurrent exemption periods applying to specific investment packages over time. A similar approach was taken when investment under the 2005 SIP began while the 1999 SIP was still in effect. The 2014 agreement allows separate investment packages to be identified and accounted for so long as no exemption period extended beyond the life of the agreement. Intel would gain greater flexibility when timing equipment replacement and the local governments would gain an extended period of certainty with respect to the methodology used to compute Intel's taxes and fees.  

The 2014 agreement focuses on job retention, so significant new employment is not anticipated. Intel has indicated that its investment would be geared toward its unique cycle of equipment replacement and retaining the 17,500 employees working in Washington County at the time the 2014 agreement was adopted. The multi-million-dollar machinery and equipment used in Intel's manufacturing process can become obsolete within a few years as the technology rapidly evolves. As with earlier SIP agreements, property taxes would be partially abated for investments in these leading-edge tools.
 

An analysis by ECONorthwest, a private consulting firm, revealed that each of Intel's jobs in Hillsboro and Washington County created an additional three non-Intel jobs throughout the state. In 2012, this added up to nearly 68,000 jobs –about 4 percent of the State's workforce. Additionally in 2012, Intel's payroll amounted to $2.8 billion causing a ripple effect that led to a gross total of $327.7 million in state income taxes and local property taxes in support of public services statewide. This and previous studies of Intel's economic impact have measured this ripple effect across the local and state economy, contributing revenue and jobs to smaller businesses involved with real estate, retail, health care, entertainment and other markets. The most recent ECONorthwest study can be found at here. 

The computers and electronics industry, and in particular semiconductor manufacturing, forms the core of the Greater Portland region's economy and exports. High-tech products are driving both wages and exports. Recent data from the Brookings Institution and JP Morgan Chase indicate that exports accounted for 24.4 percent of the Portland metro area's total economic output in 2012, ranking Portland fourth among the nation's largest 100 metro areas. The top three export sectors –semiconductors, computer equipment and precision instruments, all prominent elements of the Hillsboro's technology cluster –total more than $21.7 billion in annual exports, and make up 62 percent of the region's export value. Semiconductors are the top export, totaling $15.17 billion, which accounts for 44.7 percent of total exports. 

Hillsboro's high-tech cluster, anchored by Intel, is populated by companies that range from relatively modest local specialty service providers that clean and service equipment to large, multinational corporations with operations on nearly every continent. A closer look at the industry shows companies specializing in equipment, materials, components and services are critical to primary makers such as Intel.As chip makers explore different designs, geometries, materials and functionalities, their key partners of necessity must collaborate with them as well. This is why Intel has attracted such a vibrant supplier population here. 

Other businesses can and have participated in the Strategic Investment Program since the Legislature created the SIP in 1993. The intent of the program was to increase Oregon's ability to attract and retain capital-intensive industry and high-wage jobs. Projects approved for the SIP must pay full property taxes on the first $100 million of their investment, or $25 million in a rural area. Given these state requirements, a business would need to invest well over $100 million per year, or more than $25 million per year in a rural area, before benefiting from this tax abatement program. Other companies with SIP-eligible investments in Washington County have included: Integrated Device Technology (SIP agreement approved in 1994) and Genentech (2006). Moreover, other businesses have entered into SIP agreements elsewhere in Oregon. 

The state of Oregon has been supportive of SIP agreements across Oregon ranging from high tech investments in Washington County to wind-generating facilities in eastern Oregon and a paper mill in Clatsop County. SIP presents an excellent option for the manufacturing industries and companies relying on high-value equipment.

No, because Intel has consistently said that a SIP agreement would be required before its billions of dollars of investment in Washington County would be considered. Under the 2014 SIP agreement, Intel's land and buildings will continue to generate payments at a rate proportionate to those made by every other business in Washington County. Using prior Washington County SIP agreements as a model, any tax savings to Intel would come from its investment in chip-making equipment, which costs billions of dollars to create and can become obsolete after a few years. This approach would help continue Intel's level of investment in the community, continue job retention and the ripple effect of jobs at other businesses. This approach would also help continue property tax funding for county and city services, and continue state income tax funding for schools.

Potential Gain Share funding would depend on the future of the Gain Share program. The City of Hillsboro and Washington County will continue to work with the Governor and the Oregon Legislature to ensure the long-term future of Gain Share.
 

Intel's SIP-related employment under the 2014 agreement is not expected to grow significantly. As Oregon's largest private-sector employer, Intel has worked cooperatively with the City of Hillsboro, Washington County and other jurisdictions to support the livability of neighboring communities. For example, Intel contributes to the cost of any traffic improvements carried out by the City of Hillsboro or Washington County when Intel facilities are built or expanded. In addition, Intel provides its employees with an alternative start time program, an inter-campus shuttle system, incentives for MAX ridership and carpooling. Through the 2014 agreement, Intel, Washington County and the City of Hillsboro have pledged to continue working on ways to improve transportation and other infrastructure supporting Intel's presence here and the livability of neighboring communities.

The short answer is "no." Instead, Washington County and the City of Hillsboro have focused on ensuring that our communities remain great places to start or grow a business. Through the Strategic Investment Program, the Oregon Legislature has enabled the city and county to successfully attract and retain capital-intensive industries and high-wage jobs benefiting the entire state but focused here in our community.

On August 26, 2014, the proposed agreement was considered and adopted after a joint public hearing before the Washington County Board of Commissioners and the Hillsboro City Council.  

Before a proposal under the Strategic Investment Program can take effect, state law requires that a majority of the Board of County Commissioners and a majority of the Hillsboro City Council approve and that the county enter into an agreement with the business firm. If an eligible SIP project will be located in a city, as is the case with Intel's facilities in Hillsboro, that city must also enter into an agreement with the business firm. Finally, the business must submit an application for approval by the Oregon Business Development Commission. 

Yes, a one page FAQ handout is available.