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The $7 Million Giveaway

Eugene and Lane County's tax break makes no sense

I am baffled by the decision of the Eugene City Council and the Lane County Board of Commissioners to give away an additional $7 million, to Singapore-based Broadcom, on top of the $14 million the company was already getting for creating 229 jobs in the West Eugene Enterprise Zone. That’s $21 million, what they paid for the property, for 229 jobs!

Of course I am happy Broadcom will be creating jobs at the former Hynix site. These are badly needed jobs in our local economy. And I am not opposed to enterprise zones. They were originally conceived to help disadvantaged rural communities compete for manufacturing jobs and industrial development. They were later expanded into urban areas. I believe they can be very real incentive for companies wishing to expand and/or relocate here.

In theory, the Enterprise Zone is used to “recruit” a company that would not have located here otherwise. I know for a fact that not having an enterprise zone can be a deal killer for businesses from another area looking for a place to expand and relocate. The tax break creates an incentive for the company to make significant investments in the property and, after the exemption period ends, they pay property taxes on the full value of the property. Those property taxes could be substantial, as they were with Hynix.

And I believe a case can be made for offering the additional two years of tax waivers. But the extra two years of property tax waivers should come in exchange for, well, something. In this case it appears the city and county caved in and gave away the additional $7 million and got almost nothing for the $7 million in return.

They were able to extract a commitment for Broadcom to contribute a total of $500,000 spread over five years to the Lane Workforce Partnership. That’s $500,000 for the $7 million. And Broadcom will get its investment back since it will be using the workforce partnership to provide them with qualified applicants for their jobs.

City Councilor Chris Pryor and Lane Commissioner Jay Bozievich both claimed the additional two years, and $7 million, were an “investment.” Pryor went on to say they were "not giving money away.” Really! So what did we get in return for the extra $7 million “investment” of our money?

It’s not the jobs. The company had already purchased the site; it was not going anywhere. It announced in November of last year it would be hiring 250-300 employees for the new plant. For the additional $7 million, Broadcom was allowed to pare that down to 229. For the extra $7 million why not, at the very least, insist on the upper end of the previously announced 250-300? Or challenge it to create more? Broadcom’s Colorado plant employs 800.

It’s not the wages. The company claimed last November it would be paying wages “way above the median income.” It has to; the company will be competing for good employees in an industry that pays well. The extra $7 million did not compel or encourage Broadcom to increase the wages at all. In fact, for the extra $7 million, Broadcom agreed to the absolute minimum average wage to qualify, $59,073. For $7 million, why not push for a higher average? The average wage at Hynix was $70,000.

If it’s not the jobs, and it’s not the wages, then what is it? It may be another kind of investment. Local elected officials often feel compelled to “create jobs.” One tried and true way to do that is to find a project that is already going to succeed and put some additional public resources into it and claim credit for the jobs. Jobs that would, of course, have been created anyway.

The ability to add two years of enterprise zone benefits can be a powerful incentive to help a company decide to locate in a specific community. But when negotiating with a company like Broadcom, with 8,400 employees and revenues over $4 billion last year, our team appears to have been in way over their heads. They gave away $7 million to close a deal that was already done. I would not call that driving much of a bargain for our $7 million.