Oregon’s initial bid to obtain some of the billions available in federal incentives to boost domestic semiconductor manufacturing is finally headed to up-or-down votes of the Senate and House in the final week of March.

The Legislature’s joint budget committee voted Friday, March 24, with two Republicans dissenting, to move the $210 million plan in the form of Senate Bill 4.

Senate Republican Leader Tim Knopp of Bend spoke forcefully in favor of the legislation and rebutted comments from other Republicans, who urged lawmakers to wait until the next economic and revenue forecast May 17 before they make such a big budget commitment – and until there are changes to make it more enticing to businesses seeking some of the $52 billion in federal aid under the 2022 CHIPS Act.

“I think it’s necessary for our national defense,” Knopp said. “I think it’s necessary for Oregon because I believe we need to have the foresight to be promoting and securing as many high-paying jobs for the future that will help Oregon and our families financially. I cannot think of another policy we can pursue that will bring the rate of return to this state, both in human and financial terms, that this bill does.”

Knopp was one of two lawmakers on a task force convened last year after Intel – Oregon’s largest private employer with 22,000 jobs and plants in Aloha and Hillsboro – announced a multibillion-dollar investment in new plants in Ohio. In addition to being on the budget committee, Knopp also is the top Senate Republican on another joint committee to implement the work of the task force.

Key provisions of the bill:

• $190 million to aid businesses and others seeking a share of the federal grants and other incentives for domestic semiconductor manufacturing. The Business Development Department would administer the money, and for each $1 million granted, a business would have to show a minimum return of $1 million or $1.5 million in state and local revenue, with five years as the dividing line. The bill also specifies that two-thirds of the newly created jobs be at the area median income, which for the Portland metro area would top $70,000.

• $10 million to aid universities in innovative research and training.

• $10 million to set up a revolving loan fund for development of industrial sites.

The bill also gives Gov. Tina Kotek much-debated temporary authority to designate up to eight sites suitable for industrial development – two each at 500 aces or greater, and six smaller sites – that are next to urban growth boundaries of cities. The authority expires at the end of 2024, and the governor must conduct a public meeting and allow 20 days for public comment. Sites not added to urban growth boundaries will revert to their original status, but local governments would have to proceed to add sites designated by the governor through land use processes.

GOP divided

Sen. Fred Girod of Lyons, the top Senate Republican on the budget panel, said lawmakers should wait until the next revenue forecast, which lawmakers base decisions on the next two-year state budget that starts July 1. The framework released earlier this week by the Legislature’s budget leaders, both Democrats from Portland, does take the $210 million into account – but they said there is little extra money available for other priorities.

“There are opportunity costs to vesting things as early as we are doing,” Girod said. “It might come down to making tough decisions as to cutting education, corrections or whatever your favorite program might possibly be.”

He and Rep. Jami Cate of Lebanon also decried what they saw as Oregon’s unfriendly image to business development and its high-tax reputation. According to the Legislative Revenue Office, Oregon’s overall tax burden is average among the states – it ranks 25th as measured by per-capita income and percentage of income – but Oregon is highly dependent on personal income taxes. Oregon ranks seventh in terms of per-capita income, and fourth in the percentage of income. (Oregon is in the mid-range for property taxes, and it is one of four states without a general sales tax.)

“Without addressing those root problems, we can spend all the money in the world and jump through all the hoops to try to make us competitive for these federal funds,” Cate said. “But history will just repeat itself.”

Rep. David Gomberg, a Democrat from the central coast and a small-business owner, said he acknowledged that the legislation is not perfect. But he also said that with the U.S. Department of Commerce having released initial guidelines for applications for the federal grants, Oregon had to get moving.

“I wish we had moved this bill sooner,” said Gomberg, House co-chair of the budget subcommittee that reviewed the legislation. “We have to move it now, and I think we cannot wait much longer.”

He added: “I wonder what kind of message we would send to the public regarding the business environment in Oregon if we were to vote no on this bill.”

Supersiting controversy

Knopp conceded that the supersiting authority proposed for the governor is controversial. The Legislature has approved supersiting authority in the past for new prisons, but that legislation also laid out specific standards that each site had to meet. This time would be a first for the governor under Oregon’s land use planning law, which was passed 50 years ago, that confines development within urban growth boundaries of cities and protects most land outside the boundaries for farming and forestry.

But he said an initial survey by the Port of Portland last year failed to turn up sites of at least 500 acres. He said a subsequent survey of cities and counties, still being evaluated, turned up enough potential smaller sites for industrial development already within existing urban growth boundaries. Among them, he said, are sites near Redmond, Boardman, Albany and Medford.

“But Oregon needs two large (500 acres-plus) sites available that currently do not exist in order to compete with other states for large semiconductor investments,” Knopp said. “Our current land use system … is simply too slow to rely on making these sites available in a timely fashion to help us get those federal dollars. We’re not going to meet any of the requirements of the federal government for semiconductor funds without speeding up this process.”

He added: “What it came to down to… was the opportunity for a very big fabrication plant, similar to what Intel and other companies have in Oregon. There just really wasn’t the land readily available. So we either have to pass, which I don’t think is a good idea, or we need to lay down a marker and say we are willing to play.”

Language inserted in the bill by Sen. Janeen Sollman, a Democrat from Hillsboro and Senate co-chair of the semiconductor committee, would bar Kotek from including urban and rural reserves designated in Washington County under a 2014 law. Such reserves are supposed to be off-limits to development for 50 years. Hillsboro city officials had asked the committee to remove the development prohibition for specific sites near the city’s urban growth boundary.

More work to do

Some lawmakers said that the legislation should have included state incentives for development of these industrial sites, such as the restoration of a much-debated tax credit for research and development that would allow businesses to subtract related spending directly from their tax bills. Others are a renewal of current property tax breaks in enterprise zones – House and Senate revenue committees have already heard separate legislation – and extensions of two other programs that have largely benefited Washington County because of previous multimillion-dollar investments by Intel and Genentech. Those programs are scheduled to expire in 2026.

Sollman said tax provisions had to be excluded from this legislation, which would go into effect immediately upon Kotek’s signature because an emergency clause is attached. The Oregon Constitution bars tax measures from taking effect for 90 days, when opponents can petition to force a statewide election.

But she said legislators are working on state incentives in separate legislation.

Rep Paul Evans, D-Monmouth, said state lawmakers should not lose sight of one other reason for the federal CHIPS Act, which passed with bipartisan support and was signed last summer by President Joe Biden. Although semiconductors were invented in the United States – and Oregon trails only California and Texas in the number of workers (40,300) in semiconductor manufacturing – Asia is the source for computer chips that are widely used. Taiwan Semiconductor Manufacturing Company makes many of the world’s most advanced chips, but China regards Taiwan as a renegade province and has threatened to use military force against it.

The Biden administration has moved recently to block Chinese access to advanced semiconductors.

“People do not believe we are in an economic war with China, but we are,” Evans said.

“Sending a signal early that we are going to invest in this and make our supply chain stronger is a critical element of a national strategy to keep China from trying to expand in other noneconomic ways. It is not military war, but it is economic war. I think this is something Oregon has to do.”