Hillsboro got an enterprise zone because of its poor neighborhood. Has it helped?

Oregon's enterprise zones, according to the legislative findings of the 1985 act establishing the program, were originally intended to go "especially in those communities at the center of or outside major metropolitan areas for which geography may act as an economic hindrance."

Doesn't sound much like Hillsboro, a suburban city that had plenty of available industrial land, good access to utilities and one of the state's largest employers, Intel, in 2006, the year the city applied for an enterprise zone.

Hillsboro is certainly not the only city of its kind to use the program. Of Oregon's 66 zones, 13 are urban, and they're located in places like Beaverton, Gresham, Clackamas and Salem. But Hillsboro has used the program aggressively; its zone, according to state data, leads all others in Oregon by significant margins in terms of the amount of investment attracted, property taxes abated and jobs created.

City officials originally hoped that the incentive program would reverse a trend of business closures in the northern industrial area. By that standard, the zone has been a smashing success. But in order to get the zone, Hillsboro had to establish economic hardship. And the city drew the zone's lines creatively, including a relatively poor, non-contiguous area in the city's southwest corner. Out of 15 companies that used the zone in the 2013-14 tax year, only one - EG Metals - is located in the southwest zone. And the program's effect on income levels in the two areas is similarly unbalanced.

The 'tallest tree in the Silicon Forest'

Oregon's enterprise zone program allows cities to offer property tax relief for up to five years to businesses that bring new facilities, equipment and employment to the zone. Land and existing property don't qualify for the abatement. In return for the tax breaks, the program requires companies to increase full-time, permanent employment by either one new job or 10 percent, whichever is greater.

It's one of the economic development initiatives Hillsboro has used to become, to use two of city leaders' favorite phrases, the "tallest tree in the Silicon Forest" and the "economic engine" of the state. If not for the enterprise zone, the city might not boast nationally recognized companies like SolarWorld, Genentech, Adobe and Reser's Fine Foods - and the jobs those businesses create.

"There's limited numbers of tools available for business development in the state, and that's one of the ones that the state has put in place," said Hillsboro Economic Development Director Mark Clemons last month.

When Hillsboro applied for an enterprise zone in 2006, city officials listed 13 companies in the northern industrial area that had closed and put their facilities up for sale. Five more businesses had downsized. The enterprise zone program, they said, would attract new companies, which would invest in new facilities and reuse old ones.

The plan worked. For instance, SolarWorld renovated the old Komatsu plant that had stood idle for years and has brought 620 jobs to Hillsboro in return for $8.6 million in tax breaks, state data shows. That part of the zone is still exploding with development. Reser's Fine Foods is now finishing up a massive new facility that will be home to 350 jobs.

Some companies have created more jobs than others. Over the past few years, out-of-state data centers have flocked to the city to take advantage of the enterprise zone. Their facilities require huge business investment and large tax breaks, but some data centers only create a few jobs. A company called Infomart Portland saved more than $775,000 in 2013-14 and only employed one full-time, permanent worker.

The data centers are also enjoying tax credits on their state corporate income or excise tax returns. The Electronic Commerce Zone Program, an add-on to the enterprise zone, gives eligible businesses a credit equaling the lesser of $2 million or 25 percent of their total annual investment in the zone.

"The number of jobs needs to be looked at," said Jody Wiser, of the advocacy group Tax Fairness Oregon. "And there needs to be a relationship between the number of jobs and the amount of subsidy."

Qualifying for the program

In order to get an enterprise zone, Hillsboro had to meet a certain standard of "economic need and hardship." At the time, critics argued that the city - already home to Intel, Lattice Semiconductor and many other successful companies in 2006 - was too affluent for an enterprise zone.

But a zone could be located in different sections of the city and didn't have to be contiguous. Hillsboro's zone is actually two zones: the vast industrial-ready land in the north, and a relatively small, poor section in the city's southwest corner. The poor section allowed Hillsboro to qualify by dragging the per-capita income in the zone down to $15,511, based on 2000 census data.

"This looks like corporate welfare dressed up to look like a program for the needy," said Linda Mokler to the Hillsboro City Council, according to a June 23, 2006 story in The Oregonian. Mokler doubted that the northern industrial area where Genentech planned to build a factory was economically disadvantaged and said the property would surely develop with or without an enterprise zone.

Officials said at the time that the zone would attract jobs for struggling families in the city's poorest areas. And they pledged to use fees associated with the zone to assist people in those sections of the city - a practice that continues today. Fees paid by enterprise zone companies contributed to $300,000 in college scholarships, many of which go to students in or near the enterprise zone. The fees also fund workforce-training programs like English language development.

But of the 15 companies that used the zone in 2013-14, only EG Metals is actually located in the southwest zone. EG Metals has 23 full-time, permanent workers, 10 of them hired because of the zone, according to state data. The business saved more than $14,000 in property taxes in 2013-14.

The city says it attempts to spur business growth in the southwest zone with a smaller barrier for entry - the minimum investment there is $250,000 compared to $1 million in the north industrial zone.

Though per-capita income measures in most of the census tracts associated with the citywide zone have gone up - some slightly, some significantly - three of the tracts in and near the southwest zone have suffered falling incomes and rising unemployment rates.

"They could take agricultural land [zoned for the northern industrial area] and say, basically, 'This is going to be an enterprise zone because we're going to use economic data from another area,'" Wiser said. "That's just dead wrong."

It's hard to compare current data to the 2000 income data the city originally used because the United States Census Bureau re-drew census tracts and their subgroups, dubbed "block groups," for the 2010 census. But using the bureau's legend for comparing block groups across decades, it's possible to draw some conclusions about some of the areas included in the southwest part of the enterprise zone.

For example, two of the block groups in tract 325.01, which is the tract most centrally rooted in Hillsboro's southwest enterprise zone, had a combined per-capita income of $15,849 in 2000. But the enterprise zone didn't help; the 2009-2013 five-year estimate, adjusted for inflation, was $10,459, according to the Census Bureau's FactFinder. The block groups may not match up exactly due to the 2010 boundary adjustments, but it's the same general area.

In tract 325.01 at large, unemployment in the civilian labor force during one stretch rose from 10.3 percent to 16.5 percent, according to the Census Bureau's five-year estimates from 2006-10 and 2009-13.

The numbers look similar for two other tracts in and near the southwest zone.

Hillsboro's enterprise zone expires in 2017. The city will have to reapply for a new one if it wants to continue the program.

'People's memories are short'

Republican Cliff Bentz, who represents the Eastern Oregon city of Ontario in the state legislature, sits on committees dealing with revenue, economic development and tax credits. Ontario is the seat of Malheur County, which has its own enterprise zone, a meager one compared with Hillsboro's. The county certainly would qualify as an area "for which geography may act as an economic hindrance."

Bentz said any growing skepticism about enterprise zones probably means they've worked, which may seem counter-intuitive.

"Hillsboro is so fortunate in that it enjoys a great deal of investment," Bentz said. "It's a wealth of riches, really. People begin to question these devices [enterprise zones] because they're not as challenged as other parts of the state."

He added: "As things get better, people's priorities change, and not surprisingly, the need for new businesses begins to wane, and the concern about traffic and schools and law enforcement and sewers begins to progress."

Bentz doesn't feel like Eastern Oregon competes with the Willamette Valley - the use of enterprise zones by larger western Oregon cities doesn't have a negative effect on Eastern Oregon, he said. In fact, it's true that business activity in Washington County cities helps the state at large, he said. "I think there's a lot of folks who take [the Washington County economy] for granted."

But, he said, as the state has rebounded from the recession, it might be time to consider tax reform - a topic that has loomed for years.

"I just think maybe the decibel level [about tax reform] has gone up a bit over the last three or four years, as the economy has continued to improve," Bentz said. "So people's memories are short, I think, when it comes to remembering how desperate the need for jobs was just a few short years ago."

*Sources for the two tables: U.S. Census Bureau, city of Hillsboro's enterprise zone application

-- Luke Hammill
lhammill@oregonian.com
503-294-4029
@HlsboroReporter