Onwards & Upwards (Green Fiber)

Lawmakers created the tax break to lure Google Fiber. Google isn't coming, though, and other telecom companies want a piece of the action.

(Benoit Felten/Creative Commons)

Oregon lawmakers may kill a tax break just two years after they voted unanimously to create it.

That's because the intended beneficiary, Google Fiber, has backed out of plans to serve the Portland area.

The proposed reversal has drawn pushback from other tech and telecom companies that say they invested in their Oregon networks in anticipation of the same tax discount the state offered to Google. A repeal now would qualify as bait-and-switch, they complain.

"In our opinion this represents nothing other than bad faith on the part of the Legislature," said Brant Wolf, vice president of the Oregon Telecommunications Association, at a hearing of the House Revenue Committee late last month.

The issue originates in 2015, when the state Legislature approved a bill exempting internet service providers from an unusual Oregon property tax - provided those companies offer online connections of roughly 1 gigabit per second. Lawmakers had acted at the behest of Google Fiber, which said it would not offer service in Portland if it were subject to the tax.

Last year, though, Google Fiber scuttled those plans. The company apparently decided that stringing high-speed fiber-optic cables through neighborhoods was too expensive. So Google is exploring wireless service instead in several parts of the country - though apparently not in Portland.

Meanwhile, Comcast and Frontier Communications each applied to take advantage of Oregon's tax break - based on very limited gigabit offerings. Neither won approval from the Department of Revenue, but Comcast is challenging the ruling and will soon roll out a new gigabit service that would almost certainly qualify. Frontier says it will file for the tax exemption in November.

So lawmakers are rethinking their approach. House Bill 2770 would repeal the 2015 gigabit tax break outright, while House Bill 2063 would set a minimum investment threshold to establish eligibility for the tax break, and a maximum price for the internet service. (Lawmakers have not yet suggested dollar amounts.)

The city of Portland, which campaigned for the tax break in 2015, now says it wants it repealed. Portland says advancing technology has brought down the cost of deploying high-speed internet service to the point where a tax break is no longer needed to finance it.

Wendy Johnson, from the League of Oregon Cities, testified recently before a House committee that internet service providers are adding gigabit service in Oregon and other states without the benefit of any new tax breaks.

"Companies are expanding already," Johnson testified. "It's just not the service that we anticipated this exemption was needed for."

The exemption applies to the unusual way Oregon assesses the value of cable TV and internet networks. Known as "central assessment," the practice taxes companies' intangible assets, such as the value of their brands.

Oregon local governments want to hold onto tax revenue worth several million dollars a year. But telecom companies say they planned their investments in anticipation of saving that money.

Frontier spent $2 million on upgrades in Washington County in anticipation of the tax break according to Wolf, from the telecom association. Taking away the tax break now, he said, would have a "chilling effect on any future investment they might choose to make in this state."

The gigabit tax break has been fraught from the beginning. Google Fiber said language in the original legislation accidently excluded the company, prompting lawmakers to write a new bill. Then last year, legislators said they were appalled to see Comcast and Frontier applying for the tax break without evidence of additional investment in their Oregon networks.

At a hearing last month, Oregon Rep. Rob Nosse, D-Portland, claimed he was unaware of the gigabit tax break when he joined the rest of the Legislature in voting for it in 2015.

"I've got to be honest with you," Nosse said during the Revenue Committee hearing. "I don't remember this gigabyte exemption in the bill, actually. If I'd been paying slightly better attention I might have voted differently on it, actually."

House Revenue Committee Chairman Rep. Phil Barnhart told last month's hearing that he's unpersuaded by telecom companies' testimony that they need the tax breaks to keep investing in Oregon.

"The issue here is the richness of the tax break and the need for it," said Barnhart, D-Springfield. "I expect all businesses who have enjoyed a tax break of any kind to claim it's valuable and necessary. What we need, though, is data that establishes that and so far we haven't received any."

Update: This article has been updated to clarify that while the Department of Revenue rejected Comcast and Frontier's applications for the tax exemption, each company still hopes to receive the tax break. Comcast is challenging its denial and Frontier hopes to win sign-off from Revenue this fall.

-- Mike Rogoway; twitter: @rogoway; 503-294-7699