Update: See our related story about a possible solution being discussed by the state and county.
Columbia Distributing’s new, 530,000-square-foot beverage warehouse and distribution facility does not appear to be eligible for sizable tax breaks under the county’s Strategic Investment Zone, according to representatives of Business Oregon, the state economic development agency that oversees the program.
The loss of the incentives — apparently the result of miscommunication between Columbia and Business Oregon — would cost the company millions over the next 15 years, unless they can find some way to prove compliance under the law.
The Strategic Investment Program was created to attract large, capital-intensive facilities to locate in Oregon, and the county’s SIZ was established in 2010 with approval from the cities of Canby, Estacada, Molalla and Sandy. Columbia Distributing is the first company to apply in Clackamas County.
The program offers a significant, 15-year tax abatement for companies that spend more than $25 million on a single development, and Columbia’s investment was estimated to be well over that — more than $60 million.
The exact amount of the tax savings is unknown, since it’s based on the property’s ultimate assessed value (which hasn’t been determined yet), but the program was a “fairly significant factor” in Columbia’s decision to consolidate three warehouses and relocate their Portland area operations to Canby, according to the company’s CFO.
The problem, as revealed in email correspondence between representatives of Business Oregon, Columbia and the city of Canby that was provided by public records request to the Canby Now Podcast, is that the company failed to file their application with the state before beginning construction.
The all-important date is July 2 — the day Business Oregon received the application from Columbia requesting tax considerations under the Strategic Investment Program, or SIP. Any permitting and design work (known in the construction industry as “soft costs”), as well as clearing and other site prep done prior to that date would not make Columbia ineligible under the program’s criteria.
But the company admitted in emails to Business Oregon Incentives Coordinator Art Fish that they began actual “construction work” — the pouring of foundation slabs — the week of June 11.
“I’m sorry, I thought that no real construction had begun until application was made on July 2, 2019,” Fish says in a Jan. 22 email to Columbia Distributing’s chief financial officer, Paul Meade. “That the application needed to precede physical construction work was generally understood, or so I thought. If the slab was being poured a month earlier, I do not see how any building for that slab can be covered under SIP.”
In a later email to Economic Development Director Jamie Stickel, Fish appears to double-down, saying “any building erected on slabs, for which the concrete was already solidifying prior to July 2, cannot be treated as part of the project for SIP tax treatment.”
And in a Jan. 23 email, Fish cites state statutes that seem to support his position that the project doesn’t qualify due to the earlier construction work. To find otherwise, he says, “you will need to interpret the law differently.”
In several emails, Fish admits that he should have asked for further information from Columbia representatives about the state of construction activity back in July.
“I should have been more pointed in my questioning before, when the application was received here,” Fish tells Meade. “We use the application to the state with all SIP projects to draw the line between existing property and what can be considered part of the new investment, … This is the reason for the language at the top of the application form.”
At the top of Business Oregon’s application form for the SIP, it does indeed read: “DUE before the purchase or lease of property or any on-site work begins that will comprise investments in the project.”
Fish later tells the CFO, “Besides drilling down and splitting hairs about when and what was being built, I have nothing to offer. Really sorry.”
At one point, Fish states that he “now feel(s) as if we were misled,” though he does not say by whom. The emails provided to us seem to demonstrate the company being completely responsive and forthcoming to requests for information about their construction activities.
“Art: In our conversation preceding submission of the application, we discussed this and you indicated it was not a problem,” Meade says in an email to Fish. “Furthermore, the attorney for Canby has read the statute and … stated that since the zone exists, the building qualifies.”
The opinion by Fish seemed to have come as something of a shock to the Columbia representatives.
“This is obviously disappointing, Art, especially in light of the numerous conversations I have had with the multiple parties involved,” Meade says. “It honestly appears to me that hairs are being split and that Columbia is being punished for being the first applicant in the county/city. We will obviously conduct our own review of the statute and any available remedies.”
Later, he admits that the Strategic Investment Program “was a fairly significant factor in our decision to move to Canby, so what kind of appeal process exists for this decision? Please let me know if there is a prescribed next step.”
We don’t know what Columbia’s “next step” might be, and requests for comment from the company’s communications team have not yet been returned. But one possible route, evidently, could go through the county assessor’s office.
In a Jan. 29 email, Fish tells Canby City Administrator Scott McClure, “I talked with the assessor’s office, and I think they are seeing a way through to administer matters in preserving the tax benefits in light of premature construction-related work.”
Fish also states his belief that the matter may not have needed to go before city council for approval in the first place.
“I should note that city and county processing for local approval and agreement with a zone should always have been of an administrative or ministerial nature,” he tells McClure. “So, that involving the city council other than for its advisement has always seemed problematic.”
But, for better or worse, bringing the matter before council was what alerted Business Oregon to this apparent issue. Email records show lengthy correspondence between Fish and councilors Sarah Spoon and Greg Parker, and at one point, Fish credits a question by Spoon as being what “prompted inquiry” into the matter.
If Columbia is ultimately ruled ineligible to collect on the property tax abatement, those dollars would instead go toward city and county services, the Canby Fire District and Canby schools.
The Canby City Council is scheduled to receive an “update regarding Columbia Distributing’s Strategic Investment Zone application” at their next meeting tonight, Feb. 5.
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