SALEM, Ore. – Governor John Kitzhaber took the extraordinary step on Monday of ordering a special session of the Oregon Legislature to push through a tax plan aimed to help Nike, Inc. significantly expand in the state.
Kitzhaber said Nike approached the state saying they want to expand operations in Oregon, but they need certain guarantees that current tax structures won’t change, which could hurt their investment.
The governor said Nike is being courted by other states and that he is acting with a sense of urgency to give Nike the assurances they need to stay here.
“I do not make this extraordinary decision lightly, but Oregon has an extraordinary opportunity to boost our economy and create jobs,” Kitzhaber said.
Kitzhaber is proposing a system where businesses who want to make significant investments in Oregon could negotiate with the state to ensure the current tax structure stays in place for a set amount of time.
In order to make any deal, a company would have to commit to creating 500 jobs and investing $150 million in capital projects over a five year period.
Kitzhaber argues that the plan is not a tax break, but a tool the state can use to attract large businesses
The special session will be held on Friday. Kitzhaber said he hopes lawmakers can talk through the proposal and reach a deal within a day.
“They are being courted by a number of other states but they have said if we can provide them with certainty in their investment they will sign on the dotted line now,” Kitzhaber said.
Kitzhaber said the Nike expansion will create 12,000 new jobs in Oregon by 2020 with a potential economic impact of $2 billion a year.
Nike has not provided specifics about their expansion and would only confirm it would add at least the minimum 500 jobs required under the plan.
Construction related to the expansion will also create 440 new jobs, Kitzhaber said.
“Nike is a global company with a long history in Oregon. We support this proposed legislation as a way to help us continue to grow in Oregon,” said Don Blair, Nike's chief financial officer.
“This is a huge win for the state of Oregon,” Kitzhaber said.
After the announcement, prominent lawmakers from both sides of the aisle voiced their support for the plan.
"In the campaigns every one of us said we have to create jobs. Everybody wants us to do something about jobs. The truth is that most of the time, as a state, we are very limited in what we can do to create jobs. This is a rare opportunity and we’re not going to miss it," said Senate President Peter Courtney, a Democrat. "We’re going to send a signal to the rest of the country by coming into special session and taking action."
House Co-Speaker Bruce Hanna, a Republican, also supports the governor's proposal.
"The legislation we will move during the special session is a simple way to create enormous long-term benefit for our state, its people and its economy," Hanna said. "While special sessions are never ideal, this opportunity for Oregon demands immediate action."
State Senator Mark Hass, a Democrat, tweeted his support of the proposal.
"Nike wants to make a long term commitment to Oregon. We should make a long term commitment to Nike," he tweeted.
Some economists worry about proposal
The governor argues that this deal would help Oregon's economy, but two economists told KATU the deal would help Nike and just Nike.
Under the proposal outlined by Kitzhaber on Monday, the governor would be able to negotiate these deals with companies as long as they commit to adding 500 jobs and making a $150 million investment.
Tigard-based economist Bill Conerly argues that it's bad policy to set up a subjective system like that.
"I'm looking forward to Nike expanding; that's a positive. But I don't think we should make special deals," Conerly said. "I don't think the governor should be allowed to make special deals with some companies while leaving others behind."
It's not clear exactly how much Nike would stand to benefit from this deal. While they have to release total income tax liability in Securities and Exchange Commission filings, they don't have to disclose their specific state income tax liability.
Some economists we spoke with also noted that the 12,000 jobs number over 13 years represents less than one percent of total jobs in the state.
"It's not a game-changer, but it's a nice boost," Conerly said.
Changes at Nike
Nike employs 44,000 people globally, including 8,000 in Washington County, home to its world headquarters in the Portland suburb of Beaverton. The company said its Oregon workers make an average wage of more than $100,000.
Nike has been selling off brands and making other moves to focus on its most profitable businesses, which include its namesake Nike brand, Jordan, Converse and Hurley.
It sold its Cole Haan brand to private equity firm Apax Partners for $570 million in November and In October said clothing licensing company Iconix Brand Group Inc. would buy Umbro for $225 million.
Like most consumer product makers, Nike has faced rising costs for packaging, fuel and other raw materials.
In its most recent fiscal first-quarter, net income fell 12 percent as the boost from higher sales was offset by increased costs and ad spending. The company said then it was facing a slowdown of futures order growth, particularly in China. Those are orders from retailers of products that are scheduled for delivery between September 2012 and January 2013.
In November, Nike said it was boosting its dividend payment and planning a two-for-one stock split.
Companies typically split their stocks when they think the price of an individual share has gotten too expensive or if the stock is trading too far above similar companies' stock. Nike stock is up about 2 percent since the beginning of the year.
Nike built its current headquarters campus in Beaverton in 1990. It had a scuffle with city leaders in 2005 when it filed a lawsuit to find out if Beaverton leaders had plans for annexing company property. A judge found that city officials were in contempt for deliberately withholding public documents from Nike, including a draft annexation plan that showed city leaders considered forcing the company's headquarters into city limits in 2002. Nike got a 35-year exemption from forced annexation in Beaverton.
The Associated Press contributed to this report
Proposed legislation is not a tax break - this is about certainty for businesses committing to long-term investment & job creation in OR.— John Kitzhaber (@GovKitz) December 10, 2012
Private sector job growth drives OR's econ recovery; the state can help create business climate to accelerate growth.— John Kitzhaber (@GovKitz) December 10, 2012
Nike wants to make a long term commitment to Oregon. We should make a long term commitment to Nike.— Mark Hass (@MarkHassOregon) December 10, 2012
Watch Kitzhaber's news conference announcing the special session: