Tax break for Germany's Daimler Trucks slides through Congress virtually undebated

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The Oregonian / July 3, 2015

The Legislature's big transportation funding package crashed and burned last week. But one special bauble tucked into the bill – a multi-million dollar tax break for Daimler Trucks North America – was quietly salvaged and passed with little notice this week.

Call it a stealth tax break.

House Bill 2465, passed Wednesday, puts into statute a unique and somewhat convoluted deal that the state struck with Daimler in 2005 to exempt its fleet of research trucks from weight, mileage and fuel taxes.

The 2005 agreement has saved Daimler almost $5 million over the last decade. It was originally crafted by the Department of Transportation and the Department of Environmental Quality at the request of Gov. Ted Kulongoski's office, but never publicly disclosed.

At the time, Daimler had just completed the installation of a $5 million wind tunnel at its Swan Island factory – the crown jewel of the company's truck engineering and design operation – and was consolidating research operations in Oregon. Daimler planned to run a fleet of some 30 to 40 prototype trucks on area highways – sometimes up to 1,000 miles a day on Interstate 84 between Portland and Pendleton – to test improvements in fuel efficiency, aerodynamics and emissions.

The company told state officials the research center would provide engineering, driver and mechanic jobs in Oregon. But the quid pro quo, according to Greg Dal Ponte, administrator of ODOT's Motor Carrier Transportation division, was that Oregon would have to exempt the trucks from the weight and mileage taxes they would otherwise rack up.

It was not an easy deal to engineer. ODOT initially couldn't find a way to exempt the fleet, as the testing was for a commercial enterprise, and therefore taxable.

Trucks owned or operated by public agencies were exempt from tax, and Dal Ponte said there was some discussion of having Daimler's research trucks take over Metro's hauling of garbage to a landfill in Arlington to fit under that under exemption. When that proved problematic, they asked DEQ whether it had any interest in Daimler's research.

In the end, DEQ agreed to specify the routes the trucks would travel, and Daimler agreed to install some emissions tracking equipment in the trucks and share research results with the state. The Department of Justice concluded that exchange of information was sufficient justification to determine that the trucks were actually being operated by the state. ODOT subsequently granted the fleet an exemption from the tax.

The 2005 deal was renewed in 2007 and again in 2010. But when it expired in 2014 and Daimler sought another renewal, DEQ told the company it no longer had the same interest in the research. Dal Ponte said ODOT had no basis to grant an exemption, so it advised the company approach the legislature.

The company's lobbyist, J.L. Wilson did just that, and quickly had an amendment drafted that was tacked onto an ODOT bill on speed bump studies. It's not clear which Legislator championed the tax break, which was adopted by the Senate Committee on Business and Transportation in early June. But there was no debate after Wilson told members the research program supported 125 jobs in Oregon and was heavily recruited by other states.

"This is really a good program," Sen. Chuck Riley, D-Hillsboro, told colleagues on the committee. "I worked out there on contract for a number of years, and I think we need this for the state of Oregon. It's a job creator and we need to keep it."

The speed bump bill eventually morphed into the transportation funding measure that died last week. But the Daimler amendment was quickly salvaged and reattached to another housekeeping bill that sailed through both houses this week.

ODOT estimates that based on a 30 truck fleet, the original deal saved Daimler an average of $460,000 a year during the last decade, or "less than $5 million." When the Legislative Revenue Office estimated the fiscal impact, however, it was categorized as "minimal."

Mazen Malik, the state economist behind the estimate, said Thursday that he never received those figures from ODOT. And he acknowledged that the dollars involved are not "minimal."

Chuck Sheketoff, executive director of the Oregon Center for Public Policy, contends that the Daimler break should have been part of the open and contentious debate over tax credits this session, not tucked into an obscure housekeeping bill. He said it was also curious that it didn't include a specific sunset date.

"This may be a good thing to do," he said. "I don't know. But that's separate from how it's passed."

Daimler spokesman David Giroux said there was never a threat to move the research operation elsewhere if the tax break wasn't passed. Indeed, he said Daimler had demonstrated its commitment to the state of Oregon with the building of its new headquarters on Swan Island, a $150 million project that it says will create 400 new white collar jobs. That project garnered some $20 million in public subsidies.

"The continuation of the tax credit will continue to enable (Daimler) to grow its reliability growth fleet to continue to provide even more advanced technologies to the trucking community," Giroux said. That "benefits Oregonians both in terms of additional jobs from (Daimler's) increased sales volume and in terms of the safety and environmental benefits from new technologies."

Joy Wiser, head of the advocacy group Tax Fairness Oregon, said it may be Daimler's job to ask for such support, "but it's the Legislature's job to say no."

"We've already given them millions to stay here and we need to learn to say no to businesses," she said. "This year the Legislature is ending about seven of the tax breaks that go to individuals, and they're creating more than that many new tax breaks for businesses."