Bend-area business leaders say proposed state budget cuts to K-12 schools and higher education, tax credits and other economic development incentives could jeopardize the future of high-tech industries officials have worked for decades to attract to Central Oregon and other parts of the state.

“If you are going to have high-tech workers and life-science workers with high education levels, you are talking about people who value education,” said Karl Schoene, president and CEO of InEnTec, a firm that took research by Battelle Pacific Northwest Laboratories in Richland, Wash., and developed technology to convert waste into synthetic gas.

“To attract knowledge workers, we have to have good schools. We have to have good higher education,” he said.

Schoene and officials at other Bend-area high-tech companies report that economic development staff from Washington, Idaho, Arizona, Texas, New Hampshire and other states are actively trying to recruit high-tech companies away from Central Oregon and other parts of the state.

Hal Koyama, president and CEO of IdaTech in Bend, which manufactures hydrogen fuel cell power generators and hydrogen reformers that convert a mixture of methanol and water into hydrogen, said the nation’s economic downturn has triggered a surge of recruitment efforts from states seeking to lure the company and its 85 employees.

Koyama said IdaTech chose to establish its company headquarters and research, design and engineering operations in the Bend area in 1996 for the quality of life, outdoor recreation and other lifestyle advantages that help attract highly trained and skilled employees.

But Koyama said those lifestyle advantages only go so far.

He said some of the things Oregon and Central Oregon need to be competitive with other areas include supportive business and high-tech organizations; supportive government land use and building regulations that encourage building construction, expansion and economic development; local financial and nonfinancial support for expansion plans, as well as assistance in advertising and placing technology positions that are hard to fill locally.

Koyama said state or regional high-tech marketing and product-placement assistance, coordination and staffing of national and international trade shows and other assistance also would give Oregon a competitive edge and help the industry grow and prosper.

Consistent, qualitative support from the governor, Legislature and Oregon’s congressional delegation also are essential to attract and retain high-tech industries, according to Koyama.

In addition to those factors, Koyama said Oregon’s renewable energy tax credit lowers the cost for cellphone companies and other customers to buy IdaTech’s hydrogen fuel cell generators and hydrogen reformers to replace diesel generators. Cellular service providers are big customers for IdaTech’s hydrogen-powered units in less developed countries because the fuel cells provide reliable backup power during the countries’ frequent power outages, Koyama said.

Oregon’s Business Energy Tax Credit has helped IdaTech carve out a market niche for its hydrogen fuel cell generators by offsetting part of the sales price of the IdaTech units, lowering the cost of the hydrogen units closer to the cost of diesel generators, he said.

“The renewable energy tax credit is very important to our business,” Koyama said.

Roger Lee, executive director of Economic Development for Central Oregon, said renewable energy tax credits have come under legislative scrutiny because companies that erect wind turbines have consumed hundreds of millions of dollars in tax credits but create few long-term jobs.

Hence, there’s little tax revenues or economic benefit to the state, Lee said.

Lee said lawmakers are looking at altering the tax credits so more of the available credits would be earmarked for companies like IdaTech that create long-term employment in the development and manufacturing of renewable energy products.

One of the reasons so many American manufacturing companies have moved their production operations to China, India, Vietnam, Malaysia and other countries is because those governments offer the land and building for free, provide subsidized power and government-funded training for the specific skills required by the industry, Lee said.

Oregon’s cumbersome land use planning and statewide ability to file appeals of local land use decisions through the Land Use Board of Appeals, and the state’s transportation planning rules, are two of the biggest roadblocks to attracting high-tech and other businesses to the state, Lee said.

“There are certainly those who say we shouldn’t be offering companies anything to entice businesses to come here, but the reality is, in this environment we live in, you have to compete, not only with other states, but with other countries around the world,” Lee said. “What some countries are offering these days to lure businesses makes anything we offer in the United States look cheap.”

As an example of state competition, Lee said the Kansas Legislature has offered land and subsidies to aviation companies to help keep upfront costs low for relocating and putting up buildings in Kansas, plus access to a chunk of Kansas’ $800 million state industrial fund, which he said dwarfs Oregon’s $40 million industrial revenue bond fund.

Incentives important

In these tough economic times, the list of state governments across the country offering incentives, subsidies, tax credits and favorable discounts on land, buildings, improvements and energy has been spreading from Oregon, Washington, Idaho, Kansas, Texas, New York and the Carolinas to Colorado, New Mexico, North Dakota, New Hampshire and many others, Lee said.

With Oregon so dependent on personal income taxes — which he said account for roughly 89 percent of the state general fund, Lee said job creation is the only way to boost tax revenues enough to close the state’s $3.5 billion budget shortfall.

“It’s got to be all about creating jobs. That’s critical to the foundation of our economy,” Lee said.

The business enterprise zone is one of the most effective incentives Oregon offers to help offset some of the high upfront investment of establishing a high-tech company by providing property tax exemptions for one to five years, depending on the size of the company’s investment and number of jobs being created, Lee said.

Schoene said investing in good schools and higher education is essential for the state and Central Oregon to continue to succeed in attracting high-tech industries.

In today’s high-tech world, engineers, chemists, biological scientists and other knowledge-based workers do most of their work on computers, so they can live and work anywhere high-speed Internet is available to transmit their work to colleagues, Schoene said.

Good schools are key

Quality of life, tax policies, state regulations, availability of a skilled workforce, housing that’s affordable to workers and good schools are key factors high-tech companies and other employers look for when choosing a location or planning a move, according to Bend-area executives and economic development officials.

For InEnTec, Schoene said, quality of life was a key factor in moving its corporate headquarters to Bend in 2007.

“Our engineers and corporate staff were working in an array of locations, some from home offices, and we decided we needed to be in one place,” Schoene said. “We looked at a number of places across the country, and Bend was the one that everyone agreed (on). Bend is a great place to live,” Schoene said.

However, he said proposed state funding cuts to schools and higher education are raising concerns among what he calls “knowledge workers” at InEnTec and other high-tech companies in Central Oregon.

“Tech workers are well educated, and they tend to value schools. They want the best schools for their children, and for themselves. When they see cuts to education, it causes trepidation,” Schoene said.

He said Central Oregon Community College and Oregon State University-Cascades Campus are already turning away students because they don’t have enough classes for everyone seeking to enroll in engineering, chemistry and other classes that provide the training for the next generation of high-tech knowledge workers.

From a business perspective, Schoene said the shortage of critical high-tech classes at COCC and OSU-Cascades is baffling since there appears to be a supply of educators willing to teach the classes and demand from students who sign up only to be turned away due to a lack of classes or classroom space.

Carson Haury, who chairs the Computer and Information Systems Department at COCC, said over the past few years student enrollment in technology classes has soared across the board, from beginning classes to the most advanced classes.

“We’ve doubled our (full-time equivalent) instructional staff at COCC, and we still can’t provide enough classes for all the students wanting to take classes,” Haury said.

Ron Paradis, COCC spokesman, said student enrollment has doubled in the past four years. Out of 7,000 to 7,500 students each quarter, about 400 aren’t able to get into any of the classes they want or need.

Construction currently under way includes five new classrooms and buildings, including five classrooms being built in Bend funded with $2 million in stimulus funds awarded to COCC by the Legislature in 2009. Paradis said a $43 million bond levy approved by Central Oregon voters will fund several construction projects, including a new sciences building, a health careers building, satellite classrooms in Madras and Prineville, and a new technology center in Redmond.

While those projects are expected to ease the classroom shortage problems, Paradis said COCC continues to struggle with a shortage of full-time faculty, as well as a lack of part-time instructors, with the biggest shortage in upper-level science classes.

Despite the growing pains at COCC, Lee said the quality of public schools and higher education available in Central Oregon has been a big recruiting advantage for luring companies from the San Francisco Bay area and other big cities where many of the high-tech workers were paying to send their children to private schools.

‘A friendly place’

At Bend Research, which specializes in pharmaceutical research, CEO Rod Ray said “Bend is a very friendly place for us to do business.”

Ray said the state and Bendarea have “a great labor pool” for high-tech companies, and Bend also has good infrastructure of professional service businesses such as accountants, public relations and advertising firms, a “good airport” and more.

At the state level, Ray said lawmakers and government officials could enhance the lure of Oregon and Central Oregon if they’d “make sure this is a tax-friendly environment, because that would leverage our great labor pool.”

He also said the OSU-Cascades Campus is a critical element of Central Oregon’s attraction to high-tech companies. It allows high-tech companies like Bend Research to collaborate with students, local faculty and visiting professors from OSU’s main campus in Corvallis on new technologies and development of graduate programs aimed at training the skilled workforce the local high-tech industry will need.

“It is really important for the people we recruit to have that higher education option for their kids, and we believe it is even more important to have that there as a facet of the community,” Ray said.

To expand graduate programs available through OSU-Cascades, Rep. Jason Conger, R-Bend, introduced House Bill 3627, which would authorize the state to issue $1.95 million in bonds to purchase a new building at the corner of Columbia Street and Colorado Avenue. Bend Research would share the building space.

“We need space because we are growing, and we are looking forward to being close to that synergy” with OSU-Cascades, Ray said.

The building also would be funded by $1 million from OSU-Cascades and an $800,000 private donation. OSU-Cascades Vice President Becky Johnson said the building purchase will allow OSU-Cascades to continue its enrollment growth and the development of new academic programs.

In addition to ensuring Central Oregon retains the high-quality educational systems required to attract businesses to the region, Lee recommends lawmakers consider adopting some of the newer types of economic development incentives available in other states. They include an employee payroll incentive that for every $100,000 in payroll the state returns a percentage to the company.

That could be an incentive for businesses to pay higher wages, since higher payroll taxes would generate bigger kickbacks to the company, Lee said.