City privilege tax adopted to save franchise fees


The City of Prineville relies on the income to offset enterprise zone tax breaks

One of the primary financial benefits the City of Prineville gained with its enterprise zone agreements with Facebook and Apple was franchise fee collections.

The two large data centers pay regular franchise fees associated with the use of electricity, which has amounted to hundreds of thousands of dollars in revenue each year. The income is intended to help backfill a considerable portion of the money given up by the property tax breaks associated with the enterprise zone agreements.

However, city leaders discovered a loophole in which they could end up losing out on those franchise fees, and they are consequently taking steps to account for it.

“We learned that large users such as Facebook and Apple have the ability to enter into an electric service supply contract - a third party contract - to purchase their power in the mix that they desire,” explained City Manager Steve Forrester. “In the case of the data centers, they are desiring a higher mix of renewables than are currently available through traditional retail agreements through somebody such as Pacific Power or Central Electric Co-op.”

Forrester explained that they are not franchised with the third party providers, and therefore if one of the data centers were to go that direction, the city stood to lose a large chunk of income.

“The good news,” he continued, “is the PUC authority in Oregon has provided a way for us to participate in collecting a franchise fee equivalent from a direct access user such as one of our data centers that enter into these third party direct access contracts.”

Forrester and City Attorney Carl Dutli contacted the City of Hillsboro, who Forrester said faced a situation in which large electricity user, Intel, entered a third party power contract. He said they lost a year’s worth of franchise fees before establishing a way to collect fees from the company under their new power arrangement.

After researching how to retain the franchise fees, the city opted to institute a privilege tax. The policy will enable the city to continue collecting fees from large power users, two megawatts or more, from companies who are still bound by enterprise zone agreements.

The suggestion drew support from Prineville City Council members who praised the city staff for acting on the concern before they lost any revenue.

“One of the benefits to our community is the franchise fees we collect,” said Councilor Jason Carr, who served as Crook County Economic Development Manager when the Facebook and Apple enterprise zone agreements were reached.

Councilor Dean Noyes noted that the privilege tax will not discourage Facebook and Apple from pursuing renewable energy sources, but rather ensure the city can offset property tax breaks.

Forrester went on to note that Facebook seemed fine with the city utilizing the privilege tax option.

“I had a very productive conversation with Jim Stanley. He is in charge of the legal side of their energy consumption at Facebook,” he said. “He understood them (the changes the city was considering) and felt like the company would be supportive in the event they were to self-generate power. I felt comfortable we are not going to ruffle any feathers.”

Following the discussion, the city council gave the new privilege tax unanimous approval at its regular meeting on Tuesday.