By DIRK VANDERHART/Oregon Public Broadcasting

SALEM — As they blocked a series of congressional tax breaks last month, Oregon’s legislative Democrats offered aggrieved business groups a consolation prize: The party would create an entirely new tax credit for businesses that hire new workers – up to $1,000 for each new job.

The credit would hand out up to $12.5 million a year in tax breaks, Democrats said, a piece of the party’s broader efforts to boost the state’s economy.

“This is a pro-business policy and it lowers taxes for the businesses that are growing workforce and investing in Oregon,” Sen. Anthony Broadman, D-Bend, one of the architects of the bill, said on the Senate floor.

Now, even before it’s signed into law, lawmakers could wipe out most of the tax benefits the credit was expected to provide.

A provision tucked into another bill earlier this week would alter the tax credit, limiting it to industries the state has made a priority for economic development – areas like semiconductors, outdoor apparel, and food and drink manufacturing.

As a result, revenue analysts expect Oregon to dole out far fewer of the credits.

The job creation benefit is now expected to cost the state just $1.1 million in the current budget, down from an anticipated $4.6 million before the change. In the next two-year budget cycle, Oregon is projected to award $5.8 million in the credits, down from a previous estimate of $19.6 million. And in the two years after that: $7.5 million in credits down from $24.2 million.

Democrats said this week the change will allow the state to more efficiently award credits to job creators. But business groups say limiting which industries qualify further weakens a tax credit they’d never asked for in the first place.

That “bonus depreciation” provision was included in the Trump administration’s so-called One Big Beautiful Bill passed last year. But Democrats nixed its ability to impact state taxes as part of Senate Bill 1507, which added $311 million in revenue to Oregon’s budget by blocking three federal tax breaks.

“I don’t know where this is coming from because it certainly wasn’t something that we asked for,” said Anthony Smith, Oregon state director for the National Federation of Independent Business.

Smith’s group, which advocates on behalf of small businesses, already had concerns the tax credit for job creation would be hard for its members to claim. “Now it’s being further chipped away at,” he said. “It’s hard to look at it as anything other than just a smokescreen for the big reason for the bill, which was to raise taxes by $311 million.”

SB 1507 was among this session’s most contentious. It was viewed as economically harmful by Republicans, but too weak by some progressive groups, who forcefully urged majority Democrats to protect state services by eliminating what they considered tax loopholes passed by the Trump administration. Some provisions of Trump’s tax cut bill, such as exemptions for overtime pay and tips, were deemed untouchable by politicians.

With economic forces battering the state – including sizable job losses at Intel and Nike – Gov. Tina Kotek announced in December that she was running for reelection. The same week she revealed that improving Oregon’s business climate would be one of her top priorities.

The governor is pushing a bill this year to speed up permitting for large development projects in the state, and expand property tax breaks that companies can receive for major new investments. It’s in that bill, House Bill 4084, that lawmakers quietly tucked the changes to the job creation tax credit earlier this week.

The two lawmakers who authored the credit, Broadman and state Rep. Nancy Nathanson, D-Eugene, told OPB this week they weren’t aware how much the change would reduce the credit’s projected use. Broadman said the amendment was designed to ensure the state was using tax benefits in the areas that are most primed to add jobs, and would make the new credit less costly to oversee.

“These are areas that’ll grow effectively and grow those jobs, which at the end of the day is how we create and generate more income tax revenue,” he said.

Nathanson suggested the projections that suggest the credit will be used less could be incorrect.

“The forecast is based on past experience; the bill is intended to incentivize businesses to grow now,” she wrote in an email. “It’s a statement to businesses that this fund is available, it’s here for you to use to the fullest extent.”