March 23, 2004

Recent Developments Regarding Bureau Of Licenses

Bureau Chief Fired, Katz/Leonard Spat Continues

Last week, we reported on Commissioner Randy Leonard's claims that his ongoing investigation into the Bureau of Licenses had determined that there may be as much as $10 million in uncollected business taxes in Portland.

Willamette Week covered this last Wednesday as well:

While Mayor Vera Katz has been using the police to pursue a whistleblower, Leonard's troops have come up with some pretty compelling evidence that the bureau has done a lousy job of collecting the Business Income Tax. "Our delinquency rate approaches 30 percent, and that's unacceptable," says interim license-bureau director Thomas Lannom, who adds that poor collection practices have left as much as $10.5 million on the table.

And in a story dated March 19, Northwest Labor Press reported on the additional controversy involving Mayor Vera Katz using the Portland Police Bureau to try to track down who at the Bureau played whistle-blower by at one point leaking information to Willamette Week:

But lame-duck Mayor Vera Katz didnít see the anonymous city worker who set these changes in motion as a hero; she saw an employee who leaked confidential tax information about KOIN-TVís tax bill to the press, in apparent violation of state law. And she ordered the Police Bureau to investigate.
Workers in the Bureau of Licenses began getting calls from police investigators asking them to come down to the station to answer some questions. When Portland City and Metropolitan Employees Local 189 President James Hester found out, he ran down to the Justice Center immediately to stop the interviews. He was able to postpone them for a few days.

Today, The Oregonian reported that Leonard fired Jim Wadsworth, the head of the Bureau, who had been on paid leave:

Wadsworth could not be reached for comment Monday evening. In a statement, Judy Snyder, his Portland lawyer, said her client "emphatically disagrees with the factual findings and conclusions reached by Commissioner Leonard."
She pledged to appeal the termination to the Civil Service Board.
Leonard said he removed Wadsworth from the $100,339-a-year job because Wadsworth's tenure as head of the bureau was "indefensible."

And meanwhile Phil Stanford reported in today's Portland Tribune that the Leonard/Katz tension may be heating up:

On Friday, city Commissioner Randy Leonard told the mayor she had a choice: Either let him manage the bureau as he sees fit, or take it away from him and accept the responsibility (read, public outrage). ... Vera said she'd think about it.

Which would be unfortunate. Whever one comes down on the other matter of Leonard's tenure as Commissioner in charge of the Office of Neighborhood Involvement, one would be hard-pressed to allege that he's not making things happen in situations such as that at the Bureau of Licenses.

Hopefully, the Mayor won't take the bait.

In the meantime, we have a question for our readers who occassionally weigh in on how bad Portland is for business: Where's your outrage at these businesses who are bad for Portland? Or do you endorse private-sector lawlessness in the name of sticking it to the City?

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Comments (8)

  1. Jack Bog on 24 Mar 2004

    Wait and see who the non-taxpaying "bad businesses" are. Guys who sell paid advertising on their blogs?

  2. Dave Lister on 24 Mar 2004

    I've already communicated this to Francesconi and Leonard (the two commissioners who will talk to me). Two attempts have been made (one still in the process) to provide business income tax relief to small firms. The first, a payroll tax based formula, was rejected, and the second, a proposal to increase the owners compensation exclusion is being resisted because it will reduce overall city revenues by about 2 million. Now we find out that 3 million or more may have been forgiven or negotiated off in the KOIN deal and there's 10 million delinquent. Small business people are watching this very, very closely and as far as I'm concerned Leonard should keep digging. I'm also interested in hearing if there's any linkage between adjusted, negotiated or forgiven business income taxes and campaign contributions. The business income tax is the main reason that folks are relocating outside of Portland and Multnomah County. Neither Clackamas nor Washington counties have such a tax. They need to get all of this out into the light of day, do the math, and then either roll back the B.I.T. or get rid of it altogether.

  3. Rajput Khan on 24 Mar 2004

    Some things to keep in mind:

    (1) There is a big difference between tax avoidance and tax evasion, namely avoidance is legal and evasion is not. Just because a business took advantage of the City's policy of extending broad discretion to bureaucrats does not make the business' tax avoidance illegal.

    (2) There is no way to switch from the current business income tax to a combo of payroll and income tax and raise the same amount of revenues without making some businesses substantially worse off.

    (3) Why does Portland and Multnomah County need business income taxes at all? Every other city and county in Oregon gets along just fine without business income taxes. What services does Portland provide that these cities don't (cough, cough money-losing streetcar, "affordable" housing in the Pearl) and do we really need all of them?

  4. Dave Lister on 24 Mar 2004

    Excellent point, Rajput. Why indeed are they needed? My understanding is that they bring in forty million annually, a paltry amount in terms of the overall budget. Skip a trolley or two or a botched up computer system and you'd be there. It's chump change to the city, really, but the detrimental impact to the business community is huge. As far as avoidance vs. evasion, I agree with you completely. The thing that cranks up those of us keep straight books, report accurately and pay in a timely fashion is that it may not be a level playing field. Our BIT liability is typically greater than either our State or our Federal liability. Something wrong there, in my opinion.

  5. jfwells on 24 Mar 2004

    I really think the suburban flight of businesses is nothing more than anecdotes anti-tax people use to rouse the masses. In reality, Portland, and the Central Business District in particular, is much healthier for business than the suburbs.

    Consider: There is 18.3 million square feet of commercial, non-government, office space in the central city. At the end of 2003 it had a vacancy rate of 15.35% The suburbs have only 11.7 million square feet of office space, and there was a vacancy rate of 20.48%. Furthermore, the average rental rate is $1.25/SF/Year less in the 'burbs.

    So why aren't all of the poor, downtrodden, unfairly-taxed businesses in the CBD moving out to Hillsboro? There is 2.4 million SF of space available, get on out there! Flee!

    The reality is, many businesses need the synergy, the critical mass, the amenities that the city of Portland provides. Those that don't, leave and complain about how difficult it is to pay taxes and deal with the city. The numbers tell a different story, though.

  6. Rajput Khan on 24 Mar 2004

    Yes, there are synergies and agglomeration economies that are provided by a CBD. Thus, for some businesses, a CBD location is more profitable than some other location. The Benson, the Heathman, Stoel Rives, and Powells all are more profitable downtown than they would if they were in Hillsboro or Vancouver.

    The question, though, is: To what extent do those business benefit from the streetcar, afforable housing, PGE Park, a New Year's Eve celebration, Vera's chaffeur and security detail, or any of the projects the City and County spend their business income tax dollars on?

    The bottom line is that Portland and Multnomah County politicians act more like student councils with slush funds than ready-for-primetime development professionals.

    Next issue. Too much is made of businesses moving from the CBD to the suburbs. From an growth standpoint, such moves have no net effect on the Portland region. Sure, Portland loses X jobs and Hillsboro gains X jobs, but no matter how big X is, X - X = 0.

    If the City and County want businesses to start, move, or expand here, then they need to either (a) wean themselves off of business income taxes, or (b) convince businesses that their tax dollars are being used for productive purposes.

  7. jfwells on 24 Mar 2004

    Rajput - Two things:

    not trying to be obtuse, but why do we really need businesses to move to Portland? Why does Portland need to grow? My Socialist/Naderite friend would tell you that it is so that the real estate moguls (one of whom I happen to work for) can get richer while continuing to screw the working class. I know one argument is that we need new jobs for the projected population growth, but from a pure economic/supply & demand standpoint, people will stop moving here or move away if there isn't work for them. Do we really want Portland to grow? Do we really want to attract outside companies to locate in our fair burg?

    Second, I want to touch on something from an erlier post. When discussing services that the city offers you mentioned, "cough, cough money-losing streetcar..." Why should the streetcar be held to a cost/benefit analysis of making money when just about every other mode of transportation is not? Do we expect a positive cash flow from our freeways? What is the IRR for Burnside Street? Funny how driving around is our God-given right, so you better get out there and fix those pot-holes Vera, but mass transit has to pay for itself.

  8. Rajput Khan on 25 Mar 2004

    Some good points re: growth, jfwells, which is why I said "If the City and County want businesses to start, move, or expand here .... "

    The free entry and exit of firms is a good thing for an economy. Even if Schumpeterian creative destruction creates no new jobs on net, the churn holds off economic entropy. In a hostile business environment, cities see the free exit side of the equation at work more than the free entry. In which case you're left with a CBD made up of wig shops, kung fu studios, nail salons, and 2nd hand record stores. While certainly "edgy" and "cool," it does little to foster the nebulous concept of livability.

    I'm unsure how the real estate moguls screw the working class. And I'm unsure where one draws the line between "mogul" and "working class" b/c most moguls would tell you that they work, and many workers are investors (i.e., mini-moguls). But, ah, that's a discussion for another day ...

    Re: streetcar, notice that my discussion has been limited to the expensive art project the City calls the Portland Streetcar. Public transit in Portland is among the best I've experienced and worth the tax dollars I pump into it (mainly because I can avoid owning a 2nd car).

    I'm not holding the streetcar to a higher standard. As it's currently configured, my guess is that if the streetcar were a busline, TriMet would cancel it. But alas, we've made an irreversible investment in an immovable railway line that moves no faster than a bus because the lines are sunk laid into the same streets as buses. The service is so infrequent that I have managed to walk along the streetcar line from NW 23rd to the Central Library without seeing the elusive streetcar. Anecdotally, the City touts the streetcar's ridership. However, they never report a whether the ridership numbers represent an increase over the pre-existing bus routes. Now, the City is asking businesses along the line to pony up more money because the streetcar is losing more money than projected. At least TriMet is pretty good at projecting its revenues and costs.