The state's most powerful business leaders—if they were listening closely—might have heard the clues from Gov. John Kitzhaber only two weeks ago about his secret talks to give Nike a sweetheart tax deal.

Kitzhaber appeared before the Oregon Leadership Summit on Dec. 3 and told the more than 900 assembled executives Oregon's business plan under his leadership calls for creating 25,000 new jobs a year and raising Oregonians' incomes above the national average.

During his two years as governor, he said, the state added 40,000 jobs and in 2011 was the nation's second-fastest-growing economy.

While that's good news, Kitzhaber was sober in his assessment of those gains.

"Many of the jobs that we did create actually pay less than the national average," he said.

It was a candid admission—and Kitzhaber might well have said what the state needed was a quick strike that could promise thousands of high-paying jobs.

Behind the scenes, Kitzhaber was cutting a deal with Nike so hush-hush the public only now is learning the details—even after he rushed the Legislature into special session, jammed through the bill Nike wanted.

"It was appalling to see a sitting governor genuflect to Nike," says retired Pacific University political science professor Russ Dondero, who witnessed the one-day special session Dec. 14 to approve the Nike deal. "Especially a governor who is on record saying he's going to do something about reforming our tax system."

To be sure, the session resulted in a positive outcome for Nike.

Nike will now enjoy a guarantee that its state income taxes will be based only on its sales in Oregon, rather than on a weighted average of its payroll, capital investments and sales worldwide. 

In exchange, Nike will promise to create 500 new jobs and make $150 million in new capital investments in the first five years. But the state has guaranteed Nike's tax calculation won't change for 30 years.

Nike is seeking to expand its headquarters operations somewhere in Oregon. As WW first reported last week, the company is looking at moving some employees inside the city of Portland, particularly South Waterfront.

But the company told Kitzhaber and lawmakers other states are offering incentives and that Oregon stood a chance of losing the company's new investment and expansion if Nike didn't get tax certainty.

Notably, Nike has offered no public substantiation of its claims, and many legislators were told to simply believe the company as it put the squeeze on them to meet its demands.

Kitzhaber argued the deal he stuck was a no-brainer: He simply assured Nike about the certainty of its tax situation in Oregon in exchange for promises the company would add what could be thousands of jobs here. And, he said, the deal wouldn't cost the state any tax revenue.

The question for Kitzhaber is what else he traded away, and how his economic development strategy may cost him, and Oregon, as he turns to other issues.

Kitzhaber wants lawmakers to deal with public-pension reform, education and health care. But there's a growing demand among Democrats, who now control the House and Senate, for a serious debate about tax reform.

Such a debate will revolve around  fairness—and some critics say that's difficult now that Kitzhaber has bent so far backward for Nike.

"We told the governor we had serious concerns about the process and the content of the bill," says Arthur Towers, a lobbyist for Service Employees International Union. "It's concerning when we provide special treatment for one very large corporation.” 

In one way, last week's special session achieved the near-impossible—it brought together Portland liberals and rural Republicans who were united in their opposition to the Nike bill and in their inability to stop it. Sen. Larry George (R-Sherwood), who voted against the bill, applauded tax stability but said Kitzhaber's deal with Nike amounted to "crony capitalism.”  

"Somehow again, this body has taken a good idea from a good partner and turned it into a bill for a special interest,” George said. 

The large voting margins in favor of the bill—50-5 in the House and 22-6 in the Senate—allowed legislators who liked Kitzhaber's Nike deal to show their support. But few legislators dared vote against Nike after the company showed how swiftly and effectively it could wield political power.

Eleven metro-area House Democrats and one rural Republican, Rep. Bob Jenson (R-Pendleton), signed a letter raising questions about the length of the agreement and Nike's accountability—and even after significant amendments, four of them voted “no.” 

Rep. Alissa Keny-Guyer (D-Portland), who co-wrote the letter with Rep. Jefferson Smith (D-East Portland), says the bill got better over four days, but she still felt the process was unnecessarily rushed and ultimately gave too much away.

“For me, it came down to the 30-year duration of the deal,” she says. “And the answer was no.”  

In his first two terms from 1995 to 2003, Kitzhaber paid attention mostly to health care and the environment and little else. But in his third term, Kitzhaber has pursued a much broader agenda that includes education and fixing the state's public-pension system. That has made him a pragmatist of the first order. And that requires continued support from a business community distrustful of Democrats.

Democrats are talking about "revenue reform," which ultimately means higher taxes for somebody. In 2009 and 2010, the last time Democrats controlled the Legislature, lawmakers hiked taxes on the richest Oregonians and on corporations.

Nike Chairman Phil Knight spent $150,000 against Measures 66 and 67, which upheld the tax increases. Knight said the tax hikes would harm Oregon's business (while certainly hitting him personally) and called them "Oregon's Assisted Suicide Law II."

Maybe Kitzhaber believed Nike might actually turn its back on its 8,000 Oregon employees and billions in local investment to expand elsewhere. Or perhaps he couldn't take the risk of snubbing one of the state's biggest corporate success stories—and the risk of having to explain to an economically struggling state he had let Nike take jobs elsewhere.

But critics of the Nike deal say it has cost the governor some of his moral authority.

For more than 34 years in Oregon politics, Kitzhaber has traded on his smarts and, perhaps even more, his independence. He surrendered some of that independence last week by jumping—and forcing 90 lawmakers to jump—to Nike's command. 

To many, the explanation legislative leaders gave was unsatisfying: that they needed a special session immediately because tax legislation cannot pass on an emergency clause and would not go into effect until September 2013 if lawmakers waited until next year's regular session to address the issue.

Several lawmakers, even those who voted for the bill, remain uncomfortable with how such significant and long-term policy got crammed through only four days after Kitzhaber publicly surfaced Nike's agenda.

Records show that state officials first signed a nondisclosure agreement July 31 and Kitzhaber got involved Oct. 12. He did not call in lawmakers until Dec. 10, which gave them little time for consultation and consideration. 

"I couldn't understand why he couldn't have given us two or three weeks to consider the issue more fully," Keny-Guyer says.

Dondero, who's watched the Legislature since 1975, had come to Salem last week with no plans to testify on the Nike bill. But he was so outraged by what he saw as an abuse of the legislative process, he asked to testify in front of the joint committee reviewing the measure.

Dondero warned committee members they were on a "fast track to somewhere we don't know," and locking Nike's tax deal for decades "boggles the mind."

“This is not the way the legislature works,” he told them, “and you all know it.”