Washington State is ramping up its all-out effort to land the assembly site of the Boeing 777X.
Gov. Jay Inslee appointed a bi-partisan panel from the Legislature to come up with an incentive package to present to Boeing. He’s already proposed extending the Boeing 787 tax incentives adopted in 2003 another 16 years, to 2040, though these incentives were ruled illegal by the World Trade Organization.
Predictably, Airbus pounced on Inslee’s proposal, though mistakenly assuming Boeing asked for the incentives. According to The Everett Herald, the initiative is entirely Inslee’s. Said Airbus:
This is another example of Boeing’s refusal to accept to play by the rules by continuing to solicit and receive subsidies which are especially potent in distorting trade. The 787 tax credits were ruled illegal subsidies by the WTO in the final verdict of March 2012. After breaking the WTO rules on the 787, with a repeat of measures for the 777X Boeing continues to show total disrespect for WTO obligations and the compliance process.
These are the quotes from the reports on
– The WTO Panel found that “the availability of … the B&O tax subsidies, enabled Boeing to lower its prices beyond the level that would otherwise have been economically justifiable” (7.1818) giving Boeing a “pervasive and consistent pricing advantage” (7.1819) that is “felt most acutely in particular sales campaigns of strategic importance” (7.1822) and results in illegal adverse effects to EU LCA interests (7.1823)
– The WTO Appellate Body generally upheld that finding (para. 1273), emphasizing the importance of the subsidy given the price-sensitive nature of many sales, and Boeing’s market power in a duopoly context (para. 1260)
The analysis of the B&O tax rate reduction “subsidies” do not provide any great quotable statements by the Panel, which isn’t surprising given that the dollar value of those subsidies was quite low during the period of review, when the subsidy programs were just starting to take effect. The numbers now are much larger!!
The quote on the subsidy side is in 7.302 of the panel report:
“For the foregoing reasons, the Panel finds that the Washington B&O tax reduction; the B&O tax credits for preproduction development, for computer software and hardware and for property taxes; and the sales and use tax exemption for computer hardware, peripherals and software are specific subsidies to Boeing within the meaning of Articles 1 and 2 of the SCM Agreement. The Panel estimates that the amounts of the subsidies to Boeing’s LCA division are $13.8 million; $21.3 million; $20 million; $1.1 million; and $8.3 million respectively”
Inslee’s office said that the WTO ruling is under appeal and until that’s settled, the tax breaks are legal.
Washington has been often criticized, including by its own politicians, as having a worse tax structure than competing states. But Washington has the sixth best tax climate in the country, according to the Tax Foundation. A low number on the map is good.
South Carolina ranks 37 and Texas, another sometimes-talked about site, is #11.
But taxes aren’t the only criteria for attracting business, nor is it the only consideration by Boeing when studying where to locate the 777X assembly site. Business climate overall is important, and Washington’s compares poorly in some respects, according to a Boeing insider. Cooperative politicians and government agencies are important, and South Carolina’s are much better than Washington’s, this person says.
Additionally, Washington’s strict environmental rules are a major issue. Last year, the state Department of Ecology proposed stringent rules to protect salmon. Former Gov. Christine Gregoire killed the effort at the time, but it’s not over. Boeing lobbied against the rules due to the cost and challenges of compliance, and has said adoption could prompt moving assembly out of Washington. Inslee is trying to strike a balance.
Transportation is also an issue, and the Puget Sound area around Seattle, Renton and Everett is among the most congested in the nation. Inslee has proposed a tax package to fund transportation improvements, but the Republicans control the State Senate and the party, nationwide, oppose tax increases of any kind for any reason. Still, some Republican legislators say there is some hope a tax package can pass the next session, which begins in January.
STEM education–Science, Technology, Engineering and Math–is a constant need and in this area Washington has been successful in making progress despite huge budget cuts. Inslee has proposed more funding.
We’re told Boeing Commercial Airplanes wants to assemble the 777X at the Everett plant, but of course the decision will be made by headquarters in Chicago. Jim McNerney, the CEO, is known to generally favor the non-union, lower cost Charleston (SC) plant over the higher cost Washington even though the Everett unionized workforce is far more skilled. McNerney’s dissatisfaction with labor unions led to selecting Charleston for the second 787 assembly line in 2009, a year after a disruptive strike. But labor relations with the IAM, which assembles airplanes for Boeing, have improved since and there is a contract in place that extends to 2016–just about the time assembly of the 777X would begin.
Many believe the business case for building the 777X at Charleston isn’t there, since the current 777 is assembled at Everett. But looking long-term, selecting Charleston may fit into McNerney’s strategic vision of diversifying out of Washington State.
The wild card in site selection is McNerney, says the Boeing insider.
Former Gov. Gregoire was not well regarded by Boeing Chicago, sources told us during her tenure, in part because she appeared at IAM a strike rally as she was running for reelection in what was expected to be a tight race (which she went on to win comfortably). Inslee, a Member of Congress before he ran for governor, had a much closer relationship with Boeing. He was one of the strongest supporters for the Boeing tanker proposal in Congress and has been a long-time Boeing booster. But support doesn’t necessarily carry the day with Boeing. Members of Congress in Kansas were likewise strong supporters of Boeing’s tanker bid. Boeing promised finishing work in Wichita if it won the tanker contract. Boeing did win, but later announced it would close down its Wichita facilities, angering its supporters.
Although one of our sources claims Charleston has already been selected by Chicago as the winning site, we’ve not been able to confirm this with anyone else.
Inslee’s efforts to create a package to throw at Boeing are laudable. But it seems to us he needs to make a pilgrimage to Chicago (if he hasn’t already).