Washington State: tie jobs-for-tax breaks like other states do

Hamilton (5)

By Scott Hamilton, Managing Director of consultancy Leeham Co. and Editor of Leeham News and Comment.

March 12, 2015: Legislators in Washington State are coming down to the wire on a proposed bill promoted by two key Boeing labor unions to tie job levels to tax breaks. Irrespective of party lines, this is a bill that should advance from committees to the full Legislature and win approval. Gov. Jay Inslee should sign this bill if it reaches his desk.

Here’s why.

In 2003, the Washington Legislature, approved $3.2bn in tax breaks provided in a hastily prepared bill in order to win the assembly site for what was then known as the Boeing 7E7. These tax breaks were for 20 years and assured what was renamed the 787 would be assembled here. But there were no jobs-for-tax breaks guarantees. Six years later, in October 2009, Boeing chose North Charleston (SC) to be the assembly site for 787 Line 2. I called former Gov. Gary Locke, who was in office when the 2003 tax breaks were approved, and asked, How could this be? Locke said there was nothing in the tax breaks legislation to prevent Boeing from siting Line 2 outside Washington–nor was there anything to prevent Boeing from moving Line 1 out of Washington, should officials choose–the tax breaks would go away.Ten years later, Boeing threatened to locate the proposed 777X assembly line and wing production outside Washington if its principal union, the IAM 751, didn’t approve a concessionary contract (which wasn’t even open at the time). The State, in a Special Session, approved an extension of the 787 tax breaks, valued at $8.7bn, until 2040. This is the largest set of tax breaks in US history–and there still are no jobs-for-tax-breaks guarantees.

Boeing two largest unions, IAM 751 and SPEEA, the engineers union, warned legislators in committee hearings that without the provision, Boeing would take the money and run. In large part, that’s exactly what happened. Although the 777X assembly site and the wing production did wind up in Everett, Boeing quickly began transferring other jobs out of state. While Boeing, just today, touts adding 3,700 jobs in Washington in 2014, Boeing jobs in this State declined 6,800 over three years and actually went down in 2014 despite the Boeing advertisement claim, according to a report in the Puget Sound Business Journal. Not surprisingly, Boeing omits reference to the more than 4,000 SPEEA jobs that have left the state since 2012.

While one might debate facts and figures and their meaning, one fact is indisputable: Washington approves tax breaks without job guarantees while other states that compete with Washington for Boeing’s business tie jobs-for-tax breaks. Consider this:

  • Washington State grants $11.9bn in tax breaks, no jobs-for-tax breaks;
  • South Carolina, $900m in tax breaks, 3,800 jobs required;
  • Missouri, $229m in tax breaks, 2,000 jobs required;
  • Alabama, $150m in tax breaks, 2,300 jobs required;
  • South Carolina, $120m in tax breaks, 2,000 jobs required.

Washington State’s failure to require jobs-for-tax breaks is simply a failure of its fiduciary duty for such fiscal actions. As a Washington resident and taxpayer, it’s time to fix these omissions. It’s striking that few are stepping up to support defeat of this bill, other than some Boeing suppliers and Linda Lanham, the executive director of the Aerospace Futures Alliance. Boeing suppliers are under a lot of pressure from Boeing, which opposes the job guarantees (why not? After all it’s got what it wanted and is moving jobs anyway). The AFA was founded predominately on Boeing funding, it’s essentially been run by Boeing for Boeing’s agenda and Lanham is merely parroting Boeing’s position.

The Everett Herald today noted the lack of Boeing defenders.

The fear, of course, that if Boeing loses on this bill, future programs will go somewhere else. This threat will exist regardless of whether this bill is defeated. I’ve been saying since November 2013, when the IAM first rejected the 777X contract concessions, that the next new airplane will be competed (I’ve actually said this as far back as 2009.) This week at the huge ISTAT aviation conference in Phoenix, industry leader Steve Udvar-Hazy, who’s bought more Boeing airplanes than probably any other customer, made the same prediction. Boeing is very, very adept at engaging in labor and economic blackmail and it will do so again, probably around 2018, when it’s likely to launch the “Middle of the Market” airplane. This is why the State needs to continue to look “Beyond Boeing,” an approach I outlined in October 2009, just two weeks before the 787 Line 2-South Carolina decision was announced, at the Governor’s Aerospace Summit in Spokane (WA). The State has been following this plan since then, but it needs to step it up.

Kowtowing over jobs-for-tax breaks is zero guarantee Boeing won’t leave anyway; it’s already proved this. Let’s do what other states do, and tie tax breaks and jobs.

 

 

 

10 Comments on “Washington State: tie jobs-for-tax breaks like other states do

  1. Investment requires a return. To hand over such significant funds (or to forgo them) without a guaranteed return is foolish.

  2. Nicely summarised.
    What I found staggering is the list you provided that shows the extent of the tax breaks compared to tax breaks granted by other states.
    I knew Washington state was the most generous – but I had no idea just how much more generous they were compared to everybody else.

    • Isnt the reason the table shows a big difference in jobs , is that the other states are giving incentives for a completely new production facility.
      While Washington state is paying to keep existing jobs.

  3. It delights me that Washington State are willing to devote such largesse to all the airlines and passengers around the world. Can we have some export credits too please.

    • Yes, but that is not the main point here though. It is that Washington is “paying” to create jobs in other states.

      • Point taken. A case of the legislators not thinking it through. I think the corporate team had a little more incentive, knowledge and negotiating skills than the state officials. Isn’t it ever the case? I notice the German government tried to be a bit more specific with A350 launch aid. Whether they succeeded is another matter as Airbus got the money eventually. I think we could call this the ‘Bogeyman Defence’, ie if you don’t do this for us……..

        • The German launch aid is a loan that has to paid back. Now do they actually pay this back? Yes in 100% of the cases so far. The British Government recently agreed to renegotiate because they got back so much it wasn’t reasonable anymore.

          • I note your continued defence of the launch aid provided to Airbus. My point was not regarding whether it is paid back or not but the haggling between OEM and national government on the quid pro quo they require for opening their chequebooks.

            Regarding repayment I am guessing that A320 has been a handsome success and the A330/A340 must be nearing breakeven. The A380 presumably is a lost programme and we will wait and see about the A350 but things are looking good based on the order book. If you have specifics I would be intrigued.

            Launch aid however does have the massive advantage of much reducing the financing cost and artificially reducing the cost of capital of Airbus. This significant reduction in risk also has the effect of making other fundraising massively easier. It is also difficult to understand what sort of return the governments have made out of this in terms of time value. If you have specifics I would be interested.

  4. Has anyone considered the legalities?

    The Washington Supreme Court has the legislators under contempt of court for not funding education fully. One of their options is to make Tax Breaks – the $7.6 billion give away to 650 corporations illegal and unconstitutional.
    or
    Legislators have a legal reason to take away the $8.7 billion they gave to Boeing and fund education instead. Europe challenges 777X subsidies $8.7 billion to Boeing in WTO trade case The European case asserts that a package of tax breaks offered by Washington state to induce Boeing to build its planned 777X jet there would violate WTO rules and give the U.S. plane-maker an unfair advantage over its European archrival, Airbus. http://seattletimes.com/html/businesstechnology/2025272951_boeingsubsidiesxml.html

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