Aerospace tax incentives are working; the state should honor its commitments

In November 2013 the Legislature extended aerospace tax incentives as part of a strategy to encourage The Boeing Company to locate wing production and final assembly of the 777X in Washington. The company subsequently did so, assuring a continued long-term manufacturing presence in the state by Boeing and its many suppliers. Call it a win.

Yet, from the moment legislators acted, the incentives have been the subject of criticism. An important Washington Research Council policy brief analyzed how the incentive package has been mischaracterized as an $8.7 billion tax break

A competitive tax policy is not a “subsidy” that costs the state money. It is, rather, a pragmatic response to the marketplace, including the global competition for major industrial projects. Tax policies adopted in 2003 were essential for securing the 787. Extending those policies in 2013 helped to win the 777X.

It’s a detailed report, worth reading in its entirety. This session, some legislators are looking to rewrite the agreement, tying the incentives to some baseline employment numbers. HB 2147 was heard last Friday. Research Council president Lew Moore testified that the bill violates three tax incentive principles. (Video here.)

First, a tax incentive should foster the long term success of the recipient, which will secure jobs and revenue, directly and indirectly. Our state’s Office of Financial Management estimates Boeing’s tax incentives will actually create $21 billion in additional revenue. Boeing’s family wage jobs are estimated to create approximately three additional jobs each. Second, the incentive should create certainty and build trust, itself an incentive to stay in our state. And third, the incentive should ensure the state’s competitiveness relative to other states in terms of taxation to keep and grow jobs here. 

The Everett Herald carried pro-con pieces Sunday. On the pro side is HB 2147 sponsor Rep. June Robinson. Taking the opposing view are Chris Knapp and Troy McClelland, respectively chair and president of the Economic Alliance Snohomish County.

EASC makes the critical points:

It is, first important to note that the tax incentives in question are working as they were intended. They’ve already proved to be a valuable, important economic growth engine for our communities and state, even during the nation’s worst recession on record. According to the state’s own estimate the incentives, introduced in November 2013, will generate more than $21.3 billion in state and local tax revenue over 16 years.

…The proposed constrictive legislative changes would hurt employers other than Boeing. In 2013 alone, 458 other Washington aerospace companies used one or more of the existing incentives to help create or retain thousands of jobs in our state, ensuring a strong future for our local aerospace industry.

And, finally,

If the state reneges on a commitment that is delivering so positively, as promised, why would Boeing or for that matter any industry regardless of cluster, trust our future commitments? Simply put, they would not.

…Trust binds people, businesses and legislators together. These proposed legislative constraints would do the opposite.

More on all this in the Puget Sound Business Journal.

Changing the rules on tax incentives in Olympia: What message do lawmakers want to send?

The House Labor Committee has scheduled a 1:30 hearing on HB 1786. The bill analysis gets into some background and detail. Jerry Cornfield’s story in the Everett Herald hits the key points.

Aerospace companies that save millions of dollars through tax breaks — or billions in the case of the Boeing Co. — could face new rules if they want to keep them.

A group of House Democrats are pushing to set a minimum wage of more than $20 an hour for veteran employees of those firms and to shrink the tax break for the Boeing Co. if the firm cuts its job force too much.

As Cornfield reports, more is in the works.

A second bill, which could become public this week, will target Boeing. As drawn up, the company would have its tax break reduced if it trims its workforce in the state by a certain number of jobs. Rep. June Robinson, D-Everett, is expected to be the prime sponsor.

Read the whole story, it’s good reporting. Here’s how HB 1786 would change the rules.

Each September, the companies would report the annual earnings of each employee who has been with the firm for three or more consecutive years. As written, the bill covers all jobs including assemblers and engineers, executives and janitors.

Under the bill, each of those employees must be paid at least the state median wage for a one-earner family as reported in the American Community Survey by the U.S. Census Bureau. That wage is currently $52,384 a year.

This mandate is phased in over three years. Starting in 2016, workers must be paid at least 80 percent of this year’s median wage or $41,900, which works out to $20 an hour for a full-time worker. Workers must make 90 percent of the median in 2017 and 100 percent by the start of 2018.

If one employee does not earn the standard in any year, the company loses its entire tax break, according to the bill. A firm can get it back the following year if it complies.

We noted earlier today the importance of manufacturing to our state. A Washington Research Council report last year put the Boeing incentive package in context, dubbing it a mythical $8.7 billion tax break. 

Cornfield’s story closes with the Everett mayor asking the right question.

Everett Mayor Ray Stephanson said he couldn’t comment on the specifics of either bill yet, because he has not seen them. If lawmakers impose new conditions on receipt of the tax breaks, it could quiet the interest of any firms eyeing a move to the city or state, he said.

“I think the risk is this: What kind of message does it send to other companies that you’re recruiting to your state?” he said.

The question answers itself, but as KPLU reports, The Boeing Company provides a clear answer.

“The 2013 incentives require Boeing to build the 777X exclusively in the state — an unprecedented safeguard for taxpayers,” the company said in the statement. “Changing the legislation undermines the confidence of all businesses that the state will honor its commitments.”

Right.