Unions want state to prove that Boeing tax breaks work

OLYMPIA — Union officials are looking for political backers in Olympia, while Boeing is looking for friends. Both say they are after the same thing: aerospace jobs in Washington.

At issue are aerospace- industry tax breaks extended late last year by lawmakers as part of the state’s effort to convince Boeing to assemble the new 777X airliner here, including its innovative wings. The tax exemptions depend on that work being done solely in Washington.

It might have seemed that this was all settled when Boeing then announced that it would, indeed, build the 777X in Everett. But the company later said it will disperse engineering work on the plane around the country, including design now done in Washington.

That has critics, primarily unions, saying the tax-break law lacks teeth.

Boeing, they say, can save billions in state taxes but can still ship jobs out of state. They think the law should be amended to require that Boeing show an increase in net employment in Washington in return for the tax exemptions. Such a provision is called a “clawback.”

Boeing says tax breaks are critical to expanding the state aerospace sector and that adding reporting requirements would be burdensome.

The debate, for now, is taking place mostly behind the scenes. That could change as the January legislative session nears and if an actual bill emerges.

A citizen commission that reviews tax benefits says that without clear criteria, there is no way to know if the law is actually achieving the Legislature’s goals.

The two biggest unions representing Boeing workers — the International Association of Machinists and Aerospace Workers (IAM) and the Society of Professional Engineering Employees in Aerospace (SPEEA) — have been asking lawmakers in Olympia to require documentation of an increase in aerospace employment in return for the tax breaks.

“It’s not enough for our Legislature to infer that tax incentives are working,” said Jon Holden, the head of IAM District Lodge 751, in testimony to the citizen commission that reviews tax preferences. “We must have hard data that shows these investments of public dollars are working for the taxpayer and the public good, and not simply generating private gain.”

District Lodge 751 represents about 32,000 Boeing workers, mostly in metro Puget Sound.

The company is pushing back.

“Boeing strongly opposes any changes to these incentives, which are proven to be exceptionally effective in growing jobs and economic activity in Washington,” spokesman Doug Alder said in an email.

In recent weeks, Boeing officials have met with lawmakers and community groups on something of a goodwill tour, talking about how the tax incentives help the company, which, in turn, benefits Washington.

The tour has included a “myth versus fact” pamphlet printed in November. One side addresses the tax breaks and includes entries such as:

MYTH: “The Washington state tax incentives are a new ‘giveaway’ to get big business to stay.”

FACT: “Under the 2013 incentive bill, aerospace companies will pay the same (business-and-occupation) tax rates as they do today.”

That is true. The Legislature first passed the tax preferences in 2003 as part of the effort to ensure the 787 Dreamliner was built in Washington. They extended them in 2013 with an eye on 777X assembly.

The “myth” column also includes this entry: “There was no need for Washington state to enact this tax incentive.” That is followed in the “fact” column by: “Employment and tax revenues in the state have grown significantly since these incentives were enacted. It was a good business decision for Washington.”

Since 2003, Washington’s aerospace sector has grown tremendously in the number of jobs and as a share of the national aerospace industry. Boeing alone has added more than 30,000 jobs in the state.

But have those new jobs and tax revenue grown due to the tax breaks?

It is very difficult to say what role the tax preferences played, according to a 2014 review by the Joint Legislative Audit and Review Committee. The legislative oversight committee regularly evaluates the effectiveness of the state’s more than 600 tax preferences.

“JLARC staff do not assert whether there is a causal relationship between these outcomes and the package of tax preferences,” the report said.

The connection between the 2003 tax breaks and aerospace’s growth could just be good timing.

Demand for commercial airplanes was very modest at the time, due to an economic recession, high fuel costs and the 9/11 terrorist attacks. Boeing’s annual orders had gone from nearly 600 in 2000 to a mere 246 in 2003.

But despite the Great Recession of 2008, the airplane-making business today is booming. Since 2011, Boeing has logged an average of 1,300 airplane orders per year.

“Boeing employment was going to increase regardless” of tax preferences, said Kriss Sjoblom, an economist with the Washington Research Council. “The question is how much of that would have been here?”

When a business is deciding where to set up shop, taxes don’t often play a big role at first, he said. Factors such as proximity to suppliers and customers or labor costs are usually more important.

But “once you get down to the short list” of possible locations, “taxes factor in, and may be a deciding factor,” he said.

The decision by Boeing suppliers Alenia Aeronautica and Vought Aircraft Industries to set up a joint venture in North Charleston, South Carolina, was “heavily swayed” by the state’s package of incentives, Sjoblom said. “Perhaps overly swayed.”

Unlike Washington’s tax benefits, South Carolina did include clawbacks based on the number of jobs created.

State Rep. Reuven Carlyle, D-Seattle, said during a Dec. 5 meeting of the House Finance Committee that he expects a conversation during the 2015 legislative session about measuring job creation to gauge industry growth. He didn’t say whether he thinks that’s a good idea.

“I don’t see those efforts as punitive or rhetorical,” he said. Proponents “are looking at this in a very sincere way.”

The tax breaks passed by the Legislature in 2003 benefited manufacturers of commercial airplanes and were to end in 2024. Among the legislation’s stated goals is maintaining the state’s existing aerospace sector.

A few years later, in 2006 and 2008, lawmakers expanded the tax breaks to cover more of the industry. Last year, more than 450 companies took advantage of the tax breaks.

In 2013, the Legislature extended the tax breaks to 2040 so long as Boeing assembled the 777X and built the new plane’s carbon-fiber-composite wings in Washington.

Another goal was added, as well — to expand the aerospace sector, not just maintain it.

A few months later, Boeing said it was moving thousands of engineering jobs out of Washington. More job moves are expected early next year, according to a SPEEA official.

IAM and SPEEA leaders are pushing for a bill to make future job reductions here costly for Boeing.

Some lawmakers in Olympia have expressed support for such a bill, but so far no one has stepped up to sponsor one.

“If they could punt on this, they would,” said SPEEA’s executive director, Ray Goforth.

Dan Catchpole: 425-339-3454; dcatchpole@heraldnet.com; Twitter: @dcatchpole.