Unions want state to prove that Boeing tax breaks work

  • By Dan Catchpole and Jerry Cornfield Herald Writers
  • Friday, December 12, 2014 9:21pm
  • Business

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.

Talk to us

> Give us your news tips.

> Send us a letter to the editor.

> More Herald contact information.

More in Business

Allan and Frances Peterson, a woodworker and artist respectively, stand in the door of the old horse stable they turned into Milkwood on Sunday, March 31, 2024, in Index, Washington. (Ryan Berry / The Herald)
Old horse stall in Index is mini art gallery in the boonies

Frances and Allan Peterson showcase their art. And where else you can buy a souvenir Index pillow or dish towel?

Red Robin to pay $600K for harassment at Everett location

A consent decree approved Friday settles sexual harassment and retaliation claims by four victims against the restaurant chain.

magniX employees and staff have moved into the company's new 40,000 square foot office on Seaway Boulevard on Monday, Jan. 18, 2020 in Everett, Washington. magniX consolidated all of its Australia and Redmond operations under one roof to be home to the global headquarters, engineering, manufacturing and testing of its electric propulsion systems.  (Andy Bronson / The Herald)
Harbour Air plans to buy 50 electric motors from Everett company magniX

One of the largest seaplane airlines in the world plans to retrofit its fleet with the Everett-built electric propulsion system.

Simreet Dhaliwal speaks after winning during the 2024 Snohomish County Emerging Leaders Awards Presentation on Wednesday, April 17, 2024, in Everett, Washington. (Ryan Berry / The Herald)
Simreet Dhaliwal wins The Herald’s 2024 Emerging Leaders Award

Dhaliwal, an economic development and tourism specialist, was one of 12 finalists for the award celebrating young leaders in Snohomish County.

New Jersey company acquires Lynnwood Land Rover dealership

Land Rover Seattle, now Land Rover Lynnwood, has been purchased by Holman, a 100-year-old company.

Szabella Psaztor is an Emerging Leader. (Olivia Vanni / The Herald)
Szabella Pasztor: Change begins at a grassroots level

As development director at Farmer Frog, Pasztor supports social justice, equity and community empowerment.

Simreet Dhaliwal is an Emerging Leader. (Olivia Vanni / The Herald)
Simreet Dhaliwal: A deep-seated commitment to justice

The Snohomish County tourism and economic specialist is determined to steer change and make a meaningful impact.

Nathanael Engen, founder of Black Forest Mushrooms, an Everett gourmet mushroom growing operation is an Emerging Leader. (Olivia Vanni / The Herald)
Nathanael Engen: Growing and sharing gourmet mushrooms

More than just providing nutritious food, the owner of Black Forest Mushrooms aims to uplift and educate the community.

Owner and founder of Moe's Coffee in Arlington Kaitlyn Davis poses for a photo at the Everett Herald on March 22, 2024 in Everett, Washington. (Annie Barker / The Herald)
Kaitlyn Davis: Bringing economic vitality to Arlington

More than just coffee, Davis has created community gathering spaces where all can feel welcome.

Emerging Leader John Michael Graves. (Ryan Berry / The Herald)
John Michael Graves: Champion for diversity and inclusion

Graves leads training sessions on Israel, Jewish history and the Holocaust and identifying antisemitic hate crimes.

Gracelynn Shibayama, the events coordinator at the Edmonds Center for the Arts, is an Emerging Leader. (Olivia Vanni / The Herald)
Gracelynn Shibayama: Connecting people through the arts and culture

The Edmonds Center for the Arts coordinator strives to create a more connected and empathetic community.

Eric Jimenez, a supervisor at Cocoon House, is an Emerging Leader. (Olivia Vanni / The Herald)
Eric Jimenez: Team player and advocate for youth

As an advocate for the Latino community, sharing and preserving its traditions is central to Jimenez’ identity.

Support local journalism

If you value local news, make a gift now to support the trusted journalism you get in The Daily Herald. Donations processed in this system are not tax deductible.