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.

Talk to us

More in Herald Business Journal

Members of Gravitics' team and U.S. Rep. Rick Larsen stand in front of a mockup of a space module interior on Thursday, August 17, 2023 at Gravitics' Marysville facility. Left to right: Mark Tiner, government affairs representative; Jiral Shah, business development; U.S. Rep. Rick Larsen; Mike DeRosa, marketing; Scott Macklin, lead engineer. (Gravitics.)
Marysville startup prepares for space — the financial frontier

Gravitics is building space station module prototypes to one day house space travelers and researchers.

Orca Mobility designer Mike Lowell, left, and CEO Bill Messing at their office on Wednesday, Aug. 16, 2023 in Granite Falls, Washington. (Olivia Vanni / The Herald)
Could a Granite Falls startup’s three-wheeler revolutionize delivery?

Orca Mobility’s battery-powered, three-wheel truck is built on a motorcycle frame. Now, they aim to make it self-driving.

Catherine Robinweiler leads the class during a lab session at Edmonds College on April 29, 2021. (Kevin Clark / The Herald)
Grant aids apprenticeship program in Mukilteo and elsewhere

A $5.6 million U.S. Department of Labor grant will boost apprenticeships for special education teachers and nurses.

Peoples Bank is placing piggy banks with $30 around Washington starting Aug. 1.
(Peoples Bank)
Peoples Bank grant program seeks proposals from nonprofits

Peoples Bank offers up to $35,000 in Impact Grants aimed at helping communities. Applications due Sept. 15.

Workers build the first all-electric commuter plane, the Eviation Alice, at Eviation's plant on Wednesday, Sept. 8, 2021 in Arlington, Washington.  (Andy Bronson / The Herald)
Arlington’s Eviation selects Seattle firm to configure production plane

TLG Aerospace chosen to configure Eviation Aircraft’s all-electric commuter plane for mass production.

Jim Simpson leans on Blue Ray III, one of his designs, in his shop on Friday, August 25, 2023, in Clinton, Washington. (Ryan Berry / The Herald)
Whidbey Island master mechanic building dream car from “Speed Racer”

Jim Simpson, 68, of Clinton, is using his knowledge of sports cars to assemble his own Mach Five.

An Amazon worker transfers and organizes items at the new PAE2 Amazon Fulfillment Center on Thursday, Sept. 14, 2023, in Arlington, Washington. (Ryan Berry / The Herald)
Amazon cuts ribbon on colossal $355M fulfillment center in Arlington

At 2.8 million square feet, the facility is the largest of its kind in Washington. It can hold 40 million “units” of inventory.

A computer rendering of the North Creek Commerce Center industrial park in development at 18712 Bothell-Everett Highway. (Kidder Mathews)
Developer breaks ground on new Bothell industrial park

The North Creek Commerce Center on Bothell Everett Highway will provide warehouse and office space in three buildings.

Dan Bates / The Herald
Funko president, Brian Mariotti is excited about the growth that has led his company to need a 62,000 square foot facility in Lynnwood.
Photo Taken: 102312
Former Funko CEO resigns from the Everett company

Brian Mariotti resigned Sept. 1, six weeks after announcing he was taking a six-month sabbatical from the company.

Cash is used for a purchase at Molly Moon's Ice Cream in Edmonds, Washington on Wednesday, Aug. 30, 2023. (Annie Barker / The Herald)
Paper or plastic? Snohomish County may require businesses to take cash

County Council member Nate Nehring proposed an ordinance to ban cashless sales under $200. He hopes cities will follow suit.

A crowd begins to form before a large reception for the opening of Fisherman Jack’s at the Port of Everett on Wednesday, August 30, 2023, in Everett, Washington. (Ryan Berry / The Herald)
Seafood with a view: Fisherman Jack’s opens at Port of Everett

“The port is booming!” The new restaurant is the first to open on “restaurant row” at the port’s Waterfront Place.

Tanner Mock begins unwrapping new furniture that has been delivered on Thursday, Aug. 24, 2023 in Everett, Washington. (Olivia Vanni / The Herald)
In Everett, new look, new name for mainstay Behar’s Furniture

Conlin’s Furniture, based in South Dakota, bought the huge store and celebrates with a grand opening this week.