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Democrats Add Performance Measures To Boeing Tax Breaks

Is Washington state getting its money’s worth from more than $1 billion in tax breaks given to aerospace industry giant Boeing? Some Democratic lawmakers in Olympia are determined to find out.

Last year, the Legislature passed an $8.7 billion extension of a tax incentive package that will last through 2040, to convince Boeing to build most of its 777x line of aircraft in Washington state, which it has agreed to do.

The incentive program was instituted in 2003 to get Boeing to build it’s 787 line in Washington, and was expanded in 2006 to cover non-manufacturers and suppliers. From 2003 to 2012, the program reduced the aerospace industry’s costs by $1.2 billion.

But after Boeing announced this fall it would move about 2,000 engineering jobs out-of-state, as well as build part of the 777x’s wing and tail in St. Louis, some lawmakers were not happy, although public criticism of the moves has been scarce.

Labor has been pushing legislators to add conditions to the incentive program, telling the Seattle Times earlier this year it wanted the Legislature to add minimum pay and employment standards in order to claim an incentive.

Democrats in the Joint Legislative Audit and Review Committee weren’t willing to go quite that far in a hearing Wednesday. They did pass new measurements of the incentives’ impact on state tax coffers and employment, and did so on a party-line vote. Six Democrats – including outgoing Reps. Kathy Haigh and Tami Green – supported the idea, while five Republicans opposed it.

Rep. Gerry Pollet, D-Seattle, said he wanted the new measurements to ensure the state was spending its money wisely. The measurements will now be included in a five-year review cycle – compared to the current 10-year period – and will gauge whether the incentives have been a net positive to state revenue collection, or an overall drag.

pollet

Rep. Gerry Pollet, D-Seattle

They will also require Boeing and other aerospace firms claiming the tax credits to certify with the Department of Revenue any jobs created or maintained as a result of the incentives.

“We should be offering a very clear set of criteria,” Pollet said. “Does the tax preferences actually increase state revenue instead of decrease it? Is it worth the investment in this biennium?”

But Republicans balked at the notion, saying the audit and review committee was not the appropriate forum to be amending the broader deal the Legislature struck on the tax incentives last fall.

Additionally, Rep. Ed Orcutt, R-Kalama, said economists have great difficulty quantifying a causal relationship between the aerospace industry’s success or failureĀ and the tax incentives, which is rooted in broader market trends and competition in the U.S. and internationally.

JLARC staff backed up his contention, telling the House Finance Committee last week that a panel of economists, including Steve Lerch, executive director of the Economic and Revenue Forecast Council, had difficulty proving a causal relationship between the incentives and Boeing’s performance.

“I’m just a little worried, and I’ve been worried since the start of this…about being too prescriptive,” Orcutt said. “It’s already so difficult to prove the cause and effect.”

State Rep. Ed Orcutt, R-Kalama.

State Rep. Ed Orcutt, R-Kalama.

Committee staff has done analysis on Boeing and the broader aerospace industry’s benefits to the state’s economy, reporting that the tax incentives have boosted high-wage jobs within the industry.

The average wage paid to workers in firms receiving the tax incentives was $98,186, compared to an average of $69,306 in salary for all manufacturing workers, according to staff.

Based on their analysis, which was presented to the Finance Committee last week, staff said the incentives impacted the state’s tax revenues positively and negatively, and provided a closer look to the decision to build the 787 in Washington.

Had Boeing left the state entirely, Washington would have lost 190,000 jobs over 20 years, according to the analysis. Staying in Washington and adding jobs to build the 787 would result in 14,000 new jobs, while remaining in the stating but not adding 787 jobs would have cost the economy 4,641 workers, according to the analysis.

Rep. Chris Reykdal, D-Tumwater, questioned the analysis at the Finance Committee hearing, asking why it was predicated on Boeing leaving the state.

He asked if staff could redo the analysis, looking at alternative uses of the revenue the tax incentives have cost the state, such as spending more money on education programs. Staffer Mary Welsh replied that they most likely would be unable to do that.

“The crux of this is the presumption of flight,” Reykdal said of analysis based on Boeing’s threats to leave.

But conservatives are quick to point out the benefits the aerospace industry, long a bedrock sector of Washington’s economy, still yield. Firms employing more than 100,000 workers received benefits from the tax program, according to a brief from the Washington Research Council.

The tax incentives continue to be needed to make Washington competitive with other states vying for aerospace industry jobs, and were needed initially to lessen the comparative tax burden the industry faced in Washington.

Rep. JT Wilcox, R-Yelm, summed up his Republican colleagues’ trepidation about adding new measures on Boeing’s performance, and tying them to the tax incentive program.

“These specific criteria are somewhat problematic,” Wilcox said at the JLARC hearing. “It’s a mistake to make it such a cut-and-dry, black-and-white matter.”