A few years ago, Washington state awarded the Boeing Co. the largest corporate tax break any state had given any corporation — a massive $8.7-billion handout aimed at encouraging the aerospace industry generally, and Boeing specifically, "to maintain and grow its workforce within the state."
Unwisely, state legislators and Democratic Gov. Jay Inslee didn't make that a hard and fast requirement of the handout. So they've had to stand by powerlessly as the company has cut 12,655 jobs, or more than 15% of its Washington workforce, since that heady signing ceremony in November 2013. Layoff notices have gone out to 429 more employees in just the last few weeks.
Now the state is poised to strike back. Two bills in the state legislature would claw back part of the tax break or eliminate it completely if the company continues to pare jobs.
"This is a poster child for the incentives we give away," Democratic State Rep. Noel Frame, one of the bills' sponsors, told me this week. Laying off workers despite billions in tax breaks, she said, "has been so blatant in its disrespect for the will and intent of why we give tax incentives, the outrage is bipartisan."
The outrage comes partially from Boeing's habit of forcing its workers to shoulder the pain of management's inability to compete more effectively with Airbus, its European chief rival in the airliner business. Last December, the company blamed that competition for a sharp slowdown in orders for its 777X airliner, a mainstay of Washington state production lines, which it said would mean a hit to the workforce. But the very same day, the company announced a 30% increase in its quarterly dividend and a new $14-billion share repurchase program. Chairman and CEO Dennis Muilenburg crowed that those initiatives signified Boeing's determination to "meet our commitment to provide competitive returns to our shareholders."
Don't expect Boeing to take the threat of cuts in its tax subsidies lying down. "Changing Washington's aerospace tax incentives would prevent Boeing from being able to respond to future market challenges," Bill McSherry, a company spokesman, told the Legislature this week. He cited "significant competitive pressure on every order" and said that job reductions have occurred only "when absolutely necessary."
"Boeing has kept its word to Washington," McSherry said, but that may be true only because its commitment was so vague. Many of Washington's lost jobs, according to the Society of Professional Engineering Employees in Aerospace, have gone to South Carolina, Oklahoma, Missouri or Alabama, states where the company faces more tolerant employment regulations or has agreed to more explicit employment mandates, or both.
According to Good Jobs First, which tracks corporate subsidies, Missouri has offered Boeing $229 million in subsidies if the company maintains a workforce of 14,500 and creates 2,000 new jobs; if employment falls below 11,000, Boeing must repay the subsidy. South Carolina capped some of its $450 million in incentives to attract a 787 Dreamliner plant at $12,500 per new job and mandated other investment.
There's little mystery to why Boeing was able to extract a lavish no-strings-attached handout from Washington. The company is the state's biggest corporate employer and the source of thousands of high-paying professional jobs. But its demands also have turned Washington into the national leader in Boeing handouts, with $12.3 billion in incentives bestowed on the company over the years by the reckoning of Good Jobs First. (South Carolina comes in second.)
Washington's multibillion-dollar endowment to Boeing dates back to 2003, when the state awarded the company more than $3.2 billion in incentives through 2024. But the big handout came in 2013, when Inslee and the legislature extended the incentives through 2040, at an estimated value of $8.7 billion.
But that only heightened the need for Washington to be smarter. "When you've got a company so dominant it can have its way with the tax code," says Greg LeRoy, executive director of Good Jobs First, "you have to build in safeguards."
Even beyond the scale of the subsidy, Washington was especially indulgent toward Boeing. "We gave aerospace and Boeing the largest tax break in U.S. history," says Bill Dugovich, a spokesman for the engineering union, "and we're the only state that didn't tie the break directly to jobs."
The measures under consideration at the Olympia statehouse aim to rectify that failure. A Democratic version sponsored by Frame would set a baseline for Boeing's Washington employment at 70,000 jobs. If the workforce falls below that point, the company would lose half its tax break; if it falls below 67,500, it would lose the entire subsidy. A companion Republican bill would require average employment of 75,000 jobs through 2024. Fall below that, and the tax incentive will expire in 2024. Frame says she expects the final version to resemble a melding of both measures.
The bills reflect rising awareness that Washington, like some other states, has been lining corporate pockets with crucial revenues and getting nothing in return. "As a state we are dealing with a financial crisis related to funding for public schools," Frame says. "We're in violation of the state constitution and in contempt of a court order." The incentives mean "our taxpayer dollars are going to Boeing's bottom line, not to create jobs."
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