$80-Million Tax Break Urged to Lure Pentagon’s Next Fighter Jet Contract

The contract to build the next generation of military fighter jets is expected to be one of the largest in history, an 11-year project that could bring the eventual winner more than $200 billion to produce 3,000 aircraft.

But Assemblyman George Runner Jr. (R-Lancaster) is not so concerned about who gets the contract as he is about where the fighter will be built.

In hopes of revitalizing the aerospace industry in the Antelope Valley, Runner is pushing state legislation to provide an $80-million tax break for the company that brings production of the so-called Joint Strike Fighter to California.

The contract could create up to 10,000 jobs, and Runner wants a big chunk of those jobs to go to his constituents.

“There is a whole pie out there and we should try to get as big a slice as possible,” he said.

The two companies vying for the contract--Lockheed Martin and Boeing--both have facilities in Palmdale but have yet to decide where final production would take place. Both companies say the tax break could play a role in their decision for a final production site.

“We are aware of the bill and we are pleased they are taking this initiative,” said Kathryn Haden, a Lockheed spokeswoman. “The main thing for this fighter is affordability. When we get to that point when we decide where it will be built, we will decide based on affordability.”

The bad news for Palmdale and California is that the two companies vying for the contract have hinted that they may build the jets outside California. Lockheed Martin has a production facility in Fort Worth, Tex., that may be used for the jet, and Boeing has suitable sites in Seattle and St. Louis, Mo.

Runner’s interest in local job creation is running into ardent opposition over its cost.

Even though the bill won’t be heard in committee until January, the state’s Franchise Tax Board and the California Tax Reform Assn. have blasted Runner’s bill, saying the cost is too high. They also fear that the tax credit may spark a bidding war with other states hoping to attract the contract.

Lenny Goldberg, executive director of the California Tax Reform Assn., contends that past tax breaks have proved to play a very small role in the decision of such large contractors and are mostly an exercise in political gamesmanship.

“In a lot of cases, we’ve given away way too much for what we’ve gotten,” he said.

In a financial analysis of the bill, the Franchise Tax Board contends that the break could prompt other industries to seek a similar break. The board also suggests that a break for California sales could be viewed as discriminatory against out-of-state businesses and in violation of the commerce clause of the U.S. Constitution.

The bill once again raises the policy debate over whether the state should provide breaks for struggling industries or focus on adopting an across-the-board tax reform package that benefits all industries.

But Runner, a freshman legislator and former Lancaster mayor, contends that the bill is worth the price if it creates thousands of new jobs, particularly in the aerospace industry, which has struggled significantly with the end of the Cold War.

As for suggestions that the bill would spark a bidding war, Runner said states such as Texas and Oklahoma have offered incentives to attract production of the Joint Strike Fighter.

Supporting Runner is Rep. Howard P. “Buck” McKeon (R-Santa Clarita). In fact, McKeon said he has sent a letter to Boeing and Lockheed signed by 47 California members of Congress, urging the firms to build the fighter in the Antelope Valley. “We just think it makes sense there,” he said.

Palmdale is already benefiting from the jet fighter project. Lockheed is building a prototype at its Skunk Works location in Palmdale, creating 800 jobs there. Seattle-based Boeing is building its version of the plane. The government will choose between the two versions in 2001.

The winner of the final production contract will build the dominant fighter aircraft used by the Air Force, Navy, Marines and the British Royal Navy, with the first jets to be delivered in 2008.

The goal of the program is to produce a jet that is affordable and can be used by all branches of the military. Up to 90% of the equipment and parts will be the same on all versions of the plane in order to hold down the cost of maintenance and supply.

There is still some debate in Washington on the need for such an expensive project, considering the overall cost and the air superiority the U.S. enjoys.

But if the budget for the program survives cuts, experts are calling it one of the largest military contracts ever. With spare parts and lifetime support, the contract could eventually increase in value to a trillion dollars, according to some experts.