Aerospace Tax Break Plan Should Remain Grounded
Few communities have felt the sting of the aerospace industry’s decline more sharply than the Antelope Valley, a region practically built on the wings of fighter planes and rocket ships. So it’s tempting to cheer Assemblyman George Runner’s proposal to lure industries back to the Antelope Valley with a fat tax break. Tempting, but fiscally dangerous.
Specifically, the Lancaster Republican wants to make sure California workers share the benefits of efforts to build the next generation of military fighter jets--a $200-billion endeavor with thousands of new jobs. Both Lockheed Martin Corp. and Boeing Co. are vying for the contract to produce jets for the Air Force, Navy, Marines and the British Royal Navy.
Runner’s proposal would offer a tax credit on gross sales resulting from the Joint Strike Fighter project. At a time when government contractors are increasingly worried about cost, Runner’s credit aims to make California competitive with other states in more than just climate and worker skill levels. Making Southern California an attractive place to do business again is an admirable goal, but Runner’s proposal runs the risk of sparking a price war among states competing for big industry.
The Franchise Tax Board estimates the credit would cost the state $80 million over the next three fiscal years. Plus, the companies might already qualify for existing tax credits. Worse, analysts fear other important industries would line up and demand credits too. Yes, tax reform is necessary to make California attractive, but it cannot be done on a case-by-case basis.
As the former mayor of Lancaster, Runner should appreciate this simple fact. The Antelope Valley cities of Lancaster and Palmdale for years used tax breaks and credits to lure job- and tax-rich businesses to town--even going so far as to poach from each other. But officials in the two cities lately have realized how counterproductive it is for communities to compete on price alone. It sets the stage for a race to the bottom as regions undercut each other to the point where only the businesses being courted can boast any net gains.
The same principle applies in the fighter jet project. There are some competitions the state should simply not enter. Tax codes need fixing, but California still offers skilled workers, great weather and access to talented suppliers and subcontractors. It should compete on those attributes, not in a pure cost contest it has no real hope of winning.
