The Legislature went home for a month Thursday, but not before handing aerospace giant Lockheed Martin Corp. a controversial $420-million tax break.
Branded as a sweetheart deal for Lockheed, the bill sailed through the Assembly and Senate — but only after critics forced state officials to pledge that they would seek a similar incentive for aerospace rival Northrop Grumman.
At issue is a $55-billion Air Force contract to build next-generation bombers that is being sought by both Northrop and Boeing Co. Lockheed would be a major Boeing subcontractor on the project, and it sought the tax credit to help make the Boeing bid more attractive to the Pentagon. But Northrop cried foul, saying last-minute favoritism was at play in Sacramento.
None of the three companies is headquartered in California, but all are major employers. Each side said that winning the contract would bring jobs to the state.
Criticism of the Lockheed deal mounted in the last week as details of the deal emerged, and Northrop publicly lambasted the bill, AB 2389, by Assemblyman Steve Fox (D-Palmdale).
Senate Appropriations Chairman Kevin de Leon (D-Los Angeles) was outspoken in his criticism of the Lockheed package, saying it was “exclusively focused for the benefit of one company.”
Under pressure from leaders of the state Senate on Thursday, Gov. Jerry Brown and Assembly Speaker Toni Atkins (D-San Diego) publicly pledged to grant a similar benefit to Northrop as soon as lawmakers return to the Capitol in early August.
With those commitments, the Senate passed the bill on a 28-6 vote and the Assembly followed with a 76-0 tally. A half dozen Senate members balked, saying that spending the $420 million on badly needed roads and bridges, schools and social services would be preferable.
The tax break would come from a state program called California Competes, intended to provide incentives to woo and keep jobs in California for the first five years. For the next 10 years, the tax credit will be paid directly from the state general fund.
The hasty compromise won praise. Lawmakers said it would put the two contenders on equal footing and guarantee that California would come out a winner no matter who wins the Air Force contracts.
Either way, they said, Palmdale, the birthplace of many storied military aircraft, and the economically hard-hit, nearby Antelope Valley, could get a powerful economic boost.
“Aerospace is the economy of my district,” Fox testified at a hearing of the Senate Appropriations Committee prior to the votes in the two legislative chambers. “We can’t let aerospace leave” the state.
Another Palmdale legislator, Republican Sen. Steve Knight (R-Palmdale) was even more direct about preserving the Golden State’s historic aeronautics and space business.
“Other states are luring what is ours and trying to take it from us,” he said. “If California is not competitive, then shame on us.”
In committee testimony, both companies stressed that building the stealth bombers in California would create hundreds of high-paying jobs and business for small companies that supply parts. The tax credit, they said, would more than pay for itself by generating more revenues for state and local governments.
Brown administration officials generally agreed with those estimates, which range as high as $1.6 billion for Lockheed alone.
Lockheed, which had been negotiating the bill with the governor’s office for the last two months, said it needed quick passage to meet a Boeing deadline for submitting a proposal to the Department of Defense.
The tax credit, argued Lockheed Vice President Gregory M. Ulmer, would help prepare a lower-cost bid. However, he didn’t rule out the possibility that Lockheed would build the planes in other states, if California failed to pass the incentive bill quickly.
Northrop said it engaged with the governor’s business development office only last week.
Tom Vice, the president of Northrop Grumman Aerospace Services, testified that the company planned to build the aircraft in Palmdale with input from facilities across California.
This was decided even before it found out that Lockheed was seeking financial assistance. Northrop, he said, expected to add 1,500 new workers to the 2,500 it already has at Palmdale, if it wins the federal contract.
Northrop’s Vice said his company only sought an equal shot at qualifying for the tax credit because it feared that it would be undercut if Lockheed takes advantage of the state largesse to submit a lower cheaper bid.
Just before legislators rushed to return to their districts for vacations or reelection campaigning, Appropriations Chairman De Leon summed up the debate and the compromise: “To me,” he said, “it’s very clear that we’re all on the same page when it comes to job creation in California. But we need to make sure we’re getting the most bang for the buck.”