Gov. Jay Inslee testifies at a legislative hearing. Credit: John Stang
Even as legislators start a special session called by Gov. Jay Inslee to win Boeing jobs, the lawmakers face the challenge of trying to act carefully but quickly on sensitive subjects like tax breaks and transportation.
A bill to extend Boeing Co.'s tax incentives is a case in point. It contains a penalty designed to ensure tax breaks actually equal jobs. If the aircraft manufacturer moves any part of the 777X airliner project out of state, its biggest tax break will disappear. A key lawmaker says the bill is carefully drawn, but some advocates are calling for stronger penalty provisions.
Inslee and the Washington Legislature are rushing to pass a bill in the next few days that would extend the expiration dates of several Boeing-related tax breaks from 2024 to 2040. Boeing wants the tax breaks extended quickly as part of a complicated and sometimes hazy deal with the state and the corporation's biggest union to keep upcoming manufacturing of the new 777X airliner in Washington.
History haunts the deal.
In 2003, Boeing received $3.2 billion in tax breaks, including the ones currently on the table for extension, to build the 787 Dreamliner in Washington. That did not prevent Boeing from building a second 787 plant in South Carolina and using that facility to play Washington against South Carolina, with the Evergreen state usually losing since.
The new tax-breaks-extension bill — with the actual language becoming available early Thursday morning — went to an early Thursday afternoon public hearing before the House Finance Committee. In total, those extensions are expected to be worth $8.7 billion to the corporation.
The new bill says that if Boeing moves any 777X work to another state, the biggest tax break — trimming in half the preferential business-and-occupation tax rate on the 777X's gross receipts — would disappear. That tax break is estimated to be worth $3.5 billion from 2024 to 2040.
"We feel like our language is very tight," said Rep. Reuven Carlyle, D-Seattle and chairman of the House Finance Committee. Carlyle and Rep. Ross Hunter, D-Medina and chairman of the House Appropriations Committee, introduced the bill at Inslee's request.
Inslee testified before the committee in support of the bill.
"This is what (the company's machinists union) and Boeing needs to compete in the global marketplace," Inslee told the committee.
Two organizations — Our Economic Future and the Washington State Budget and Policy Center — testified in favor of strengthening the penalty to become a "clawback," in which Boeing would have to pay back the B&O tax breaks it had already received if it moves the 777X work elsewhere.
After the hearing, Carlyle said the state's negotiators with Boeing felt that the current proposed penalty is sufficient because Boeing's B&O taxes would double if it set up 777X work elsewhere.
If passed, the tax break would be reviewed in five years to ensure that the conditions are being met. Under a bill passed in June, a company receiving a new or extended tax break must say how many new jobs would be created by the incentive, and it would be held to that goal to keep the exemption.
However, the state's negotiators could not get Boeing to agree to set a specific job-creation target, Carlyle said. Consequently, the incentive package staying intact is contingent on Boeing's current number of 777 workers not shrinking. Carlyle did not have the current number of Boeing 777X employees with him Thursday afternoon.
Meanwhile, Andy Nichols, senior analyst with the Washington State Budget and Policy Center, argued in the hearing that the incentive package should set out specific job-creation goals for Boeing to meet.
Also at Thursday's hearing, Patrick Connor, director of the Washington chapter of the National Federation of Independent Businesses, objected to the fact that a hearing was held a half-day after the details of the bill became public, circumventing the required five-day period between a bill's introduction and its legislative hearing. "This gives the public the impression that the rules don't apply to Boeing," he said.
He said small businesses would flourish under the same type of tax break that Boeing is on the way to getting, and asked the Legislature to explore providing similar changes in B&O taxes to those smaller firms. Committee member Rep. Chris Reykdal, D-Olympia, agreed with that idea. Reykdahl said 20 percent to 40 percent of Boeing's B&O tax break would go to its shareholders worldwide, while small businesses keep their tax-break money in state.
Meanwhile, numerous Puget Sound government and business leaders joined Inslee in strongly supporting Boeing's tax-incentive package, noting that the state has about 132,000 aerospace jobs with the 777X project accounting for a significant portion. Also, hundreds of Boeing suppliers are in Washington.
"It means jobs, jobs, jobs. … This is going to be a game changer in our state and region," said Snohomish County Executive John Lovick.
"This will create jobs and have an incredible return on investment to our economy," said Maud Daudon, CEO of the Seattle Metropolitan Chamber of Commerce. She and several others cited a formula that extending the tax incentives are expected to return three times the dollars to the state's economy.
Larry Brown, representing the International Association of Machinists and Aerospace Workers, said that Boeings employs about 30,000 members of that union in Washington. "Every one of those members depend on this plane being built in Washington state," Brown said.
No one from Boeing's management testified at Thursday's hearing. That absence reflects Boeing's overwhelmingly behind-closed-doors approach to seeking these tax-incentive extensions.
Boeing negotiated in private with a legislative task force for several weeks. (Crosscut tried to attend one session, but was ejected. While unusual, closing a legislative task force's meeting to the public is legal.) When Inslee announced the deal Tuesday, Boeing Commercial Airplanes CEO Ray Conner was at the press conference, but would not answer any questions nor make any remarks.
Boeing's silence has led to confusion over what it wants from Washington and the machinists union in order to keep the 777X work in Washington. On Tuesday, Inslee said Boeing requires that the incentives be extended; the Legislature pass a transportation package; and the machinists union approve a tentative contractual agreement next week in which it would make significant concessions to the company.
But the union's Web site published an agreement document in which Boeing said only the contract's approval is needed for the 777X work to stay in Washington. That sparked a flurry of Boeing and union memos and letters to Inslee on Wednesday and Thursday to say both the contract and legislative work is needed for the 777X to stay. At the same time, many union members are objecting to the contract. At a meeting Thursday, a union leader said he would try to have the contract withdrawn, according to The Seattle Times.
The finance committee is scheduled to vote Friday morning on whether to send the bill to an afternoon House Appropriations Committee hearing.
Another hazy matter remains what Boeing means when it says that a transportation package must be passed soon for Washington to keep the 777X project. A Crosscut phone call to Boeing Thursday to seek clarification was not returned.
Democrats and the predominantly Republican Senate Majority Coalition Caucus have been negotiating a transportation revenue package for months. Both sides said progress has been made, but stop short of guaranteeing an agreement in the next few days. The biggest sticking point has been that Democrats want a 10.5-cent-per-gallon gas tax hike to pay for the bulk of the potential $10 billion worth of projects over the next 10 years — projects sought by almost every government, business and labor interest in the state. But Republicans, who control the majority coalition in the Senate, have balked at any gas tax hike, at least publicly.
Neither side is describing in public the status of the gas tax talks being held in private. Both sides have said parts of transportation package might be passed soon with other parts to be tackled later, but they have declined to elaborate. And that sheds little light, at least for now, on how the lawmakers are balancing between decisiveness and caution.