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Should Boeing’s tax breaks be dependent on their results?

Construction of a Boeing 787 plane in Everett. Credit: Jetstar Airways

An advisory committee recommends that performance targets be set for 11 existing Washington aerospace manufacturing tax breaks.

The Citizen Commission for Performance Measurement of Tax Preferences made that recommendation to a bipartisan House-Senate committee that will meet on Dec.10 to discuss tax breaks for the aerospace, food processing and electric power industries. Each year, the House-Senate committee decides whether to pass those recommendations to the full Legislature.

The full Legislature usually does not act on most of those annual recommendations. However in 2013, a bipartisan bill became law to require that new tax breaks or the extensions of expiring tax exemptions set specific targets in jobs created or retained or other solid economic goals. The commission's recommendations follow the spirit of that 2013 law.

The 11 aerospace industry tax breaks would equal $489 million to $502 million in potential revenue for 2015-2017 if those exemptions were not in effect, according to the commission's report. Two of those tax breaks account for most of that figure. Those are a reduced business-and-occupation tax rate for manufacturing commercial aircraft, which is worth $238.5 million in 2015-2017, and a B&O tax credit for aerospace development expenses, which is worth $197.9 million in 2015-2017.

The commission's majority opinion urges the Legislature to set ways to measure how these tax breaks contribute to Washington's economic health. "In the case of the aerospace industry, the lack of verifiable metrics that measure the extent to which the public policy objectives are being met may encourage firms to move employment out of state to gain the benefits of more favorable labor costs, while still benefiting from the tax preferences," the majority opinion said.

Boeing has moved some work out of Washington despite receiving tax breaks in this state.

In 2003, Olympia gave Boeing $3.2 billion in tax breaks. Those exemptions were supposed to ensure that the 787 Dreamliner would be built in Washington. But that didn’t prevent Boeing from building a second 787 plant in South Carolina.

Then a Boeing threat to move production of the 777X out of Washington prompted the Legislature in late 2013 to extend the expiration dates on those same tax breaks from 2024 to 2040 — extensions worth $8.7 billion. With the 2003 memories intact, the Legislature put a caveat on the new extensions: If Boeing moves any 777X work to another state, the company loses its biggest tax break — 50 percent off the preferential business-and-occupation tax rate on the 777X's gross receipts. The estimated cost of that one preferential B&O tax discount? $3.5 billion over 16 years. But the 2013 tax breaks did not prevent Boeing in 2014 from beginning to move roughly 2,000 of its Washington engineering jobs to states with lower labor costs.

The commission's majority opinion noted that nailing down job growth will be difficult when technology replaces jobs. It also noted there are transparency problems when the state deals with businesses’ proprietary information.

Commission member Ronald Bueing dissented from the majority opinion, arguing that specific targets should not be tied to creating or extending tax breaks. .

He wrote: "In an ever evolving marketplace, technological change, market forces and economic trends make it virtually impossible to establish specific economic development metrics. The same specific economic metric cannot reasonably be used to measure the effectiveness of job creation in a growing economy as is used in a recessionary economy. … Instead, rigorous economic analysis is necessary to reasonably and accurately measure the benefit of an incentive. Simplistic, economic metrics make the process of measuring progress much easier, but at the expense of creating any useful analysis."

Boeing opposes adding specific metrics to the tax breaks.

"Contrary to what some might say, the tax incentives are not specific to Boeing,"  said Boeing spokesman Doug Alder in a written statement. "These incentives, which cost the state nothing, are currently used by more than 450 Washington aerospace companies. The state’s own analysis estimates this tax extension, as approved by a near-unanimous majority in the state legislature, will likely generate more than $21.3 billion in state and local tax revenue. Boeing strongly opposes any changes to these incentives, which are proven to be exceptionally effective in growing jobs and economic activity in Washington."

Since the current incentives were put in place, Boeing has added almost 30,000 jobs in Washington, Alder said.

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