Legislature is likely to try to measure how Boeing is using its tax breaks
There's likely to be a bill introduced in the 2015 Washington Legislature to measure the effectiveness of Boeing's Washington tax breaks. But setting up a direct cause-and-effect method of measurement will be difficult, the Washington House Finance Committee learned Friday.
Legislators are grappling with $11.9 billion in aerospace tax breaks that they have already approved, mainly benefiting Boeing, stretching from 2003 through 2040. And they are under pressure to figure out how many jobs those exemptions actually saved or created. Finance Committee chair Reuven Carlyle, D-Seattle, said he expects a bill to be introduced in 2015.
While 435 Washington aerospace-related companies benefit from the tax breaks, the exemptions exist because Boeing threatened in 2003 to move 787 aircraft production elsewhere if it didn't get the breaks — and successfully repeated the same threat regarding 777X production in 2013.
Next Wednesday, the Joint Legislative Audit & Review Committee — a bipartisan commission of senators and representatives commonly known as JLARC — will consider whether to recommend that the full Legislature set up a way to measure the effectiveness of those aerospace tax breaks, which are worth $501 million in potential revenue for 2015-2017 if those exemptions were not in effect.
In a statement earlier this week, Boeing said it opposed changing the current tax break arrangement. That opposition extends to talk of setting up ways to measure those exemptions' effectiveness in job creation. A citizen commission this week called for a study of the value of the Boeing tax breaks.
"It's very difficult to prove a cause-and-effect relationship," said Mary Welsh, a JLARC research analyst.
In general terms, the 2003 tax breaks appear to be effective, according to Welsh and Deputy Legislative Auditor John Woolley. In 2003, Washington accounted for 37 percent of Boeing's total aerospace workforce, compared to 49 percent in 2013. California's share dropped from 22 percent to 11 percent in the same period, while Missouri's share stayed steady at 9 percent. All other locations' share of Boeing's aerospace workforce shrunk from 33 percent to 31 percent during this time.
Washington's total of 435 aerospace firms has stayed roughly steady. Boeing's Washington's jobs grew from 59,000 to 82,000 from 2005 to 2013.
The average annual pay for a Washington aerospace worker in 2012 was $98,186, compared to an annual average of $69,306 for all state manufacturing jobs.
But Boeing and Washington's history with the massive tax breaks has been strained.
In 2003, Olympia gave Boeing $3.2 billion in tax breaks through 2024. 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, where it has cheaper labor costs. Then Boeing played Washington and South Carolina against each other with Washington taking some severe hits. JLARC figures showed that Boeing received $1.2 billon in tax breaks from Washington from 2003 to 2012, compared to $500 million in tax breaks from South Carolina in the same period.
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 value of that one preferential B&O tax discount is $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 JLARC staff calculated some scenarios on what would happen if Boeing moved everything elsewhere; if it stayed and added an undetermined amount of 787 jobs; and if it stayed without adding new 787 jobs. The scenarios played out at Washington losing 190,000 jobs over 20 years if all of Boeing moved elsewhere; the state gaining 14,603 jobs over 20 years if Boeing stayed and added 787 jobs; and the loss of 4,641 jobs over 20 years if Boeing stayed but did not add new 787 jobs.
Several caveats exist to make these figures soft and speculative. The state has not been able to get figures from Boeing on how jobs were shifted internally for the 787 work -- meaning it is unknown how many new Washington 787 workers were hired for that work and how many were shifted from other Boeing programs. No employment figures exist yet on upcoming work on the 777X.
Another major problem is that Boeing's decisions about hiring in Washington depend to considerable degree on the airplane market, global economies, differences in labor costs and tax breaks elsewhere. It is hard to slice out tax breaks for study when all those other factors are involved, Welsh and Woolley said.
Just as it may be hard to track the effects of the tax breaks, it also can be difficult to figure out what other decisions might produce. Finance Committee member Rep. Chris Reykdal, D-Olympia, asked the JLARC experts whether it is possible to crunch numbers for a scenario of $400 million worth of aerospace tax breaks being routed instead to social services programs. Walsh said, "That would be extremely difficult."