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December 12, 2013
12 States Compete for Boeing Jobs, but Few Disclose Details
by Henry J. Reske; Maria Koklanaris

Full Text Published by Tax Analysts®

Boeing Co. received a pile of early Christmas presents on December 10, as state economic development officials around the country showered the aerospace giant with tax breaks and incentives worth billions of dollars to secure production facilities for a new line of commercial jets, the 777X.

And like obsessive young suitors, most of the dozen states courting the company in hopes of landing a new production facility took extra care to keep the contents -- and price tags -- of their gifts secret.

"This is an unusual event," Greg LeRoy, executive director of Good Jobs First, told Tax Analysts. "This speaks of remarkable corporate arrogance. . . . It's really a poster child for what's wrong with economic development in America right now."

Nevertheless, the potential payoff for the state selected for the facility is huge: roughly $10 billion in capital development and 8,500 high-skill and high-wage jobs.

Few Packages Assembled in the Open

The bidding war got underway in November when Washington Gov. Jay Inslee (D) signed SB 5952
, an incentive plan passed during a special legislative session. The bill extends numerous tax breaks through 2040 for the aerospace industry -- including Boeing and its suppliers -- and could cost the state $8.7 billion.

The bill reduces business and occupation tax rates for various aerospace manufacturers and suppliers, and it exempts from the state's sales and use tax materials used in the construction of new factories, as well as computer hardware and software for the development and design of aerospace products.

However, after the International Association of Machinists and Aerospace Workers in Seattle turned down a new contract offer from Boeing, the company began soliciting other bids for its planned 777X plant. States including Alabama, California, Georgia, Kansas, Missouri, North Carolina, Pennsylvania, South Carolina, Texas, and Utah were said to be preparing proposals to meet the December 10 deadline.

Missouri is among the states that lobbied hardest. Like in Washington, state officials are required to go to the legislature and pass an incentives bill for the governor to sign. And on December 10, Missouri Gov. Jay Nixon (D) signed SB 1, which offers a huge package of tax incentives worth $1.7 billion over 23 years.

Boeing would be able to retain some withholding taxes, receive refundable tax credits, and divert more withholding taxes for debt service on bonds and the cost of training workers. To realize the full benefits of the package, the company would need to create 8,000 jobs and demonstrate a net positive fiscal benefit to the state, Nixon said.

"Then and only then [is Boeing] eligible to defray the cost of that investment and job creation by keeping a portion of the new revenue they generate," he added. "So it is not like writing a check."

St. Louis County has also approved a local incentives package for Boeing, bringing the total the company could receive from locating its plant in Missouri to about $3.5 billion.

Most Deals Stay Secret

Most states have refused to disclose the special offers they are making to Boeing, and company officials are helping to keep them secret.

"We have started receiving proposals and will begin the evaluation process in the coming days," Boeing spokesman Doug Alder told Tax Analysts. "We are not disclosing any locations or the total number of proposals received."

Although no one is talking about the details of the deals, a Boeing wish list obtained by the St. Louis Post-Dispatchreveals what's likely to be in them.

In a December 5 story, the paper reported on a document it obtained that included a list of desired incentives. On the list was a site and facility at no or greatly reduced cost; infrastructure improvements; worker training; and significant reductions in a host of taxes, including corporate income, franchise, property, and sales and use taxes.

Despite the leak of its requests, Boeing is releasing little information about what offers it has received.

Also, aside from Missouri and Washington, the states in the race are keeping just as quiet as Boeing about the billions of dollars in incentives they're likely offering.

"At this point, all we are saying is that we are submitting our proposal to Boeing today," Mark Maley, spokesman for the Wisconsin Economic Development Corp., said in a December 10 e-mail to Tax Analysts. Anyone seeking more information should fill out an open records request form, and the agency will review it, he said.

Kansas, Missouri's neighbor to the west, also is competing for the plane, but it would not provide details.

"As you may know, we signed a nondisclosure agreement with the company so will be unable to reveal any of the specific incentives offered," Dan Lara, a spokesman for the Kansas Department of Commerce, said in an e-mail to Tax Analysts. "This is a covered exemption under the Kansas Open Records Act. If the company accepts our proposal, and once [it is] signed, [it] would then become public record."

In North Carolina, Commerce Secretary Sharon Allred Decker has said on several occasions that the state is having conversations with Boeing. But a spokesman refused to elaborate.

"The only thing I can tell you is we're always actively recruiting companies to North Carolina," Josh Ellis, deputy secretary for communications and external affairs at the Commerce Department, told Tax Analysts in an interview. "But the Department of Commerce does not publicly discuss which companies we are or are not working with. We're happy to provide that information once a project is publicly announced."

Steven Kratz, spokesman at the Pennsylvania Department of Community and Economic Development, said the Keystone State has also made an offer and will likewise keep it secret. State officials signed a nondisclosure agreement with Boeing regarding the bid, and nothing would become public until the aerospace manufacturer showed it was serious about pursuing Pennsylvania, Kratz said.

Michael Rossi, senior adviser for jobs and business to California Gov. Jerry Brown (D), said his state also made a bid, but he offered no details.

Also providing little to no information are Alabama, Georgia, Utah, Texas, and South Carolina. However, South Carolina is preparing to close on a land deal that would give Boeing an additional 267 acres next to a site where Boeing builds its 787 Dreamliner.

Even in Washington, where the details of the package are a matter of public record, Jason Mercier, director of the Center for Government Reform at the libertarian Washington Policy Center, said the state's process is not truly transparent.

The governor provided only three days' notice for the special legislative session, Mercier told Tax Analysts. The terms of the incentives were not released until midnight on the day of the vote, and there was no opportunity for amendments.

"We went through the motions of having a public process," Mercier said.

Michael Mazerov, senior fellow with the Center on Budget and Policy Priorities' State Fiscal Project, said that secrecy is unfair to taxpayers.

"The public has a right to know," Mazerov told Tax Analysts. "Especially when you put in the tax code something to deliberately incentivize corporate behavior. It results in people who aren't being incentivized paying more tax."

Is Any Package Big Enough?

Even with nearly a quarter of the states vying for Boeing's attention, the company's request for bids may be only a smoke screen to put pressure on state officials and the union in Washington, as industry analysts suspect that few states are real contenders in the company's eyes.

For instance, Richard Aboulafia, vice president of analysis for Teal Group Corp., which analyzes the aerospace and defense industries, previously told Tax Analysts that Missouri couldn't close the deal because of its lack of a deepwater port, inexperience with civilian aircraft, and labor unions.

Scott Hamilton, managing director for the aerospace consulting firm Leeham Co. LLC in Issaquah, Wash., told Tax Analysts that after its experience in Seattle, Boeing will not likely go to another state with a strong machinists' union, such as California, Missouri, or Pennsylvania.

"McNerney hates the union," Hamilton said, referring to Boeing CEO Jim McNerney Jr.

Hamilton guessed that if the plane did not stay in Washington, Boeing would go to either Texas or South Carolina. But he noted that Boeing recently sat down again with the Machinists Union in Washington, and he said it is possible that the plane will stay.

"The industry logic -- the workforce, what makes sense economically, the skill set -- says the plane should be built in Washington," Hamilton said. "And you're hard-pressed to beat almost $9 billion in incentives. But there has to be a face-saving agreement, or the plane is gone."

Jennifer DePaul and David Sawyer contributed to this article.

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