What Exactly Should Wash. State Get From Boeing In Exchange For Tax Breaks?
Washington state is facing an “enormous budget challenge,” according to Gov. Jay Inslee, who has proposed creating a tax on capital gains and another on carbon pollution.
But wait a minute, didn’t lawmakers pass what’s been called the biggest tax break in U.S. history just a year and a half ago? What are we getting in exchange for those tax dollars we’ve chosen not to collect from the aerospace industry?
The extension of the tax breaks came during a three-day special legislative session in November 2013. Inslee announced the session on a Tuesday, the legislature started meeting that Thursday, and by Saturday, the lawmakers had approved tax incentives estimated to be worth $8.7 billion over 16 years. (See a visual breakdown of Washington's tax exemptions here.)
The whole aim was to persuade Boeing to build its next wide-body jet, the 777x, in Washington state.
“We are in a position to reverse the outflow of jobs from the state of Washington,” Inslee said, as quoted in a KING 5 report from that time.
State Says Those Tax Breaks Turn Into Tax Dollars
The reason why it’s so important to keep those jobs from leaving the state is that they’re critical to Washington’s economy and its tax system. State officials say we actually gain more in state and local tax dollars than we give up through tax breaks.
To see how, I accompanied Boeing employee Tony Hickerson to a Best Buy store in Tukwila. He was shopping for a new flat-screen TV.
Hickerson, who designs military aircraft parts for Boeing, has worked for the company for about 27 years.
Being a technical guy, he peppered the salesperson, Jessica, with questions about the relative merits of 60Hz and 120Hz models, how many HDMI ports the machines come with, and whether it’s better to buy a center-lit or edge-lit TV. After much consideration, he made his way to the register to purchase a 40-inch Sony TV, a wall mount, an HDMI cable, a phone charger and some movies. The grand total was $498.14. Sales tax came to $43.21.
Hickerson is aware of the power of his dollars. He tries to shop in person and at local businesses.
“I’m really into promoting jobs in my community,” he said.
Doing The Math: Tax Revenue Vs. Tax Breaks
So if you add up the taxes paid by 80,000 Boeing employees plus all the other workers they support (people like Jessica, the Best Buy clerk), plus business taxes from Boeing suppliers, it means a lot of money for the state.
It’s more than double the amount of the tax breaks. According to an analysis by Community Attributes Inc. for the Washington Aerospace Partnership, the estimated taxes the state will collect during the 16 years covered by the tax break extension (2024-2040) total $21.3 billion — more than twice the estimated $8.7 billion the state will lose in revenue under the tax incentives.
And aerospace jobs ripple out through the economy. Each aerospace job supports 1.9 other jobs in the state's economy, according to Community Attributes.
Those jobs include “people in fabricated metal, people that make textiles or work with textiles to do the upholstery for the seating, could be computer suppliers, could be vendors,” said Chris Mefford, president and chief executive of Community Attributes.
Ripple Effects Of Aerospace
Then there are other jobs supported by aerospace, known as “induced jobs,” like the Best Buy clerk or a pizza delivery guy.
“There’s a gain to the state of having Boeing here, absolutely. They bring dollars into the region because of the high dollar value of what they export,” Mefford said.
Still, since the tax break extension passed, Boeing's headcount in the state has shrunk by 3,000 jobs.
Mefford says we haven't felt much impact because the company's booming sales have benefited suppliers.
But that's little comfort for Boeing's two biggest unions, especially the Society of Professional Engineering Employees in Aerospace. That's because the cuts mostly affect engineers and technical workers as Boeing shifts work to other states such as Missouri, Oklahoma, South Carolina and California.
Union Push To Toughen Tax Breaks
On a recent night, members of SPEEA and the Machinists' Union were working the phones, calling other members to rally support for bills they’re pushing in Olympia. One bill aims to lift aerospace wages. The other would require Boeing to boost its headcount back to about 83,000 — the size of the company’s workforce at the time the tax breaks passed — in order to qualify for the full incentive.
Chelsea Orvella, legislative director for SPEEA, helped draft the bill that would claw back some of Boeing’s tax break. She said she was reminded of the importance of that effort when she recently spoke with a union member.
“He said, 'I just got laid off on Friday. I just want to know if any of these measures could get my job and the people around me’s jobs back,’” she said.
Tying Tax Breaks To Job Creation
Orvella says it’s time Washington catches up with states like Missouri and South Carolina that set tougher requirements on companies seeking tax breaks.
“We’re seeing more and more states [that] are tying tax incentives to very clear requirements of creating good jobs in those states,” she said. “And now, we’re watching a lot of jobs from here go to those states.”
Boeing declined to be interviewed for this story. But Boeing executive Bill McSherry, in a recent testimony in front of a House finance committee, said the company is holding up its end of the bargain by moving ahead with the 777x program in Everett.
“Changing the incentives now, after waiting until Boeing has already invested more than a billion dollars to deliver on our 777x promises, threatens to undermine not only our trust in the state but the confidence of all businesses here and those looking at coming here that Washington will honor its commitments,” McSherry told House lawmakers.
McSherry said there are several reasons for the recent job cuts, including pressure on defense spending.
But he said you have to look at the big picture. Since the tax breaks were first created in 2003, the company has added more than 25,000 jobs in the state.
'It Was A Negotiation'
Still, keeping jobs here was top of mind as the state crafted the tax incentives. Alex Pietsch, director of aerospace for the state of Washington, says lawmakers tried to make the tax deal contingent on maintaining or growing jobs.
“Those were ideas that we had. Those were things that we wanted. But at the end of the day, it was a negotiation,” he said. “I mean, the essential element was that the 777 and its wing get built here, so when we were negotiating with the company, they simply were not willing to accept those [other] terms.”
Pietsch says the state was able to put in some protections, for example, requiring that the company build the 777x and its wing here and only here. But he says even that was hard-fought.
Still, Pietsch says the fact that that plane will be built here guarantees a longer life for Washington’s aerospace industry because other Boeing programs like the 747 are winding down.
“Winning this work restored people’s faith in Washington as the aerospace capitol of the world,” he said.
'It's Like A Bad Relationship'
That doesn’t reassure Boeing workers who have lost their jobs or are facing that prospect.
After purchasing his TV, Tony Hickerson climbed into his Pontiac to chat with me.
That’s when I learned that Hickerson is going to lose his job. He’s not sure exactly when, but he says the program he works on, the Airborne Warning and Control Systems (AWACS), is being moved to Oklahoma. It’s part of a broader shift of some Boeing defense work out of Washington state as part of a move announced last fall.
“My job has already been moved and somebody’s going to be hiring into that job, and then I’ll be let go,” he said.
Hickerson says he could have opted to do his job in Oklahoma for a 31 percent pay cut. Instead he’s chosen to stay here.
Boeing declined to specifically address that 31 percent pay cut calculation. In a statement, the company said: "Company benefit packages and costs vary by region, employee choices and cost share between the company and employees."
Hickerson is currently working on getting the aerospace tax breaks toughened. He says this is what happens when a place gets too dependent on one giant corporation.
“I mean, they pretty much have the power to control local decisions and everything. And every time you say we want to do something, they say, 'Well, I’m leaving,’ and everybody goes, 'Oh, please don’t leave,’” Hickerson said. “It’s like a bad relationship.”
Hickerson says he’s trying to stay positive and figure out what his second act will be at age 54. He’s thinking about becoming a nurse.
But buying big-ticket items like a TV may be a little tougher once his job disappears.
Editor's Note: We're taking a closer look at Washington's tax system through a week-long series. This is the third installment of “Where’s the Dough? On the Hunt for Washington’s Missing Tax Dollars." The first installment explored the history of the state's tax system, and the second story took a closer look at the efficacy of tax exemptions.
In the next installment in our series, we'll explore how tax breaks are not just for the big and powerful.