Despite union vote, state's tax incentives keep it competitive

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State lawmakers' quick passage last week of what might be the biggest-ever corporate tax incentive was intended to be one-half of a two-part deal to keep Boeing Co.'s 777X jet production in the Northwest.

Today that $8.7 billion package stands alone. The deal sealer — an extension of Boeing's contract with its machinists — died Wednesday in the union's resounding rejection of a contract that would have fundamentally changed worker pensions.

Now what? The only certainty seems to be that Washington is no longer assured of winning the 777X production or a new carbon-fiber wing fabrication plant. On Thursday, Boeing began exploring its options around the country, while saying it will still consider Washington.

The setback is prompting questions about last week's hastily called special session and where the machinists' vote leaves the state. Here are some of the issues:

Did the Legislature really need to act so quickly?

Technically, lawmakers could have waited for the Machinists' vote and sized up the state's odds of winning the 777X. Gov. Jay Inslee and lawmakers could then have designed a package that might appear competitive with other states — much as former Gov. Gary Locke and the Legislature did in 2003 when Boeing threw open its competition for assembly of its "Dreamliner," the energy-efficient 787.

A few lawmakers voted against the new tax deal, with critics complaining that the rush to passage trampled public-notice requirements and gave short shrift to small businesses that would love to have the same consideration as Boeing.

But Inslee saw this as a unique opportunity - unlike 2003 - to head off the competition before bidding began. Now that Boeing is looking nationwide, the Legislature's pre-emptive action shows that Washington is serious about keeping the 56,000 Boeing and spinoff jobs associated with the 777 lines in Washington, supporters say. It also sets a high bar for competitors to beat.

Isn't the tax deal a big risk for taxpayers?

Democratic Rep. Reuven Carlyle of Seattle and Republican Sen. Andy Hill of Redmond crafted the legislation in a strict way that makes the help for Boeing conditional on keeping the work in Washington.

In exchange for a predictable tax rate through 2040, the company would need to keep its 777X work in Washington and add a cutting-edge carbon-fiber wing plant here. If any portion of the assembly work on the 777X, its descendant jet lines or the wing plant is moved out of state, the tax break for all 777X work goes away.

Also, Senate Bill 5952's tax legislation says a new "significant commercial airplane manufacturing program" must be sited in Washington by June 30, 2017, or the incentive goes away.

If Boeing does ditch the state, some taxpayer money could be lost from the legislation investing more into aerospace worker training. House Bill 2089, which authorizes the new training investments, does not have contingency language tying it to the 777X expansion, according to the state Office of Financial Management. But an angry Legislature can always cut the funding if it doesn't like the results.

But won't the state lose out even if it gets the jobs, because Boeing gets the tax break?

Lawmakers contend the tax incentives will pay for themselves. An analysis done for the state by Seattle-based consultant Community Attributes Inc. says that tax incentives adopted in 2003 for Boeing and other aerospace companies generated about $4 in new tax receipts for every $1 in forsaken tax collections. The new tax breaks are a continuation of those 2003 tax breaks, which would have expired in 2024.

How does this tax package help the state if Boeing is already looking elsewhere?

Inslee contends that by having the package of incentives in hand the state has already positioned itself to compete with any other state. The tax package goes hand-in-hand with the state's long history of building planes, its network of suppliers and a skilled workforce.

"The fact is we could have won this tonight without any competition. That didn't happen," Inslee told reporters late Wednesday. "But we now have a competitive posture in the state of Washington where we are fully ready, able and willing to compete 100 percent to win this airplane based on the strong assets of the state of Washington. And we have strong assets we intend to bring to this competition."

What else can the state do, and what else might lawmakers suggest?

Some lawmakers are suggesting the state needs to do more to weaken unions' clout and to lower state costs for treating injured workers.

Republican Sen. Michael Baumgartner of Spokane said Thursday that Washington should become a "right-to-work state," letting individual workers opt out of unions in workplaces where employees have voted in favor of collective bargaining. But Baumgartner's idea is a political nonstarter and Boeing has not said it needs anything like a right-to-work law to stay in Washington.

Boeing also hasn't called for the state to further reduce costs in the state-run workers' compensation system, which underwent major reforms in 2011.

But the company has listed transportation among its priorities. Inslee said the fact the state is now in competition with other states "should sharpen legislators' attention for the need to accomplish a bipartisan transportation package."

A $12.3 billion transportation proposal emerged from the Senate earlier this week and seemed to be gaining traction, but lawmakers would not say when they might act.