Tax breaks could save Boeing $3 billion

OLYMPIA — What had been a bid for a new Boeing factory became much more yesterday when Gov. Gary Locke raised the stakes and said his proposed big gulp of a Boeing tax break "is about the future of the state of Washington."

It's a future he wants decided soon. The governor gave lawmakers 36 hours to pass the most lucrative tax break in state history, a package that could save Boeing more than $3 billion over the 20-year life of the tax plan, according to the state Department of Revenue.

Officially, it's part of Washington's proposal to win the assembly plant for Boeing's proposed 7E7 jetliner, which would employ 800 to 1,200 workers. The company can only qualify for the tax cuts if it decides to put the 7E7 plant in Washington and follows through on building it.

But Locke argued it's not just 7E7 jobs but existing Boeing jobs that are at stake if the company's next-generation airplane goes elsewhere. Without the tax break and other concessions, Locke said, up to 80 percent of the company's 57,000 Washington jobs could eventually go away.

The special legislative session scheduled to end at midnight tonight is now The Boeing Session. Locke's proposal shook the Capitol like a low-flying 747, stopping all other work and infusing the plan with meaning far beyond where an airplane will be put together.

It also shook up what had appeared to be uniformity among political players backing Boeing.

"The legislative leadership realizes this is about the future of the state of Washington," Locke said.

It quickly became about a lot of other things, too.

"Now it's a business feeding frenzy, it's extortion by the big B, as in business, not just Boeing," said Jeff Johnson, a lobbyist for the Washington State Labor Council. "They want to pile on. It's beyond economics. It's immoral."

Labor's concern is what would happen to non-Boeing workers under another big piece of legislation designed to please the company, a proposed rewriting of the state unemployment-insurance system.

There was criticism from other corners, too. Business lobbyists and some Republican lawmakers said it's unfair to give Boeing such a deep tax cut when others are being told the state can't afford tax breaks.

"We are not going to make the state strong with one employer," said Carolyn Logue, state director of the National Federation of Independent Business. "We have to have a business climate that is not so dependent on Boeing."

Even Boeing lobbyists were reportedly uncomfortable.

Rep. Jack Cairnes, R-Kent, said a Boeing lobbyist told him yesterday the company did not ask for the tax break and is not lobbying for it.

"To their credit, I don't think Boeing asked for this," Logue said. But she said that Boeing doesn't have to ask, or lobby.

Boeing is one of the few businesses in the state, she said, that can get what it wants by threatening to leave the state. Her members, small businesses and sole proprietorships, "can't throw that threat around."

Boeing officials were not commenting yesterday. But the company moved its corporate headquarters to Chicago two years ago, and since then, Boeing executives from commercial-airplanes chief Alan Mulally to the 7E7's chief engineer have bluntly criticized the state's crowded highways, taxes on businesses and environmental regulations.

In March, Boeing announced it would invite states from around the country to compete for the 7E7 manufacturing plant, which could mean the first new Boeing jetliner built outside the Puget Sound area.

State bids for the Boeing plant are due June 20.

The company will not say how many states are vying for the chance. But at least a half-dozen — including California, Texas, Georgia, Alabama and the Carolinas — are expected to offer fierce competition.

The competition is driving up Washington's bid, making some legislators uncomfortable.

"I'm worried about it," said House Appropriations Chairwoman Helen Sommers, D-Seattle. "Boeing is clearly taking full advantage of this situation."

Locke told lawmakers last week that a tax break big enough to make them "gulp" is needed to bring Washington in line with what a consultant's report said were other states' lower business costs.

Even if the Legislature passes this package, there could be more to come.

Locke told lawmakers that other states may try to outbid Washington if it makes it to the next round, said Sen. Dino Rossi, R-Sammamish.

Locke told Senate Democrats "we might have to do more" in the next round, according to Sen. Mary Margaret Haugen, D-Camano Island.

Martha Choe, director of the Department of Community, Trade and Economic Development, confirmed that Locke has talked of a possible bidding war breaking out.

"It's a possibility," she said last night. "But we're trying to avoid that by putting the best possible package forward now."

No one wants to be blamed for Boeing leaving on their watch.

"You better believe that Texas and California and other states are just lathering up and doing whatever they can," said House Majority Leader Lynn Kessler, D-Hoquiam.

The deep tax cut proposed by Locke will save Boeing $134 million a year — and possibly more — when it's fully implemented in 2009.

The biggest savings for Boeing and its suppliers would be a 40 percent reduction in the business and occupation tax, a gross-receipts tax that is the state's major source of business revenue.

The company would pay no sales tax on materials to build the plant. And when completed, Boeing would get all property taxes on the new facility refunded as a credit against its business-and-occupation tax.

Some of the tax cuts would be specific to the 7E7 plant, while others would benefit Boeing and its suppliers in the state no matter what airplane project they were working on.

Locke and others worry that if Boeing builds the 7E7 in another state, it would slowly move other workers and production to the site.

"The 7E7 is an indicator species, a test of our business competitiveness," said Tom Dooley, a lobbyist for the Association of Washington Business.

Locke's Boeing tax-break package came on the same day legislators received a new, detailed proposal from businesses to rewrite the state's unemployment system. The proposal would drop 4,000 seasonal workers from the system, down from the 44,000 in an earlier proposal.

The new plan also contains $40 million over the next four years for retraining and education programs for workers who are dropped from the system, and it extends eligibility to some new groups of part-time workers.

The maximum duration of benefits would fall from 30 weeks to the national average of 26 weeks.

But the new plan also includes more sweeping benefit cuts for most of the state's workers.

It would base a worker's unemployment-benefit check on his or her average wage over the past year, rather than the worker's two best earning quarters. Many workers who work only part of a year, and then file for unemployment the following year, might see reduced benefits.

For businesses, Washington's unemployment-system costs would drop from about triple the national average to about 2.5 times the national average, according to Logue, who called those provisions "huge gives" to labor.

"We're still going to have an expensive system, but it will be less expensive and more fair," Logue said.

It would mean smaller benefits for four of five workers in the state. For an average agricultural worker, unemployment benefits would drop from $234 per week to $181 per week, and a specialty construction worker would see benefits fall from $338 per week to $272, according to an analysis by the Employment Security Department.

A handful of advocates for the working poor held a hunger strike at the Capitol, starting Sunday afternoon, and were joined during the day by about 50 farmworkers and construction workers carrying signs and noisemakers. They were not satisfied with the new unemployment proposal from business.

Another key labor voice, the Machinists union for Boeing workers, was warmer to the new plan.

"If you want to help people, this is how to do it," said Linda Lanham, political director for the Machinists union.

On a third issue key to Boeing, workers'-compensation benefits, Locke called for legislation that would force people to make claims for job-related hearing-loss injuries within two years of the last injury. Current law has no time limit, and people can make hearing-loss claims after their retirement for injuries suffered decades earlier. If the two-year limit passes, the state says it would save $200 million it has already stashed away for hearing-loss claims, plus $14 million a year on future claims for the 160,000 state businesses it insures.

The proposal would also save Boeing money, because its factories have been a historically noisy environment. Boeing will not disclose how much that provision could save.

The breadth and depth of Locke's Boeing tax cuts put some pro-business lawmakers in an odd position.

"If it's good for Boeing and helps them prosper and provide jobs, why isn't it good for everyone?" asked Cairnes, ranking Republican on the House Finance Committee.

He said he and other Republicans will now push for tax breaks for other businesses before the session adjourns tonight.

"The stakes are huge. It'd be impossible for it to be any bigger," Cairnes said. "I think the business climate in this state will be decided the next 36 hours."

Other lawmakers, though, say the Legislature should not be too quick to give Boeing — and other businesses — everything they want just because of the pending 7E7 deadline.

"There has to be a point where enough is enough," said Rep. Hans Dunshee, D-Snohomish.

Staff writers Luke Timmerman and Ralph Thomas contributed to this report. David Postman: 360-943-9882 or