December 19, 2013

Chicago Tribune: Boeing makes sky-high request for states wanting 777X plant

media mention

 

When it comes to corporate incentives, leave it to an aerospace company to test the limits of what will fly.
For those hoping to host production of its newest big jet, Chicago-based Boeing has a wish list that even Santa, his reindeer and all his little helpers would be hard-pressed to lift, let alone deliver on. But that hasn’t discouraged 22 states, including Illinois, from taking it on in a bid to land at least a share of the thousands of jobs connected to the planned 777X jetliner.
What does Boeing want from your state and you?
What doesn’t it want?
Let’s put it this way: Marauding hordes in times of yore could have saved themselves a lot of bloodletting if, instead of invading a community, they sent out a request for proposal outlining what should be laid at their feet in exchange for becoming partners in economic opportunity.
Between Archer Daniels Midland, Sears Holdings, Ford and others, those of us in Illinois are hardly unaccustomed to seeing corporations rattling their cup. But the request for proposal on Boeing’s 777X is an incentive package on rocket fuel.
The company wants its land and facility free or at deeply discounted prices. According to reports in The Seattle Times and elsewhere, Boeing also wants the locals to pick up the tab for whatever infrastructure improvements are needed and a subsidy for the costs of hiring and training new employees.
It wants breaks on whatever corporate income tax, franchise tax, property tax, sales/use tax, business license/gross receipts tax and excise taxes it might otherwise face. It wants assurances there won’t be any delays for permits or environmental impact reports. Capping its utility prices and not springing any new regulations on the company would be really helpful, too.
“They might as well have said: ‘We want the statehouse for our local headquarters, too. Please vacate your office, Mr. Governor,'” said Richard Aboulafia, an industry analyst with the Teal Group. “I mean, why not?”
Lest you think, well, there’s no harm in asking and Boeing can’t possibly expect all that, think again. The only reason this sweepstakes went national is because an impasse with the Machinists union scuttled the package negotiated with Washington state. The value of that deal was estimated at $8.7 billion over 16 years.
So the pitches have come from California to the Carolinas, Alabama to Utah, Texas to Kansas. All told, 54 sites are being considered, according to Boeing, which expects to announce its plan early in the new year. Washington is pushing so hard because it’s Boeing’s historic home and already the production site of the 777 model the 777X will displace.
Some state governments may be growing weary of having to restock the carrots on the end of the stick to keep businesses happy. Recent remarks by Illinois House Speaker Mike Madigan indicate as much, but the cycle continues.
“What Boeing is doing is difficult for the states because no one wants to be the lawmaker who wouldn’t make the deal, the lawmaker who let Boeing go to another state,” said Matthew Gardner, executive director of the Institute on Taxation and Economic Policy, a Washington, D.C., think tank.
“Boeing is playing on all these lawmakers’ worst fears by playing them against each other like this,” Gardner said. “But in Illinois, of all states, the thing lawmakers have to realize is that when a state is so desperately short of revenue, as Illinois is, there’s no such thing as a tax cut. It’s just a tax shift to everyone else.”
Boeing said the project will directly involve 8,500 jobs by 2024, not to mention what may develop peripherally. States were invited to submit proposals covering the entire project at a single site or for scenarios in which the 777X’s giant 114-foot-by-23-foot composite wing is fabricated in one place and the jet’s final assembly is completed elsewhere.
Then there are the needs for a 9,000-foot runway, hangars and easy access to railways and highways. A seaport is also said to be on the list, presumably more important in certain scenarios than others.
Few details are known about most incentive package proposals, but Missouri, where Boeing builds F/A-18 Super Hornet jets and already employs 15,000 people, has made its offer public. The state is dangling tax breaks worth as much as $1.7 billion over 23 years, with St. Louis County offering its own package worth up to $1.8 billion. Missouri Gov. Jay Nixon got unions to commit to construction of a Boeing facility on a 24-hour schedule without overtime pay.
It may be the equivalent of buying a lottery ticket for some states, knowing it’s unlikely their numbers will be called. But skeptical industry observers such as Aboulafia believe this contest is nothing but a play for leverage.
Maybe it gets the company leverage in Washington state negotiations. Maybe it sweetens arrangements for 777X assembly in South Carolina. That’s where Boeing, lured by around $450 million in incentives a few years ago, moved some 787 Dreamliner production to a nonunion plant on land it pays the state $1 a year to lease.
“If this were a clean-sheet-of-paper jet, maybe a completely new location would make sense, but it’s not,” Aboulafia said. “It’s a major derivative of an existing product, and that puts a huge premium on an experienced workforce. … The options are now to say that you acted hastily and to suffer a certain loss of face, and the other is to carry out a plan that’s not in your own rational economic interest.”
For its part, Boeing spokesman Doug Alder Jr. said the company is just trying to cut the best deal, so it can “make sure we’re the most competitive company we can be … and we’re going to continue to make the decisions that keep us competitive.”
Asked if Boeing shared responsibility with the politicians who cut these incentive deals to ensure they prove good investments for the states, Alder said, “Boeing is invested in every community we have a footprint in, and that would not change wherever the 777X may be built.”
But it’s one thing to be in the footprint, another to be under the foot.
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Undaunted, Illinois and 21 rivals compete for share of thousands of jobs linked to project

December 15, 2013|Phil Rosenthal

When it comes to corporate incentives, leave it to an aerospace company to test the limits of what will fly.

For those hoping to host production of its newest big jet, Chicago-based Boeing has a wish list that even Santa, his reindeer and all his little helpers would be hard-pressed to lift, let alone deliver on. But that hasn’t discouraged 22 states, including Illinois, from taking it on in a bid to land at least a share of the thousands of jobs connected to the planned 777X jetliner.

What does Boeing want from your state and you?

What doesn’t it want?

Let’s put it this way: Marauding hordes in times of yore could have saved themselves a lot of bloodletting if, instead of invading a community, they sent out a request for proposal outlining what should be laid at their feet in exchange for becoming partners in economic opportunity.

Between Archer Daniels Midland, Sears Holdings, Ford and others, those of us in Illinois are hardly unaccustomed to seeing corporations rattling their cup. But the request for proposal on Boeing’s 777X is an incentive package on rocket fuel.

The company wants its land and facility free or at deeply discounted prices. According to reports in The Seattle Times and elsewhere, Boeing also wants the locals to pick up the tab for whatever infrastructure improvements are needed and a subsidy for the costs of hiring and training new employees.

It wants breaks on whatever corporate income tax, franchise tax, property tax, sales/use tax, business license/gross receipts tax and excise taxes it might otherwise face. It wants assurances there won’t be any delays for permits or environmental impact reports. Capping its utility prices and not springing any new regulations on the company would be really helpful, too.

“They might as well have said: ‘We want the statehouse for our local headquarters, too. Please vacate your office, Mr. Governor,'” said Richard Aboulafia, an industry analyst with the Teal Group. “I mean, why not?”

Lest you think, well, there’s no harm in asking and Boeing can’t possibly expect all that, think again. The only reason this sweepstakes went national is because an impasse with the Machinists union scuttled the package negotiated with Washington state. The value of that deal was estimated at $8.7 billion over 16 years.

So the pitches have come from California to the Carolinas, Alabama to Utah, Texas to Kansas. All told, 54 sites are being considered, according to Boeing, which expects to announce its plan early in the new year. Washington is pushing so hard because it’s Boeing’s historic home and already the production site of the 777 model the 777X will displace.

Some state governments may be growing weary of having to restock the carrots on the end of the stick to keep businesses happy. Recent remarks by Illinois House Speaker Mike Madigan indicate as much, but the cycle continues.

“What Boeing is doing is difficult for the states because no one wants to be the lawmaker who wouldn’t make the deal, the lawmaker who let Boeing go to another state,” said Matthew Gardner, executive director of the Institute on Taxation and Economic Policy, a Washington, D.C., think tank.

“Boeing is playing on all these lawmakers’ worst fears by playing them against each other like this,” Gardner said. “But in Illinois, of all states, the thing lawmakers have to realize is that when a state is so desperately short of revenue, as Illinois is, there’s no such thing as a tax cut. It’s just a tax shift to everyone else.”

Boeing said the project will directly involve 8,500 jobs by 2024, not to mention what may develop peripherally. States were invited to submit proposals covering the entire project at a single site or for scenarios in which the 777X’s giant 114-foot-by-23-foot composite wing is fabricated in one place and the jet’s final assembly is completed elsewhere.

Then there are the needs for a 9,000-foot runway, hangars and easy access to railways and highways. A seaport is also said to be on the list, presumably more important in certain scenarios than others.

Few details are known about most incentive package proposals, but Missouri, where Boeing builds F/A-18 Super Hornet jets and already employs 15,000 people, has made its offer public. The state is dangling tax breaks worth as much as $1.7 billion over 23 years, with St. Louis County offering its own package worth up to $1.8 billion. Missouri Gov. Jay Nixon got unions to commit to construction of a Boeing facility on a 24-hour schedule without overtime pay.

It may be the equivalent of buying a lottery ticket for some states, knowing it’s unlikely their numbers will be called. But skeptical industry observers such as Aboulafia believe this contest is nothing but a play for leverage.

Maybe it gets the company leverage in Washington state negotiations. Maybe it sweetens arrangements for 777X assembly in South Carolina. That’s where Boeing, lured by around $450 million in incentives a few years ago, moved some 787 Dreamliner production to a nonunion plant on land it pays the state $1 a year to lease.

“If this were a clean-sheet-of-paper jet, maybe a completely new location would make sense, but it’s not,” Aboulafia said. “It’s a major derivative of an existing product, and that puts a huge premium on an experienced workforce. … The options are now to say that you acted hastily and to suffer a certain loss of face, and the other is to carry out a plan that’s not in your own rational economic interest.”

For its part, Boeing spokesman Doug Alder Jr. said the company is just trying to cut the best deal, so it can “make sure we’re the most competitive company we can be … and we’re going to continue to make the decisions that keep us competitive.”

Asked if Boeing shared responsibility with the politicians who cut these incentive deals to ensure they prove good investments for the states, Alder said, “Boeing is invested in every community we have a footprint in, and that would not change wherever the 777X may be built.”

But it’s one thing to be in the footprint, another to be under the foot.

[email protected]

 

 


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