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Boeing Tax Break Goes Down

An end-of-session effort to pass a tax break for Boeing died quietly Monday night. But the bill’s sponsors have vowed to bring back similar language next year.

Assemblywoman Betty Karnette, D-Long Beach, introduced a measure last Thursday that would have given about $100 million in tax breaks to the airplane manufacturer. The bill was an effort to keep open the company’s Long Beach plant, which employs 5,500 workers.

“I won’t stand by and watch thousands of jobs leave my community and my state,” Karnette said. “These tax credits will help make Boeing competitive with Airbus and help the City of Long Beach hang on to thousands of high quality jobs that provide working families with a living wage.”

Karnette got the bill into play by gutting an amending AB 2131, an inactive Medi-Cal bill she had introduced last February. However, on Monday night, Senate Pro Tem Don Perata, D-Oakland, ordered that a bakers dozen of gut-and-amend bills be taken off the floor. In the case of the AB 2731, Perata refused to allow an exception to the rule that the gutted bill would have to go back through the Senate Revenue and Taxation Committee, effectively killing the measure.

This was confirmed by Mike Arnold, lobbyist for the city of Long Beach, which convinced Karnette to carry the measure. He said he was “hopeful” that the idea would be revived next year. He also noted that the bill was written so that Boeing would have to reduce their government bid by whatever tax credit they stood to gain from the state.

The bill called for credits of up to $10,000 per worker, though these were likely to be capped at a total of $100 million over ten years. They would also be limited to production of particular planes.

On Aug. 18, Boeing announced that it would have to close its immense Long Beach facility by mid-2009 if it did not get any new orders for the C-17 transport plane that is built there. Boeing is the largest private employer in Long Beach.

“We absolutely welcome what the city of Long Beach is doing to help secure any kind of future in Long Beach,” said Gary Lesser, a spokesman for Boeing.

However, Lesser would not say whether the tax package would allow the plant to stay open longer. The Long Beach plant produces about 15 of the gigantic C-17s per year.

The plant put about $3 billion into the California economy in 2005, Lesser said. Much of this has to do with the network of over 300 direct suppliers, employing around 12,000 people in-state, he said. Each plane has several million parts, with a necessary production lead time of 34 months. In recent months, Lesser said, the company has spent about $100 million keeping it’s supply chain active in anticipation of new orders.

“We are no longer willing to risk considerable funds on airplanes that aren’t committed,” Lesser said.

The company will deliver the 155th plane on its current 180-plane order for the U.S. Air Force to Travis Air Force Base in Fairfield on Wednesday, he said. Besides the 25 C-17s the company owes the U.S. government, the Australia and Canada governments have each ordered four. The United Kingdom has one on order, and plans to buy outright four C-17s it has been leasing from Boeing.

The company has preliminary agreements to deliver an additional three planes to the U.S.A.F., four to North Atlantic Treaty Organization (NATO) and two to Sweden. The US government pays approximately $174 million per plane on a bulk order agreement, while other governments pay more per plane on smaller orders.

However, Karnette also considered an amendment that would limit the tax breaks to a plane that does not yet exist, the KC-X tanker. The government is still working out specifications on its next generation mid-air tanker, but the idea behind the amendment would be to draw tanker production to Long Beach.

But another Boeing spokesman, Bill Barksdale, said that KC-X production would take place in Washington, near Seattle. That’s where they company builds the commercial 767 and 777, the platform on which its taker would be based. It is currently seeking to beat out a consortium of Northrop Grumman Corp. and Airbus SAS to win the contract for 189 mid-air refuelers.

Meanwhile, government watchdogs have criticized the effort of putting through such a large tax credit at the end of a two-year legislative session.

“Presumably they’ve been thinking about this for more than the last week,” said Ned Wigglesworth, a policy analyst for California Common Cause.

Wigglesworth noted that while Boeing did not appear to have any major ramp-up in terms of political giving in recent months, it is a major donor in California. Since 2000, he said, the company has given nearly $600,000 to California parties, politicians and committees. This includes $5,500 to Karnette, $13,500 to Sen. Alan Lowenthal, D-Long Beach, $35,000 to Gov. Arnold Schwarzenegger, $75,000 to the California GOP and $30,000 to the state Democratic Party.

He went on the criticize California’s gut-and-amend process, saying that it does not allow proper scrutiny. While the impetus for the bill came from Long Beach, not Boeing, he called the gut-an-amend on the heels of the Aug. 18 announcement “convenient timing.”

“Passengers on a Boeing airplane would not have much confidence if they knew the design was changed last minute to satisfy a supplier,” Wigglesworth said. “California voters should feel the exact same way about the gut-and-amend process. The notion that this is a good way to fashion public policy just doesn’t fly.”


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