News

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 at least $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 and amending AB 2731, an inactive
Medi-Cal bill she introduced last February. However, on Monday night, Senate
President 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 10 years. They would
also be limited to production of particular planes.

On August 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 its 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 of its current 180-plane order for
the U.S. Air Force (USAF) to Travis Air Force Base in Fairfield on
Wednesday, he said. Besides the 25 C-17s the company owes the U.S.
government, the Australian and Canadian governments have ordered four each.
The United Kingdom has one on order, and plans to buy outright four C-17s it
has been leasing from Boeing.

Boeing has preliminary agreements to deliver an additional three planes to
the USAF, four to North Atlantic Treaty Organization (NATO) and two to
Sweden. The U.S. 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 tanker 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 at least
$4,000 to Karnette; $9,500 to Sen. Alan Lowenthal, D-Long Beach; $35,000 to
Gov. Arnold Schwarzenegger; $65,000 to the California GOP and $25,000 to the
state Democratic Party.

He went on to 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-and-amend on the heels of the
August 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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