POLICY HIGHLIGHTER

Volume 14, Number 15
July 2, 2004

Deloitte's "independent" 7E7 Economic Impact Study

One of the state's many contractual promises in the multi-billion dollar contract with Boeing is a state funded, "independent" Economic Impact Study analyzing the impacts and benefits of the 7E7 Project.

Section 3.5 of the contract states: "The State shall retain a qualified, reputable, experienced, independent nationally recognized consulting firm to conduct a comprehensive economic impact study and analysis of the impacts and benefits of Project Olympus [7E7] for the State, its citizens and its taxpayers. . . . The study and analysis shall be completed at no cost, expense or charge to Boeing."

The analysis was released last week, indicating 8,000 to 24,000 jobs will be created in Washington state as a result of the Boeing agreement. The "independent" firm the state contracted the $30,000 project to is Deloitte, the same company that helped draft the contract and assisted in securing billions in tax incentives for Boeing. Deloitte's parent company is Boeing's auditor. This can hardly be considered an "independent" impact study.

In May, the Evergreen Freedom Foundation (EFF) requested a copy of the contract with Deloitte, but has yet to receive it. (EFF is forced to comply with Judge Pomeroy's order that all requests for Boeing contract-related material must go through the attorney general's office first so it can determine whether the requests are acceptable.)

In March, the 7E7 Project Office, run out of the state's Community Trade and Economic Development office (CTED), told the Seattle Weekly it, "cleared the selection of Deloitte Consultants LLP through the state attorney general's office." But a week after that Seattle Weekly story ran, the attorney general's office stated it did not review or advise on the contract with Deloitte.

In response, Michelle Zahrly, spokesperson for then-7E7 Project Coordinator Martha Choe said, "I really couldn't say if the AG's office saw or cleared a given contract. All primary contracts are approved by their office. Subcontracts are approved by the state agency that holds the contract. Martha Choe, as director of CTED, would likely have approved the sub. I think Martha's [earlier] statement answers your question about whether CTED sees a conflict."

The irony continues in Deloitte's disclaimers on this "independent" study:

All information contained in this report is the sole representation of the State of Washington and Boeing. The financial information and analysis herein does not constitute an examination of compilation of prospective financial information, nor a fairness or solvency opinion in accordance with standards established by the American Institute of Certified Public Accountants. Accordingly, we express no opinion or other form of assurance on the market or financial feasibility of the proposed development or upon the financial information and analyses contained herein. . . . We cannot confirm or warrant the completeness or accuracy of the information provided by these sources [Boeing and State of Washington].

The disclaimer makes it difficult to have confidence in Deloitte's estimates that 8,000-24,000 Boeing-related jobs will be created based on a multiplier effect. Regardless, if such a positive multiplier effect for each Boeing job truly exists, a similar reverse effect must also be true. Since the legislature first passed the Boeing incentives last June, the company has reduced 4,237 jobs in our state. Using the same multiplier, this means nearly 10,000 Boeing-related jobs should have been lost.

This is clearly not the case. For the four counties highlighted in the Deloitte 7E7 study (King, Pierce, Skagit, and Snohomish), overall employment has actually increased by 65,580 (May 2004 over May 2003).

Overall county employment numbers

Source: Employment Security Department 6/25/04 2:57 p.m.

How could this be true? Well, the economy is not static, and business cycles are real. Over the past decade, aerospace's share of the state's overall economy has decreased, while statewide employment has increased. Government's attempts to predict or manage the economy by picking winners or losers is an expensive folly. The questions that must be asked about the state's Boeing agreement are:

1) What could have been "purchased" with the funds promised to Boeing?

2) Since business cycle downturns always spawn new businesses and increased productivity in most existing businesses, how much loss has the state encouraged by its agreement with Boeing?

The proper role of government in the realm of economic growth is to "do no harm," not to "tax and bail."

Prepared by: Bob Williams | President | 360-956-3482

Evergreen Freedom Foundation P.O. Box 552, Olympia, WA 98507 Phone: (360) 956-3482, Fax: (360) 352-1874 Email: effwa@effwa.org