OPINION EDITORIAL

June 1, 2004

Columbian Editorial (Re-posted with permission)

A lesson in milking a cash cow
Boeing’s success in getting tax breaks sets bad precedent

Jason Mercier | Evergreen Freedom Foundation
See that caution flag? The one waving vigorously as NASCAR fights for pole position to receive Boeing-styled state incentives. If you don’t, prepare to subsidize another private industry. Thanks to Gov. Gary Locke’s multi-billion dollar Boeing deal, NASCAR is now revving its engine to be next in line for state handouts, a line that may grow as far as the eye can see.

As for Locke’s Boeing agreement, rather than be the largest jobs boom the state has ever seen, winning Boeing’s 7E7 site selection may result in only 800 to 1,200 Washington state jobs for the three-day per plane final assembly of the 7E7. To make matters worse, since the Boeing tax incentives were passed by the Legislature, Boeing has reduced state employment by more than 4,200 with the prospects of further reductions coming since its current 737, 757 and 767 planes are likely ceasing production.

For all its troubles, the state may end up actually losing high paying manufacturing jobs.

Couple this troubling job news with the fact that Washington will only be producing the vertical tail fin of the 7E7, despite once being the home to Boeing manufacturing. The majority of the manufacturing for the plane will actually be done in Japan, Italy, Canada, Australia, Oklahoma, Texas and Kansas. With such a global production effort, it is difficult to see how three-day assembly and vertical tail fin manufacturing is supposed to be worth billions in state incentives.

Now it appears that Locke’s Boeing deal is being used as a case study for others businesses to get their “fair” share of taxpayer incentives.

Ernst and Young (an international business consulting firm) recently made a presentation to the State Government Affairs Council, a national association for multi-state government affairs professionals, on how to do just this.

Ernst and Young’s PowerPoint presentation entitled, “Turning Your State Government Relations Department from a Money Pit into a Cash Cow,” is an outline on how businesses can obtain government “incentives” just like Boeing did.

Among those heavy hitters Ernst and Young e-mailed this presentation to are Nextel, Best Buy, Alcoa, Goodyear, Wal-Mart, Home Depot, Toyota, Capital One, Bank of America, Bayer, BellSouth, Verizon, MBNA, Microsoft, Coors, Nissan, Anheuser-Busch and Pfizer.

Corporate welfare abounds
Though Ernst and Young’s “cash cow” report quickly acknowledges that taxpayers don’t like corporate welfare, the report offers ways to “provide government with justification” for providing businesses state incentives. Among its suggestions: employers should identify “public benefits” of the projects seeking subsidies, while also making a “but for” the incentives threat.

Sound familiar? These are the exact strategies Boeing deftly implemented here. Case in point: The state’s agreement with Boeing requires Washington to hire a consulting firm paid at taxpayer expense “to conduct a comprehensive economic impact study and analysis of the impacts and benefits [of the project] for the state, its citizens, and its taxpayers.” Regarding Boeing’s “but for” threat, without the billions in incentives it was prepared to locate the final assembly of its new 7E7 elsewhere. Having already driven Boeing’s corporate headquarters from Washington to Chicago, Gov. Locke took this threat seriously.

Ernst and Young also advises businesses that obtain incentives to “control publicity” and “avoid legislation if possible.” Boeing also set the standard on these recommendations requiring that all government press releases and publications concerning the incentives deal be fully coordinated with Boeing. As for the recommendation on legislation, Locke signed off on the Boeing agreement, not the Legislature. For anyone thinking of challenging the state’s concessions to Boeing, the company took care of this also by obligating Washington to “assume the entire defense [for any legal challenge], including all fees, costs and expenses.”

Warning of the fact that states may seek to renege on some of the incentives granted, Ernst and Young again has a poster child in Boeing.

Should legislators get cold feet down the road (especially if Boeing continues to reduce employment) and decide to rescind the tax incentives, they may be restricted from doing so. Gov. Locke’s agreement contractually promises that “the state shall not suspend, revoke, or require repayment” of the tax incentives — jobs or no jobs.

As evidenced by Ernst and Young, businesses are more than willing to use government to run market interference. With Boeing’s resounding success in obtaining lucrative incentives, the pressure to grant government subsidies to even more businesses will only increase.

Rather than turn our state’s depleted coffers into a “cash cow” for private businesses, legislators should strive to improve the economic opportunity for all employers. Tax dollars should never be used to allow state officials to pick and choose the economy’s winners and losers.

Jason Mercier is a budget research analyst for the Evergreen Freedom Foundation, an Olympia-based policy research organization dedicated to free market principles.

Contact: Jason Mercier | Budget Research Analyst | 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