Should Washington keep aerospace tax incentives?

Should Washington keep aerospace tax incentives?
A preliminary report by Joint Legislative Audit & Review Committee (JLARC) is recommending the legislature clarify its expectations for a set of tax incentives for the aerospace industry. Photo: freepik.com

In 2003, the state legislature approved a package of tax incentives related to the aerospace industry to ensure Boeing would produce its 787 in Washington. It later extended and expanded those tax incentives in 2013 to secure Boeing 777X production. A new preliminary Tax Preference Performance Review by the Joint Legislative Audit & Review Committee (JLARC) concluded that although those incentives have achieved most of their objectives, the legislature should clarify its expectations.

The reason: Although the incentives have clearly reduced production costs and aerospace remains a top industry in Washington with higher-than-average workers’ wages and benefits, it’s unclear to what extent the incentives have helped preserve the industry workforce, which has decreased in recent years; however, the workforce size is higher than it was in 2003.

Perhaps affirming the legislature’s decisions in 2013 were scenarios considered by JLARC and presented at an August 1 meeting of the Citizen Commission for Performance Measurement of Tax Preferences, estimating the economic impact if the tax incentives were extended. All but one offered a dark outlook for the state.

Under the 2013 package, there are nine total tax incentives that include:

  • Three preferential business and occupation (B&O) tax rates;
  • Two B&O tax credits;
  • Two sales and use tax exemptions;
  • One property tax credit; and
  • One leasehold excise tax exemption.

Altogether, they are expected to offer beneficiary savings of $569 million in the 2021-23 biennium. However, while Washington’s aerospace workforce has grown since 2003 by 38 percent, since 2013 the numbers of jobs has fallen by 8,800 – the largest numerical decline in the U.S. At nine percent, it’s the second largest decrease among 14 states with at least 10,000 aerospace jobs.

Yet, JLARC Research Analyst Zack Freeman said there are other factors at play that could be contributing to the decreased workforce. Productivity in the aerospace industry per employee has increased by 83 percent between 2003 and 2018 from $565,000 in 2003 to more than $1 million in 2018.

While proponents of the tax incentives would argue that these tax incentives kept Boeing production from moving elsewhere, Freeman noted there are other elements such as transportation infrastructure, available skilled workforce and the state regulatory environment that can influence those decisions.

At the same time, three scenarios outlined by JLARC Research Analyst Pete Van Moorsel offered Back To the Future-style hypothetical alternative timelines in which the 2013 tax incentives were not approved.

Had Boeing chosen to place its 777X production elsewhere, it would have moved 12,100 jobs, 17 percent of the 69,00 total Boeing jobs in Washington as of this year. By 2040, the total aerospace employment in Washington state would have been reduced by 13,800, while state and local government jobs would have been reduced by 8,700. Another 49,000 private sector jobs would have been eliminated as well, for a total of 71,600 jobs lost.

However, one scenario had Boeing relocating not only its 777X production but all future airplane production outside the state. If that happened, JLARC estimated that by 2040 68,000 aerospace jobs would have lost, along with a whopping 241,600 private sector jobs. Another 54,500 state and local government jobs would have been cut, too.

Currently there are 136,100 aerospace jobs in the state, according to Choose Washington.

Under the most optimistic scenario, Boeing would have kept its 777X production in the state; 200 aerospace jobs would have been due in response to increased production costs, while the additional state revenue would lead to the creation of 3,100 state and local government jobs. Private sector employment connected or affected by the aerospace industry would have grown by 4,700.

The entire JLARC report will be released in October.

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