By Dick Miller
WE.CONNECT.DOTS: If you think our nation looks silly building new stadiums for pampered NFL billionaires, watch the roll-out of Boeing’s new aircraft plant. This story explains why our lack of a coherent economic development policy contributes to the sluggish recovery from the Great Recession.
Mind you, Boeing officials play this scenario out under the guise of “free market,” laughing all the way to the bank.
The “777X” is Boeing’s newest family of twin-aisle airplanes that build on the passenger-preferred and market-leading 777, according to the airplane manufacturer’s web site. The 777X will be the largest and most efficient twin-engine jet so far, with 12 percent lower fuel consumption and 10 percent less operating costs than any passenger flying machine on the market today.
Boeing launched the 777X in November at the Dubai Airshow. Four customers placed advance orders for 259 of the new models. At $375 million each, Boeing has booked almost $100 billion in sales of the 777X. Manufacturing would begin in 2017 and first deliveries should happen in 2020.
Manufacturing “somewhere,” and herein lies the tale of the great race.
Boeing began soliciting proposals for a new plant recently when the machinists’ union rejected an eight-year extension of a labor contract that replaced a defined benefits pension plan with a defined-contribution savings retirement program. Labor concessions would have kept manufacturing of the new model in Boeing’s home state of Washington.
Boeing has elected to use the labor issue to give us all a chance in a sweepstakes that could net a region 8,500 new jobs. Very simply, Boeing estimates the new plant will cost over $10 billion and asks various governors how much their taxpayers will cough up to land all these new jobs.
The $10 billion covers 4.2 million square foot factory, infrastructures, training new hires to replace obstinate union machinists and anything else Boeing shareholders can rip from taxpayers. Boeing says it also must be near rail, highway, air and seaports on free land.
New manufacturing plants are a seller’s game. Any company promising such projects can select among state governments willing to do almost anything to be the host.
Much of the bidding will take place behind closed doors. States used loosely connected economic development corporations to prepare and submit the offers. This tactic skirts public-right-to-know rules, which, of course, all governors promised to obey when running for election.
Even Washington State remains in the running. Lawmakers there have authorized $8.7 billion in aerospace business and tax incentives to keep Boeing manufacturing where most of its manufacturing has always taken place.
Pennsylvania has joined the high-stakes competition and may have already submitted a confidential proposal, according to the Pittsburgh Post-Gazette. Gov. Corbett is no stranger to competition over big plants. Last year, writes P-G reporter Mark Belko, the Keystone State beat out West Virginia and Ohio “for the Shell Oil Co. ethane cracker plant, constructed in Beaver County.” Shell has yet to make a final decision, but Corbett offered tax credits of $66 million annually over 25 years.
Indiana, Illinois, Alabama, Missouri, California, Georgia, Kansas, Wisconsin, Texas and Utah also want the project. Some emphasize their state is “right-to-work” which impedes unions from effective collective bargaining.
The majority of the serious states have Republican governors. This competition fits well with their scheme of reducing taxes for businesses over individuals and cutting services to make up for lower revenues. Obviously, every time some business gets a tax break or another government “goodie,” the rest of us must pay more.
Other than the creation of the jobs, the region sees no other direct benefit for decades. Already many Act 47 communities in Pennsylvania are replete with new manufacturing facilities, all in “tax-free” zones. They pay no real estate taxes for at least a decade, plus other benefits not available to the long-standing local companies who remain and slug it out against all odds.
Bottom Line: In Pennsylvania, Corbett desperately needs the Shell cracker plant and any other big employer to improve his re-election chances in 2014. How does a state continue to afford massive business tax breaks? In the days when at least a shred of common sense prevailed, we knew that if someone paid less, then the rest of us paid more.
No other industrialized nation permits this type of competition for jobs among its states or provinces. Elsewhere, national governments do negotiations for bigger deals – ones that involve thousands of jobs.
