Boeing, Special Sessions, Tax Policy, and Transportation

I’m in Olympia today at the behest of Governor Inslee. He called us in to, in his words:

“I am asking lawmakers to pass a package of legislation that will guarantee that the Boeing 777X and its carbon fiber wing are built in Washington state,” Inslee said at a press conference today where he was joined by a bipartisan group of legislators, Boeing’s Ray Conner, chief executive officer of Boeing Commercial Airplanes. In addition, Machinist union officials Tom Wroblewski, president, Mark Johnson, aerospace coordinator, and Rich Michalski, general vice president, joined the group.

“If we can do this in the next seven days, we can be certain that Washington’s aerospace future will be as bright as its past,” said Inslee.

Ensuring that the next generation of airplanes is built in Washington is a big deal for our economy. The real value in a regional economy is the stuff you export – planes, software, apples, etc. Taking care of each other’s healthcare needs is important, and it creates good jobs, but the money to pay for these jobs isn’t there unless we export stuff and bring money into the region. The package of legislation he’s proposed has three components:

  1. In 2003 the Legislature passed a package of tax incentives for Boeing that ran from 2004 to 2024. The centerpiece of the package was a reduction of their B&O rate. This proposal extends that from 2024 to 2040, the economic life of the new 777x series of planes. You can read the details of HB 2089 here. The bill contains accountability language that ensures that 100% of 777x planes and wings will be constructed here or the reduced rate goes away. The Budget and Policy Center has written about the tax bill and the accountability measures here.
  2. We’re creating 1000 new slots per year at community colleges to ensure we have a workforce capable of building carbon fiber airplanes. This is pretty exciting to me, and is an interesting way to think about competition between states. More on this later. HB 2088, details here.
  3. A not-yet-defined transportation package.

I expect the first two bills to pass in relatively short order, and I support both. In particular, ensuring that we have a competitive workforce is the best investment I can imagine making in our economic future. It’s our core responsibility as a state. Our constitution (thankfully) has a unique feature that precludes us from just giving money away to corporations to entice them here. I’d MUCH rather spend the same amount educating Washingtonians. The partnership with the community college system is exciting and leverages capabilities aerospace companies don’t have to create a better place for all of us.

The transportation issue is much thornier. I don’t think we’re close to an agreement yet, no matter how much you, the Governor and I want us to be. I could be wrong and something could be announced today; I’m not the chief negotiator on this project. Several bad things will happen if we do not take action relatively soon.

  1. The 520 bridge project will run out of money and work will cease. This will, in addition to the delay, cause us to either lay off most of the engineering staff and have to attempt to rehire them when the project starts up again or keep them on staff at expense we don’thave the funds to cover.
  2. Transit in King County will take about a 17% reduction. Here’s a paragraph I just received in email from Kevin Desmond, the director of Metro.

Metro may have to eliminate, reduce, or revise more than three-quarters of our bus routes to close the budget gap. We’ve analyzed the transit system using objective data, and used our service guidelines as the basis for a proposal to cut our service. Over the next few months there will be many opportunities for you and your communities to learn about the proposed changes to the system. You can find details of the proposed changes on our website at www.kingcounty.gov/metro/future.  The website has a link to a survey and a calendar of public meetings and community outreach events where you and your constituents can speak with us directly about the proposed cuts.

  1. Seattle was recently ranked as the 9th worst congested metro area in North America. This causes immense time wasting and is one of the biggest criteria for business location. Boeing remains concerned about our commitment to effective transportation. http://scorecard.inrix.com/scorecard/default.asp

The issues look to me like this:

  • Senator Tom and the Republicans in the Senate want to take money away from “other things” to spend on transportation instead of raising revenue. In particular they are proposing exempting transportation investments from the sales tax and repurposing money that would otherwise have been spent on cleanup of toxic sites . This sounds great until you realize that this causes other things not to happen, and that you care about the other things.
    • The general fund reduction (anywhere from $25 to $250 million per year depending on what you count) that happens by exempting transportation projects from the sales tax has to be made up, as we are still significantly short of the money necessary to fund the McCleary decision for public schools. I’m not interested in cutting school funds to pay for roads, then having to raise taxes to pay for schools.
    • The toxics money was voted in by initiative to generate enough cash to pay for environmental cleanups. A lot of cleanups still need to be done to comply with the federal clean water act. Many of these are also superfund sites. Cutting here results in raised taxes in the future to pay for the cleanup projects we already have money for.

It’s a fantasy to believe you can create significant new infrastructure without paying for it, and hiding the problem by playing 3-card Monte with funding streams doesn’t improve the situation.

  • Coming to an agreement on how much gets spent on which projects is difficult, plus the basic tradeoff between maintenance and new investment. For every lane-mile of state road there is a certain maintenance cost, and an eventual replacement cost. Think about this like the cost of replacing shingles on your roof and eventually having to replace it completely. You can’t own a house without planning for these costs.

Unfortunately the last transportation package used the stream of money from the gas tax increase to build a bunch of new roads, but didn’t set aside enough to pay for ongoing maintenance.  New roads and bridges are fun stuff for legislators – they (we) get to have press conferences and photos in the newspaper cutting ribbons, etc. Paying to catch up on our maintenance costs isn’t nearly as much fun, especially if you have to raise the gas tax to do it. Not doing so causes significant cost in the future when the roads have to be rebuilt instead of resurfaced. We are reaching this point on I-5 through Seattle.

  • The 520 bridge needs another $1.4 billion to complete the current plan. We should finish the projects we’ve started before doing new ones. We saved hundreds of millions by starting the construction on the Eastside once we had enough money to do those sections, but we still need about $1.4 billion to finish the project on the Westside. The new bridge will get connected with the current money, but the messed-up interchange at Montlake will rob us of all the new capacity and it might even be worse than it is now. The whole goal with this bridge was transportation throughput improvements in addition to the safety fix. When finished we expect it to reduce the transit travel time (at afternoon peak) from Redmond to Seattle by 45 minutes, a 50% reduction in time sitting on the bus instead of eating dinner at home.

I’m having a hard time imagining how any Eastside legislator could vote for a transportation revenue package (these come along about once per decade) that didn’t finish this project.  $1.4 billion is about what you get when you bond the revenue from 3 cents of gas tax, so it could be as much as a third of the overall package in this project alone, if you assume about a 10 cent gas tax increase. Without the Eastside votes it’s hard to see how something passes.

Balancing all these priorities and getting to 50 votes in the House, and 25 votes in the Senate will be difficult. The Senate is probably the harder nut to crack as we have to convince enough of the Republican Senators who won’t vote for a gas tax increase that they should allow it to come up for a vote. I don’t see this happening in the next 3-4 days, though I can imagine it happening in the 2014 session starting in January.

 

 

About the Author

Ross
I am the Director of the Department of Early Learning for Washington State. I formerly represented the 48th Legislative District in the State House of Representatives, chairing the Appropriations committee and spent many a year at Microsoft.