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Groundbreaking for new facility to build composites for Boeing 777x

This parking lot will be the site of the new facility where composites of the Boeing 777x commercial airplane will be built as seen during a ground break ceremony on Tuesday, Dec. 16, 2014 at the Boeing Defense tooling center in Berkeley. Photo by Huy Mach, hmach@post-dispatch.com

The state of Missouri will hand Boeing $229 million over 18 years if the aerospace giant grows its current St. Louis-area workforce by 2,000 jobs, according to details of the state’s incentive package.

But the lucrative deal will allow Boeing to pocket millions in state tax money if it just maintains the jobs it already has here. It can even collect some subsidies if some Boeing workers are laid off.

The deal is unusual. It reflects worry that Boeing’s local employment may shrink drastically as major fighter programs wind down later in this decade. It dangles a rich carrot to tempt Boeing to hire more people in the St. Louis area.

“We want them to retain their current employment and create 2,000 new jobs. That’s our primary objective,” said Mike Downing, director of the Missouri Department of Economic Development.

Boeing would collect up to $146 million of the state incentives over 10 years if it maintains employment at 14,500 jobs, which is roughly the current employment in the St. Louis area. The company’s defense unit is based in St. Louis County.

The company would collect a smaller subsidy as long as its job count stays above 12,500. But it would have to give back money if the job count falls below 11,000 any time in the next decade.

State and local governments often pay up to lure lots of new jobs. But paying Boeing to retain the jobs it already provides is “pretty unique,” said Richard Ward, a longtime St. Louis development consultant. “It’s not normal, not frequent. The state is trying to make sure they continue a significant presence.”

If Boeing maintains practically all the current jobs, the company will get a tax credit equaling 20.5 percent of the money withheld from workers’ paychecks for state income taxes, capped at $146 million. In effect, Boeing would pocket a bit less than 1 percent of its local payroll.

The percentage of Boeing’s take would decline as the job count declines, and disappear if Boeing drops below 12,500 St. Louis employees.

To get the job retention subsidy, Boeing would also have to make a capital investment — such as new buildings and equipment — equaling half the subsidy within three years. The company seems to have that covered. Boeing has already begun work on a new north St. Louis County facility valued at $200 million to build parts for the 777X airliner.

A subsidy of $146 million over a decade isn’t much considering Boeing’s size here, Ward said.

“It’s almost a goodwill offering,” he said.

But a second program would provide an extra reward if the company adds 2,000 new jobs. It caps out at $78 million, paid over six years. The subsidy amounts to $39,000 per job.

Under the Missouri Works “Mega 140” program, the new jobs would have to pay 140 percent of the statewide average wage. Currently, $60,800 is 140 percent of the statewide average wage.

The state expects that new Boeing jobs will actually average $86,000 per year. Boeing would have 10 years to start the hiring, and the state could claw back part of its subsidy if some of the 2,000 jobs are later cut.

As the deal is written, Boeing could lay off some workers, then hire 2,000 more, and still get the new-jobs benefit, although it would lose some of the retention money.

Finally, the company expects to tap $4.9 million through a state job retraining program.

Boeing has already announced plans to add about 2,000 jobs in St. Louis. Those include 700 new jobs expected by 2021 to build wing and tail parts for the new 777X airliner. Other Boeing jobs moving here include service work for the F-22 fighter, information technology and research jobs.

COMPETITIVE ENVIRONMENT

Landing pieces of the commercial aircraft business is a “breath of fresh air” for Boeing’s St. Louis operation, said Ward. Until now, Boeing’s St. Louis production has been almost solely military.

It comes against a background of worry about future layoffs. Boeing’s biggest local production lines — the F/A-18, E/A-18 and F-15 fighters — will probably run out of orders later in this decade.

That could put thousands of jobs on the chopping block. Congress last month authorized 15 more E/A-18s — the electronic warfare version of the F/A-18. That should keep the line operating until late 2017, a one-year extension.

Missouri officials hope their deal with Boeing sets up the St. Louis operation to receive other projects as the fighter programs wind down. One of those may be the new Air Force bomber. Boeing is competing against Northrop Grumman for the $55 billion project.

The state of California last summer offered $420 million in tax breaks if Boeing and Lockheed Martin, who are partners on the bid, build the new Air Force bomber in California. Florida this year handed millions of dollars in subsidies to Northrop Grumman to help land more defense jobs for Melbourne, and in hopes of bringing bomber work to Florida.

That points to the reason for Missouri’s deal with Boeing: It’s being lured elsewhere.

“We live in a competitive world, and we have 50 states competing with each other,” said Ward, who runs Ward Development Counsel in St. Louis. “It’s bad, but true. A part of our world.”

The state released details of the subsidies in response to an open records request from the Post-Dispatch. In his offer letter to Boeing, Downing noted that 50 companies in Missouri make aircraft products, employing 17,600 people at an average wage of $105,000.

At $39,000 per job, the new-job subsidy is “not bad compared to other deals we’ve seen,” said Philip Mattera, research director at Good Jobs First, a nonprofit group that studies economic development. But the subsidy for existing jobs is “a lot more problematic.”

He said he’s seen companies demand such subsidies, be refused, and maintain the jobs anyway. It can be “kind of a bluff,” said Mattera, whose organization in Washington is often critical of subsidies to business.

Mattera also dislikes the idea of letting companies pocket part of employees’ income tax withholdings. Part of the benefit if new jobs is the employees’ taxes support schools and other public services. Cutting those tax collections works against a state’s interests, he says.

Downing notes that Boeing’s retention subsidy is less than those granted to GM to maintain jobs in Wentzville and to Ford in Kansas City.

Government incentives are far down the list when companies decide where to build products, development officials say. An available workforce, labor rates, land, transportation and access to customers and suppliers usually rank higher.

But gifts from government can swing a close call.

“Rarely do they cause a deal to happen in the first place. They cause it to happen in the last place,” Ward said.

Government negotiators are often flying blind. They don’t always know what the competition is offering, or how the company views its options.

In an email, Boeing said the incentives “remove barriers to doing business in the state.” They create a “business-friendly environment” that gives Missouri a competitive advantage, the company said.

Part of the subsidies stem from a bill passed in a special session of the Legislature in late 2013. Gov. Jay Nixon called the session when Boeing was seeking a site to assemble the entire 777X, dangling the prospect of at least 2,000 jobs for St. Louis.

Boeing had threatened to move the project out of the Seattle area due to a labor impasse with the International Association of Machinists there. The Legislature passed a $1.7 billion package of tax breaks, and St. Louis County officials approved $1.8 billion more. However, Boeing decided to build the plane in Washington State after machinists there agreed to a new labor contract.

St. Louis County also has offered to abate part of the property taxes the new 777X facility.

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