California lawmakers OK stealth bomber tax break
Jul. 03, 2014
SACRAMENTO, Calif. (AP) — A corporate battle over a giant Pentagon contract to build stealth bombers spilled into the California Legislature on Thursday, as lawmakers grudgingly rushed through a $420 million tax credit for an aerospace contractor before adjourning for their monthlong summer recess.
The 15-year tax incentive would benefit one of the two major competitors, a joint bid being submitted by Boeing Co. and Lockheed Martin Corp.
That has angered the other bidder for the $55 billion federal contract, Northrop Grumman Corp., which says it cannot offer a low enough bid without a similar tax break. Gov. Jerry Brown, who pushed for the tax credit, and Democratic legislative leaders promised to consider a similar incentive for Northrop after the Legislature returns in August.
Lockheed Martin says the incentive would mean 1,100 California jobs should it win the contract, including 750 new jobs and 350 that would be retained.
But Northrop Grumman said it would create 1,500 new jobs in Palmdale should it win the contract, even without the tax subsidy. A company spokesman said giving the break to Lockheed Martin puts Northrop Grumman at a competitive disadvantage, the situation lawmakers pledged to correct next month.
"Northrop Grumman, California's largest aerospace employer, is extremely disappointed that the legislation passed today in California favors only one aerospace company," the company said in a statement after the vote. "This is a significant blow to fairness in California's aerospace industry."
The bill limits the tax credit to a "subcontractor," which benefits Lockheed as a subcontractor to Boeing. Northrop is its own contractor, so it wouldn't qualify.
The company looks forward to working with lawmakers in August to secure a similar subsidy, spokesman Tim Paynter said. "What we really want is a level playing field," he said.
Brown's office and Boeing declined comment. There was no immediate comment from Lockheed Martin.
The bill, AB2389, passed the Senate with one vote to spare after hours of heated debate in committee and on the floor, as senators complained that they were being asked by Brown to pass the bill with a two-thirds majority just four days after it was presented to them. It had broader support in the Assembly, where it was approved 68-2.
"I feel like this is a jam-job and this is a game of chicken," said Sen. Kevin de Leon, chairman of the Senate Appropriations Committee, which voted to send the bill to the full Senate.
The Los Angeles Democrat said California is competing for the aerospace jobs with Alabama, Florida, Texas and other states, but he wasn't happy about the last-minute process of considering the tax credit.
Yet he and others who voted for it said the gain in jobs would more than offset the subsidy.
Sen. Ted Gaines, R-Roseville, said projections are that there would be a net gain to the state budget of $80 million to $500 million over the life of the tax incentive if the jobs stay in California.
"This measure affects the industry that has helped build California," said Sen. Steve Knight, R-Palmdale, who sponsored the bill in the Senate. "For the last 80 to 100 years, no state, no region in the world has had the impact on aerospace that California has. Now, Dayton, Ohio, can have their bicycle shop, and North Carolina can have the site of the first powered, controlled flight. But California's imprint on aerospace is unparalleled, and today we have an option, an option to move the ball forward, an option to keep aerospace in California, an option to be competitive."
Opponents led by Sen. Ben Hueso, D-San Diego, argued that the money would better go to schools, road construction and other programs that would serve businesses and residents across California. There is no need to give either firm tax-funded subsidies on top of the Pentagon's profitable taxpayer-funded defense contract, he argued.
"There is so much need in our state, and there is so much poverty in our state," Hueso said. "This is just more corporate welfare."