Latest facts from governor’s contract with Boeing
February 19, 2004
After EFF filed a public records lawsuit against the governor and the Department of Community Trade and Economic Development (CTED), agency staff delivered 250 pages of additional documentation related to the governor's contract with Boeing. Here is our summary of the key information found in those documents:
1. If statements made by the state's 7E7 Project Coordinator Martha Choe are correct, the governor and the state are already in violation of several key provisions of the contract:
• The contract required the governor to issue an Executive Order that details the funding, communications, expectations and management accountability related to the workforce training provision at the time the contract took effect on December 19 (Section 7.3). EFF has requested a copy of this Executive Order, but CTED now claims it does not exist.
• The contract required a copy of all authorizing government resolutions to be compiled and attached (as Exhibit F) to the contract by January 18 (Section 10.2). This exhibit is blank.
• The contract required Opinions of Counsel addressing the legality of the agreement to be furnished (as Exhibit G) when the contract was signed on December 19, with any supplemental opinions attached by December 21. To date, no counsel opinions have been provided for the City of Everett, Snohomish County, Puget Sound Energy and Snohomish County Public Utilities District. There is no opinion that addresses the constitutional issues EFF has identified.
2. The documents confirm that the state is hiring full-time employees to run interference for Boeing in several key policy areas. This contradicts Martha Choe's claims that current state employees will simply add the duties to their current workloads (page 9 of the Legal Questionnaire).
3. The documents provide more information on the Employment Resource Center that taxpayers will build and operate for Boeingdetails that are redacted in the contract exhibits to protect "trade secrets." The state-of-the-art center will be 30,000-40,000 square feet and located within ten minutes of Boeing's manufacturing site. It will be entirely funded by state and federal dollars. Boeing will pay no costs. Boeing and its contractors will have exclusive use of the facility for the first five years, and Boeing will have priority use thereafter. We believe this facility violates the state constitution, which prohibits lending of credit and sole benefits for a corporation.
4. The Port of Everett will "purchase approximately nine (9) acres of land at the Boeing Everett Facility from the Boeing Company and lease back to Boeing for a twenty (20) year term." The Port agrees to waive the leasehold tax of 12.84 percent. In addition, the Port will modify a runway and waive landing fees for the 7E7 and 747-400 cargo plane (page 30 of Legal Questionnaire).
5. The documents show suggestions from the state on how the Port of Everett can avoid a public hearing on the property lease agreement (page 30 of Legal Questionnaire).
6. The documents indicate the Port of Everett may have held secret meetings in violation of the Open Meetings Act. Regarding the establishment of a purchase price and lease payments for the Boeing property, the documents state: "Due to the confidentiality requirement, the Port Commission has not taken formal action to authorize the commitment but there is concurrence that will form the basis for official action." Section 5.2.2 in the contract requires that the lease terms and conditions be acceptable to Boeing (Page 30 of Legal Questionnaire).
7. Responding to Boeing's concerns about the cost of modifying a 747 into a cargo plane, the state agreed to provide non-cash support by working with state universities to recruit drafting and engineering students to assist Boeing in the design and modification work. The modified cargo planes will be used to import large component parts for the 7E7. Students will receive academic credit for their work. The governor amended the contract February 2 after Boeing forfeited the state's offer of funding for the project, but we do not know if the amendment removes student involvement. Martha Choe has stated this provision is removed, but we have not seen details to confirm it.
8. The state will form a private, non-profit Aerospace Futures Board, supported by an executive director and staff. The Board will design and implement a plan for 7E7 production and workforce development, and will direct all state resources committed for employee training. Boeing will approve all organization documents, including its bylaws, and will designate all Board members, including public parties.
According to the documents, "the state is committed to partner with Boeing to develop the board structure and fund the board including operations and an Executive Director position." The state will spend $300,000 from the Workforce Investment Act fund through June 30, 2006. Future costs are not identified (page 19 of Legal Questionnaire). EFF questions the legality of the state funding a private, non-profit board of aerospace employers which is controlled by Boeingespecially since the board will direct the state on how much funding to provide.
9. As mentioned, the governor amended his contract February 2 to eliminate state funding for a large cargo freighter coordinator, a requirement that the state assist in obtaining funds for three cargo planes, and a $5 million state appropriation to assist in modifying a 747. However, the amendment includes a new provision to waive all landing fees in Snohomish County (Paine Field) for 747-400 cargo planes. EFF questions the governor's authority to bind future Snohomish County Commissioners.
Further, the governor ordered the state and CTED to ensure that the "747-400 Large Cargo Freighter is eligible for all benefits afforded the 7E7 program and shall facilitate a low cost operating environment for the aircraft through state tax abatements and other avenues available through the appropriate state and local governments." EFF questions the governor's authority to amend HB 2294 (the $3.2 billion aerospace tax incentives passed last year) without legislative approval.
EFF public records lawsuit: Hearing scheduled for 9 a.m.
on February 27
OLYMPIA, WAThe Evergreen Freedom Foundation (EFF) filed a motion in the Thurston County Superior Court last night to reschedule a hearing on its public records lawsuit against the governor and the state Department of Community Trade and Economic Development (CTED). The Foundation is seeking the release of undisclosed and redacted documents related to the governor's contract with Boeing.
A hearing on the case was originally scheduled for February 20 with Superior Court Judge Richard Hicks, but the Attorney General's office (representing the governor) asked the court to remove him from the case, arguing that he would not give them a fair and impartial hearing. Judge Hicks has a history of upholding and enforcing the state's public records law.
Thurston County Superior Court Judge Christine A. Pomeroy has been assigned to the case.
Despite repeated public statements during the past three weeks that all information related to the Boeing contract has been disclosed, CTED staff hand-delivered 250 pages of additional documents to EFF's office on February 12. The Foundation met with CTED Director Martha Choe on February 17 to discuss disclosure of remaining and redacted documents and determine if it would be possible to avoid proceeding to court. The two sides could not agree on a settlement.
"Legislators are being asked to spend $6 million in this year's supplemental capital budget, and an unknown amount in future budgets, to comply with the terms of the governor's contract," said Bob Williams. "The only problem is, they don't know what they're buying with those taxpayer dollars."
Four legislators, including two members of the House Appropriations Committee, have signed declarations in support of EFF's lawsuit. They are Rep. Marc Boldt, Rep. Lois McMahan, Rep. Tom Mielke, and Rep. Gigi Talcott. Retired State Supreme Court Justice and current gubernatorial candidate Phil Talmadge has also signed a declaration supporting the lawsuit.
"It's unfortunate that we have to go to court to get state officials to release public records about a deal they made with public dollars," said Williams. "The secrecy is unacceptable and outrageous."
What price Boeing?
OLYMPIA -- The fine print in the deal that persuaded Boeing to assemble its new 7E7 Dreamliners in the Puget Sound area has triggered a re-examination of the landmark agreement between Washington state and its signature company.
The state House budget leader recently was stunned to discover financial promises state officials made without consulting her, such as agreeing to build Boeing a worker-training center. An Olympia policy group suggests the deal violates the state's constitutional prohibition against giving gifts to companies. The state auditor also is studying various commitments of state and local cash.
Phil Talmadge, a former state Supreme Court judge, is so confident Washington voters will ultimately view the Boeing deal with buyer's remorse that his criticism of the agreement has become a central theme of his gubernatorial campaign.
"The problem is what's been given to The Boeing Co. is so enormous compared to what it's giving back," said Talmadge, a Democrat. "And it's starting to dawn on people."
Washington, like Oregon and most states, is continually exploring the boundaries of what it can legally do to compete in the increasingly expensive bidding wars to recruit and retain companies.
The offer the Legislature blessed last June featured $3.2 billion in tax breaks for Boeing in the next 20 years. Legislators also granted Boeing's wishes for highway improvements and changes in the state's unemployment insurance system.
The prevailing Olympia sentiment was that the state needed to do whatever it took to persuade Boeing, which moved its headquarters from Seattle to Chicago in 2001, to build its new-generation plane in Washington. Otherwise, legislators feared, the state would risk losing its largest private employer and some 70,000 aerospace-related jobs to other states in the next 25 years.
But legislators weren't involved during the final months of the negotiations that culminated in a signed agreement in December. And they continue to learn more about the terms of the deal as they finish tinkering with the back half of the state's two-year budget.
Gov. Gary Locke insists the state didn't give Boeing everything it wanted. "We said there are certain things we simply will not do and cannot do."
Here is some of the fine print that state and local officials did agree to in private negotiations with Boeing:
The state will design, build and operate a $10 million aerospace worker training center for Boeing and its suppliers. Most of the money is expected to come from federal grants, although the Legislature will be asked for at least $5 million in operations cash.
A team of seven state workers -- two full-time -- will help Boeing expedite permit requests and tax breaks involved with the project.
The Port of Everett promised to build a $34 million dock facility so that Boeing could ship 7E7 parts more directly to the plant from Japan instead of barging them up from Seattle.
Everett agreed to issue project-related permits to Boeing and its subcontractors within 60 days. The state and city also agreed to give 7E7 project-related permit requests higher priority than all other requests -- within the bounds of the law.
The list goes on. The state will add high-occupancy-vehicle lanes along Interstate 5 in the Everett area. Everett's Paine Field will be expanded to handle 747 cargo planes ferrying 7E7 parts. If Boeing concludes it needs more water, sewer, natural gas, electricity or telecommunications, local authorities agreed to expedite such improvements.
The contract also states that all news releases regarding the deal will be run past Boeing and that the state would defend the company against any lawsuit stemming from the agreement -- at no cost to Boeing.
Boeing's team of "coordinators" embedded in the state government is headed by Martha Choe, on temporary reassignment from her $106,000 post as director of the state Department of Community Trade and Economic Development.
Choe said the Boeing deal "sent a signal to the rest of the country" about Washington's commitment to keep and recruit companies. "This was huge. This was a test as to whether the state could keep one of its own homegrown industries. I think it would have been pretty devastating to lose it."
Choe said state officials tried to keep the Legislature briefed on the deal as it progressed as well as they could, given the often-confidential nature of discussions.
Still, Rep. Helen Sommers, D-Seattle, the House's veteran budget chief, said she was startled by details in the contract that promised future state expenditures.
For example, she said, legislators "definitely" should have been consulted on offers to build a worker-training center and to pay state employees to work exclusively on Boeing's project. "I have never experienced this kind of a (privately negotiated) commitment of the state and of the Legislature in my 30 years here," said Sommers. She said she still has questions that need to be answered in the final weeks of the legislative session.
State Auditor Brian Sonntag calls the Boeing deal "unique and unprecedented" and said, "There's more questions than answers at this point."
Sonntag said he will examine all the financial commitments of state and local public money. He has asked the state attorney general for an analysis on the legality of the deal.
Aggressive competition Locke has stated repeatedly during his seven-year tenure that Washington's populist-leaning constitution makes it harder for the state to offer the gifts, perks and incentives other states use to court companies.
Some states have few restrictions at all.
For example, Amarillo, Texas, sent $8 million checks to 1,300 companies across the country in 1994, telling them they could cash them if they committed to creating 700 new jobs in Amarillo.
Some aggressive recruiting tactics come at a political price.
For example, Alabama landed a Mercedes Benz factory in 1994 after offering more than $250 million in incentives, and even agreeing to stick a Mercedes emblem atop a scoreboard in time for a nationally televised Tennessee-Alabama football game. The voter backlash over the taxpayer-funded courtship helped oust Gov. Jim Folsom, but the plant is credited by many economists for expanding Alabama's manufacturing base and attracting a Honda plant to the state as well.
Oregon routinely uses a far broader array of infrastructure financing and economic development tools than Washington. Oregon's Strategic Investment Program offers tax breaks to equipment-laden high-tech companies such as Intel, which has received hundreds of millions of dollars in tax breaks during its expansion in the state.
History influences choices The different approaches by states to corporation-chasing are often rooted in the political tenor that existed when their constitutions were crafted.
For example, the Washington Constitution was written in 1889 -- 32 years after Oregon's -- when the distrust of taxpayer-subsidized railroads was strong.
"The majority of the people in the state were farmers, and they viewed the railroads and barge companies on the Columbia as being greedy, manipulative and monopolistic," said Hugh Spitzer, a constitutional law professor at the University of Washington. "Voters were highly suspicious of large businesses controlling the Legislature."
Spitzer said the Oregon Constitution prescribes milder, less-restrictive guidelines in dealing with companies. He summed up the differences this way: Washington's constitution says the state can't make a gift or a loan and can't lend credit. Oregon's essentially says the state can't guarantee the use of its credit.
Still, Spitzer doubts any constitutional challenge of Washington's new Boeing deal would prevail -- because of the public benefits arguably inherent in the agreement.
The Evergreen Freedom Foundation isn't so sure.
Bob Williams, president of the Olympia-based nonprofit research group, is urging the Legislature to study elements of the agreement he says violate rules against binding public bodies to future expenditures without their direct consent.
Williams' group filed suit against the state last week to try to force the release of all records pertaining to the deal after repeated public disclosure requests resulted in incomplete responses.
"There shouldn't be any secrecy," said Tim Ford, an attorney representing the foundation. "The governor's office keeps maintaining that they have disclosed everything. That is a flat-out lie."
Others want their share Meanwhile, other Washington businesses and industry groups clamor for Boeing-like concessions. The Building Industry Association of Washington recently persuaded a legislator to introduce, half in jest, a bill that would give home builders at least one of Boeing's coveted new perks -- free legal help if they get sued.
Gubernatorial candidate Talmadge argues the state should have received far more commitments from Boeing before granting so many concessions. "We still don't know, neither does the governor or the Legislature, how many jobs the 7E7 program will create in the state."
Lori Gunter, a Boeing spokeswoman, said the 7E7 project will employ at least 800 people to assemble the new Dreamliners, and probably hundreds more for other jobs related to the project. She said actual assembly work will begin in 2006.
Since June, when the Legislature rolled out its big offer, Boeing has cut its jobs in Washington by almost 3,000 workers, to 54,000 -- down 26,000 workers since the company moved its headquarters.
The November issue of Chicago magazine suggested Boeing isn't living up to the economic expectations that led to the $51 million in tax breaks it received to help coax its relocation.
Boeing's presence hasn't created as many jobs or encouraged as many other corporations to relocate as Chicago officials predicted, the magazine asserted. "A little more than two years into it, taxpayers might be justified in suffering some buyer's remorse."
Jim Lynch: 360-867-9503; email@example.com
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