Capitol Alert Breaking

State lawmakers approve tax credit for Boeing and Lockheed Martin

Despite late lobbying from an aerospace industry rival, lawmakers approved expedited legislation Thursday designed to give the state the upper hand in landing subcontracts for a new strategic bomber project.

The California Senate passed a fast-tracked measure to grant $420 million in tax credits over 15 years for the production project involving veteran military contractors Boeing and Lockheed Martin. The measure passed 28-6.

The Assembly quickly followed suit before both houses headed off on a monthlong recess.

Assembly Bill 2389 by Democratic Assemblyman Steve Fox and Republican Sen. Steve Knight, both of Palmdale, is meant to help reverse years of industry decline in California. It would provide a tax credit worth 17.5 percent of wages paid to manufacturing workers.

Knight framed the package as a seminal moment for the state to reclaim its status as the home of the aerospace industry.

“Call it an investment. There is nothing unless we get something,” he said. “This is an incentive plan that we should be behind.”

But critics like state Sen. Ben Hueso, D-San Diego, denounced the pact as corporate welfare, morally wrong and “not the biggest priority facing California today.”

“The opportunity costs in this are just too high for me,” added Sen. Loni Hancock, D-Berkeley, saying lawmakers should prioritize the needs of schoolchildren and infrastructure.

Representatives from Northrop Grumman Corp. have objected to the language of the bill, asserting that it unfairly favored the Boeing-Lockheed partnership by limiting the tax break to a subcontractor. Northrop wanted it amended to allow “prime” contractors. The aerospace industry giants are the only firms in position to secure the contract, and Northrop also has been in negotiations with the state of Florida.

In a hearing earlier Thursday, Northrop officials told senators that they would commit 1,500 new jobs in Palmdale if the firm is awarded the contract – regardless of whether it received the state subsidy. They argued that they never would have sought the break and only entered the discussion because it stood to put them at a competitive disadvantage.

Sen. Kevin de León, D-Los Angeles, said the Brown administration and the companies put lawmakers in a tough position by negotiating for months and leaving them with little time and few options other than to approve the package.

Senate President Pro Tem Darrell Steinberg, D-Sacramento, said he did not like being put in the center of a bidding contest between corporations. But he said that while tax increases are sometimes needed to invest in vital services, the only thing that will sustain that in the long run are high-wage jobs and industry.

He and other lawmakers stressed that they were unwilling to risk losing an estimated 1,100 jobs (750 new and 350 existing) if Boeing-Lockheed does not get the tax credit. In a nod to Northrop, lawmakers pledged to expedite a bill next month that expands eligibility to contractors.

California aerospace production and manufacturing employment plummeted nearly in half from 139,300 in 1993 to 70,800 in 2013, though much of the drop occurred before 2004, according to the Employment Development Department.