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Originally published October 2, 2013 at 2:26 PM | Page modified October 3, 2013 at 6:52 PM

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Inslee wants aerospace tax breaks extended if Boeing builds 777X here

Gov. Inslee wants to extend the state’s aerospace tax breaks and other incentives to 2040, if Boeing agrees to build the 777X wing and assemble the plane here.

Seattle Times aerospace reporter

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Gov. Jay Inslee said Wednesday he’ll propose extending the state’s aerospace incentives through 2040 if Boeing assembles the 777X and fabricates its composite wings in Washington.

He also said he has formed an advisory group to address an environmental issue — water-quality regulation — that’s got Boeing worried about rising costs at its Renton plant on Lake Washington.

Inslee spoke at a gathering of aerospace industry executives in Everett, where the main item on the agenda was competition from other states for aerospace business.

“These states want what we have and they are going after it aggressively in ways we can’t do,” said Matt Yerbic, chief executive of Everett-based aircraft-maintenance and repair company Aviation Technical Services (ATS). “It’s all about jobs.”

The state’s aerospace incentives, including substantial tax breaks, were introduced 10 years ago to persuade Boeing to assemble the 787 Dreamliner here. They are to expire in 2024.

All aerospace companies in the state benefit from the incentives, though Boeing has drawn by far the biggest share.

Inslee told the state’s annual Aerospace Summit that the tax incentives “have been tremendously successful for Washington’s citizens.”

Drawing on an analysis released Wednesday, he said $1.4 billion in industry tax savings in aerospace had yielded $3 billion in direct revenues for state coffers.

“If Boeing decides to build the 777X and (fabricate) the wing in Washington, I believe those incentives should be extended to the anticipated life of this airplane, through 2040,” Inslee said.

In 2003, the original 20-year incentive program was estimated to provide $3.2 billion in savings to aerospace companies.

Inslee spokesman David Postman said there is no estimate yet of the tax savings to aerospace companies from this 16-year extension, but there will be before it’s voted on in the Legislature.

The 777X is a new version of the 777, currently assembled in Everett, that is expected to be formally launched next month at the Dubai Air Show.

The analysis presented Wednesday in Everett estimates the 777 program today provides almost 20,000 direct jobs at Boeing and more than 56,000 total jobs counting indirect employment outside Boeing.

“It’s tens of thousands of jobs, for decades,” Inslee said. “We intend to be competitive.”

Inslee’s call for extended tax incentives is in addition to pushes in Olympia for transportation improvements, more workforce training, acceleration of permitting, and reforms to workers' compensation — all aimed at wooing Boeing.

Environmental issues

One key irritant cited by Pat Shanahan, Boeing senior vice president, earlier at the summit is potential tightening of water-quality regulations to comply with the federal Clean Water Act. The regulations are tied to measures of fish consumption in the state population.

Inslee said he’ll take time to study this “complicated and emotional issue” and has formed an informal working group of advisers to come up with “reasonable and achievable regulations.”

“We want good health and a growing economy. I’m fully convinced we can do both,” Inslee said.

But the clash of industrial growth and environmental regulations will be tricky.

John Janicki, president of Janicki Industries of Sedro-Woolley, an aerospace engineering and machining company, said the state is generally a good place to do business but cited one exception:

“Our biggest frustration is environmental,” he said. “The Department of Ecology is out of control in Washington state.”

When Janicki needed more space to fill a tooling contract for aircraft maker Bombardier of Canada and leased an old building in Sedro-Woolley, Ecology demanded mitigation of zinc pollution from the roof, even though it wasn’t Janicki’s building, he said.

The company moved out and built a new building instead.

An Ecology spokesman, reached after hours, was not able to respond to the specific case without more detail.

At the Aerospace Summit, ATS chief Yerbic said local and state government incentives have become “critical” to his location decisions.

ATS has expanded in Everett, opened a new facility in Moses Lake, and is negotiating for one at the Spokane airport.

At the Moses Lake airport, local authorities agreed to pay for upgrades to an empty Boeing test facility, updating fans and fire-extinguisher systems. “We wouldn’t have leased a building without those upgrades,” Yerbic said.

He said he’s being courted by five or six other states to set up yet another facility.

ATS isn’t moving out of Washington, Yerbic said. But the geography of its business — it maintains jets for airlines, many of them flying on the East Coast — drives a need for a facility somewhere east of Texas.

He said states such as Louisiana, Alabama and Missouri offer significant tax rebates to businesses that provide jobs in depressed areas.

“It’s pure cash you get back,” Yerbic said. “It’s surprised us how aggressive these other states are.”

State tax expert Mark Hawkins of accounting firm Moss Adams outlined the South Carolina and Texas tax systems and the incentives available to manufacturers locating there. (Representatives from those states were to have attended but canceled.)

Texas goodies

In addition to numerous tax breaks, Hawkins said Texas allows multimillion-dollar cash payments to companies making large capital investments and bringing a significant number of new jobs.

For similar projects, South Carolina allows big reductions in corporate and property taxes.

Marshall Wright, Utah’s director of business development, told the group his state granted $171 million in incentives to aerospace companies in the past four years.

He said Utah got “a fantastic return on investment,” with companies injecting $1.2 billion in capital spending, $829 million in new state revenue and $6.4 billion in new state wages.

Janicki Industries is one of the aerospace companies that has expanded in Utah. But John Janicki said that wasn’t prompted by those incentives. It was primarily to be close to a customer for its tooling, Utah-based ATK, a subcontractor on the F-35 jet-fighter program.

Utah’s incentives for Janicki included a tax credit of up to $316,275 over 10 years, as well as attractive financing terms.

While Janicki does cutting-edge work in Sedro-Wooley, in Utah “it’s mostly repetitive work, not innovative tooling,” he said.

His firm has about 600 employees in Washington and about 30 in Utah.

Despite his frustrations with the Washington Department of Ecology, Janicki said, “We’re probably expanding in this state. I don’t plan on moving.”

Dominic Gates: (206) 464-2963 or dgates@seattletimes.com

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