Budget outlook takes another hit with Boeing's 787 announcement

It is official. Boeing will consolidate its 787 manufacturing in South Carolina. This news has many implications for the state including a direct impact on the state’s budget outlook. Although the September revenue forecast didn’t make an assumption about what Boeing would decide, a downside risk to the forecast was if South Carolina was picked.

From the September revenue forecast:

“The potential consolidation of Boeing 787 production in South Carolina and resulting decline in Washington aerospace employment is also a major concern.”

Responding to the news that Boeing would likely pick South Carolina, the Governor said earlier this week:

“If this report is true, it would force a review of that partnership, including a hard look at the company’s favorable tax treatment.”

At Boeing’s request the legislature earlier this year repealed the preferential aerospace B&O tax rate responding to a World Trade Organization complaint. From the bill report:

“Beginning April 1, 2020, the preferential B&O tax rate for the manufacturing, wholesaling, and retailing of commercial airplanes, airplane components, and tooling is eliminated.”

The Governor said last year that approving those prior aerospace tax preferences was the equivalent of being “blackmailed” and “mugged.”

Boeing said this about its decision today:

“It became clear that consolidating to a single 787 production location in South Carolina will make us more competitive and efficient, better positioning Boeing to weather these challenging times and win new business.”

Although the September revenue forecast made no assumption about the decision Boeing would make, a deficit was already projected for this budget and a shortfall in the next budget.

As a reminder, the Governor has a legal obligation to order budget cuts unless the legislature acts if a cash deficit is forecasted. It is clear that a special session is still warranted.

– Jason Mercier is the Director of the Center for Government Reform at Washington Policy Center and is based in the Tri-Cities. He serves on the boards of the Washington Coalition for Open Government and Verify More, and was an advisor to the 2002 Washington State Tax Structure Committee. Jason is an ex-officio for the Tri-City Regional Chamber of Commerce. In June 2010, former Governor Gregoire appointed Jason as WPC’s representative on her Fiscal Responsibility and Reform Panel.