New details have emerged in South Carolina concerning the financial incentives that helped lure Boeing to expand its manufacturing complex in Charleston.

Share story

New details have emerged in South Carolina concerning the financial incentives that helped lure Boeing to expand its manufacturing complex in Charleston.

The city’s Post and Courier newspaper estimated the total value to the planemaker over 30 years at more than $800 million, and probably close to $1 billion.

The disclosure provides further ammunition to Boeing rival Airbus in the long-running fight over what government aid counts as illegal subsidies under international rules.

The World Trade Organization (WTO) should rule this year on a European Union (EU) allegation that Boeing has benefited from illegal subsidies, including economic-incentive packages from Washington state and Kansas.

And in the critical Air Force refueling tanker competition to be decided this summer, Boeing’s supporters in Congress say subsidies to Airbus should rule out choosing its A330 over Boeing’s 767.

The South Carolina incentives, agreed to in October but still not fully disclosed, should more than offset Boeing’s promise to invest $750 million in establishing a second Dreamliner final assembly line.

The expansion sets up South Carolina as a major counterpart to Boeing’s Washington state operations. The current North Charleston work force of about 2,800 is projected to rise to about 6,400 within six years.

Boeing did not formally announce the location of the second assembly line until after the South Carolina Legislature passed the basic incentive package.

Charleston County recently rubber-stamped the local government elements of the package and published documents with some new details, although others are still secret.

The Post and Courier itemized the known incentives:

• $270 million in upfront money from the state

• $356 million in property-tax breaks

• $47.5 million in state corporate tax credits

• $33 million for a state-funded worker-training program

• $100 million in further property-tax breaks related to the Dreamlifter aircraft that fly 787 airplane sections in and out of North Charleston.

The last of those incentives, a decade free of tax on the Dreamlifters followed by 20 years of heavily reduced tax, was part of the 2004 package that won for Charleston area two initial fuselage plants that were operated by 787 partners Vought and Alenia. Boeing inherited that incentive when it acquired the plants last year.

Though not matching the approximately $3 billion in tax breaks that Washington state gave Boeing in 2003, the cumulative total is impressive.

David Slade, the reporter who compiled the financial data, said $800 million is the minimum value of the South Carolina incentives.

“These are lowball estimates, counting only the incentives we could put a reasonably firm value on,” he said.

Elements that were difficult to value without more information — including a $1-per-year lease on the site owned by the local airport authority, a 30-year freeze on a portion of the property-tax assessment at 2008 levels, and sales-tax exemptions for building materials, computers and fuel — were left out.

“I would expect the (final) value is well above $1 billion,” Slade said.

Should these buckets of cash properly be called incentives (legal) or subsidies (illegal) under WTO rules?

Leaks to the news media indicate that the WTO’s interim ruling against Airbus found government support for various infrastructure projects around Airbus plants in France and Germany to be illegal.

When the WTO rules in the parallel EU case against Boeing subsidies, Airbus Americas Chairman Allan McArtor expects a similar outcome. He said the South Carolina incentives should also be considered illegal.

“Of course these are subsidies,” McArtor said. “No wonder Boeing asked to keep the details of the package confidential.

“We’ll be watching closely to see if Boeing’s recent enthusiasm for the WTO process translates into compliance with what the WTO will have to say,” he said.

Boeing spokesman Tim Neale said the South Carolina incentives were reviewed in advance “to ensure compliance” with WTO rules.

“Incentive programs of general applicability are permissible,” as long as they reflect the interests of the state granting them, rather than a specific company or industry, Neale said.

The property-tax breaks, for example, are available to any company that meets certain thresholds for investment in South Carolina. Alenia and Vought got the same breaks in 2004. Airbus could get them if it chose to build airplanes in the state.

Neale’s final argument is that state incentives “will not run afoul of WTO obligations unless they are so large and of such scale that they will distort the market.”

The EU claims against Boeing allege almost $5 billion in illegal subsidies from Washington and Kansas.

While that figure may be highly inflated, a further $1 billion from South Carolina adds fuel to the legal fire.

— Dominic Gates

60 years and counting for airplane tax break

Speaking of Boeing and tax breaks, a reader asks whether it’s “truth or urban legend” that when the company delivers a new plane to a customer, “the buyers and Boeing executives go on the delivery flight and sign the paperwork after they clear Washington state airspace to avoid state sales tax.”

Boeing spokesman Jim Proulx responds that “it’s a myth.”

A more complete answer is that no such legerdemain is necessary. That’s because since 1949, state law has exempted aircraft, railroad cars and watercraft from Washington sales tax if they are destined for interstate or foreign use. Components for these vehicles are also exempt.

The exemption, worth an estimated $135 million in state and local taxes this year, “recognizes that firms engaged in interstate transportation could take delivery of such equipment outside of the state and thereby avoid retail sales tax with minimal cost,” according to the state Department of Revenue.

Department spokesman Mike Gowrylow says that exemption is often cited when talk turns to closing tax loopholes, but the department considers it “unlikely” the avoided taxes could be collected.

“It just doesn’t work out in the real world — they would just ship them out to customers out of state, overseas, and you’d end up without anything anyway,” he says.

Comments? Send them

to Rami Grunbaum: rgrunbaum@- or 206-464-8541