Week of October 11, 1999
  Snapshot from the Field

Boeing Drops a Bomb: Improve Washington's
Business Climate, or We May Expand Elsewhere

Boeing (www.boeing.com) has dropped a major bomb on Washington state, and it didn't come from the air. The bomb came in the blunt words of a top Boeing official, who publicly warned that the company's future expansions may be headed out of state unless Washington bolsters its business climate.

"Compared to everywhere else we do business, Washington is below average. To remain a global leader for aerospace -- and a global leader for other industries -- Washington has to rank a whole lot higher than that," Boeing CFO Debby Hopkins told a conference in Washington, D.C., sponsored in part by the Greater Seattle Chamber of Commerce (www.seattlechamber.com).

Washington, Hopkins asserted, ranks 16th in terms of business cost among the 27 U.S. states in which Boeing operates. "We want to grow our operations here in Washington, but we're simply not in the most beneficial place in which to do business," added Hopkins, who joined Boeing in 1998 and is spearheading the company's efforts to improve its profitability.

Washington-based companies, Hopkins told her audience, suffer from a number of business climate-related problems, including high unemployment taxes and government fees. Hopkins also expressed concerns about the state's lack of in-place plans to improve its education and infrastructure systems and to promote business.

"The business climate isn't right," she said. "Collectively, we can fix that."


Initiative 695: Will It Worsen The State's Business Climate?

The news undoubtedly sent shock waves through Washington's economic development community. Boeing is the Washington's largest employer. Roughly 81,000 of the company's worldwide total of 202,000 employees are based in the state.

Given Boeing's economic clout, one might think that Washington's business climate would be in for a quick fix. But that fix may not necessarily be either quick or easy, as Hopkins spelled out in unusually straightforward terms. In fact, she maintained that the state business climate will become more problematic for Washington-based companies if voters pass Initiative 695, which would substantially lower the state's car tax.

Initiative 695 would cut the license tax for all Washington vehicles to only US$30 a year, regardless of a vehicle's age or value. That would produce a savings of $145 for Washington's average car owner, according to estimates from the state Office of Financial Management.

What's more, Initiative 695 would require that all new state or local fees or taxes gain voter approval.

"Passage of I-695 would be a big blow to every corner of the state," Hopkins said. "It would hurt all of our businesses." If passed, the ballot initiative over the next six years would pare $2.4 billion from state transportation budgets, Hopkins asserted. And Washington-based businesses could end up paying for that lost revenue, which could possibly prompt some to look outside the state to expand, she added.

Hopkins also said that the lost transportation revenues would exacerbate the state's traffic woes, hamstringing Washington-based companies in both shipping products to market and getting employees to work.

Washington Gov. Gary Locke (www.governor.wa.gov) echoed Hopkins' opinions at a press conference following the Boeing CFO's address.

"If Boeing can't move their parts . . . they don't have to be here," Locke said.

If voters reject Initiative 695, however, the governor added his promise that he will push to overhaul the state's system of taxing cars. A substantial reduction in the size of the tax would be part of Locke's efforts, the governor said.

"There is strong support for a very drastic overhaul," Locke said.


Initiative Backers Call Boeing 'a Bully'

Indeed, Initiative 695 seems to have gained part of the Washington's electorate's inordinately vocal backing. I-695 supporters have repeatedly asserted that the state's strong economy and large budget surplus mean that government can afford what amounts to a billion-dollar tax break for average citizens.

The measure's backers have also argued that requiring voter approval of all future tax and fee increases will ensure lower taxes and more efficient government.

Boeing's bomb certainly didn't seem to dampen tax-cutting ardor among the initiative's supporters.

For example, one of the major groups supporting the initiative - which calls itself " '$30 License Tab' Initiative I-695" -- promptly fired back on its Web page (www.lifetel.com/tabs/index.htm). The site criticized "Boeing and other big business donors' strong-arm tactics. . . . Nobody . . . likes a bully."


Multiple Expansions Upcoming For Boeing, but Where?

Boeing CFO Hopkins, however, told the audience that the issue is business costs, not bullying.

The company isn't threatening to relocate current Washington-based operations outside the state, she said. But she added that business costs might prompt Boeing to look outside of Washington for its future expansions.

And Boeing is anticipating substantial expansion in the near future. Hopkins noted that the aerospace giant is venturing into new lines of business like e-commerce, and it plans to expand its financial services and space operations. Already, Hopkins said, Washington's business costs had caused the state to not rank in Boeing's top 10 list of the locations that are currently under consideration for the company's e-commerce divisions.

Boeing's CFO cited the Washington, D.C., area (where she gave the speech), as an example of the kind of high-tech-friendly business climate that might attract Boeing's expansions. Substantial business location incentives have been part of the Washington, D.C., region's successful business recruitment and expansion strategy.

And Boeing certainly has other expansion options, Hopkins added.

"We have deep roots in the [Washington state] community," she said. "But we also have deep roots elsewhere. We have major investments in communities like St. Louis; Southern California; Mesa (Ariz.); Wichita (Kan.); El Paso (Texas); Salt Lake City; Toronto and Brisbane, Australia, just to name a few."

What's more, Hopkins added, some of the facilities in those areas are already underutilized as a result of Boeing's merger with McDonnell Douglas and the company's acquisition of Rockwell's aerospace units.


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