Policy Wonk: 10 reasons why BIW tax break is a bad deal

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Most Maine people know General Dynamics and Bath Iron Works do not need another $60 million of taxpayer money to keep the doors open.

They are scamming the Legislature and the public with veiled threats of closure and job loss if this subsidy is not provided. In fact GD/BIW is one of the wealthiest corporations in America.

Badgering the state for another $60 million is an abuse of corporate power; giving in to this demand is legislative dereliction of duty. Here are 10 reasons why this latest round of corporate welfare is unwarranted:

1 — Past and ongoing state tax subsidies to GD/BIW total more than $220 million. Maine taxpayers have already done enough for this corporate entity.

2 — GD/BIW is the 90th largest corporation in the nation, according to the Fortune 500. In FY 2017, GD/BIW generated $31 billion in revenues (five times Maine’s annual budget) and $3 billion in profits. This rate of profitability goes back over a decade. Given this level of wealth, squeezing Maine for another $60 million cannot be justified on economic grounds.

3 — The CEO of GD/BIW is paid $21 million annually; four other employees in the corporate hierarchy annually earn a combined total of $20 million. At public hearings on LD 1781, BIW’s corporate leadership refused to disclose their levels of annual compensation – but they had no qualms asking Maine for $60 million scarce tax dollars.

4 — Beyond enriching management, the extraordinary level of GD/BIW profitability has in recent years allowed $12.9 billion to be returned to shareholders in the form of stock buybacks. They currently have $2.7 billion of cash on hand. The assertion that they need another $60 million from Maine taxpayers is ludicrous.

5 — The claim that GD/BIW is in competition with the Ingalls yard in Mississippi for Navy contracts is also ludicrous. Both yards make this argument in their respective states in order to extort legislative subsidies; these subsidies inflate corporate profits at the expense of taxpayers. The fact is the Navy, for strategic purposes, needs and wants both of these yards to succeed. For decades it has almost evenly divided shipbuilding contracts between these two yards and it builds into ship contracts both worker training programs and generous profit margins.

6 — The veiled threat that the failure to grant the requested $60 million will cause GD/BIW to rethink its presence in Maine is pure posturing. Recently six vessels were simultaneously under various phases of construction; BIW has a nearly 10-year backlog of work; they have over $500 million invested in the present plant, and a trained workforce in place. No corporate entity in their right mind walks away from a profit-making engine of this size and continuing potential.

7 — The recently passed Republican tax bill, which reduces the corporate tax rate from 35 percent to 21 percent, pours even more money into GD/BIW’s retained earnings – but they still want $60 million from Maine taxpayers.

8 — The recently passed budget bill removed long-standing caps on defense spending. The president and Congress are committed to raising this spending sharply. Given events in Southeast Asia, Navy procurement of next-generation vessels will certainly increase. BIW will get its share of this spending; it does not need $60 million from Maine taxpayers.

9 — To further enhance profit margins, GD/BIW recently acquired CSRA Inc., one of the largest systems research and information technology companies in the nation, for $9.6 billion. The Departments of Defense and Homeland Security are CSRA’s biggest customers. This deal is further evidence that GD/BIW does not need $60 million from Maine taxpayers.

10 — Finally, the proposed amendment to LD 1781 that would break it into two $30 million subsidies, each running 10 years, is a total sham. Employment requirements in LD 1781 are low and will be readily met. And the $100 million of so-called “new major investment” is defined so broadly that it, too, will be readily met in the normal course of building the ships already contracted for, or that will be contracted for, as Navy defense budgets increase. The present BIW facility will not be altered significantly.

In short, Maine people understand most of the above points; so, too, do most legislators. We know that $60 million is “chump change” for GD/BIW. But for the people of Maine this is real money needed to address real needs outlined daily in newspapers across the state: the opioid crisis, underfunded schools, dangerous roads, funding health insurance expansion, and more.

Maine is a poor state; the needs of its people should count for more than marginally increasing profits for one of the wealthiest corporations in America. Shame on General Dynamics and BIW for insisting on this $60 million subsidy.

And shame on the Legislature if it capitulates to this demand.

Orlando Delogu of Portland is emeritus professor of law at the University of Maine School of Law and a longtime public policy consultant to federal, state, and local government agencies and officials. He can be reached at orlandodelogu@maine.rr.com.

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