Policy Wonk: Enough is never enough for Bath Iron Works

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Bath Iron Works wants another $60 million from Maine taxpayers. The Legislature’s answer should be no.

Not content with the roughly $20 million it secured in the early 1980s from the state and the city of Portland for a failed dry dock facility; the $198 million for plant renovation provided by the Legislature and the city of Bath in the late 1990s (portions of which are still being paid out to BIW), or the additional $3.7 million squeezed out of Bath in 2013, BIW now wants another $60 million from Maine’s taxpayers via LD 1781.

Let’s get some facts on the table. First, Maine is a relatively poor state. Recent data indicates that per capita income nationally is $46,000; per capita income in Maine is less than $41,000, or 33rd in the nation. The per-capita income in every other New England state is above the national average and well above income levels in Maine.

Second, the budgetary needs currently facing the state are huge. The legislative session now underway is charged with finding $50 million to $60 million to fund Medicaid health insurance expansion. Another $30 million to $50 million will almost certainly be needed to repay the federal government as a result of mismanagement at, and the decertification of, the Riverview Psychiatric Center. The state’s roads and bridges continue to be woefully underfunded, as is the state’s battle against the opioid crisis.

General Dynamics (the parent corporation of BIW) is the fifth-largest defense contractor in the world, and ranks 90th on the most recent list of Fortune 500 companies; from the late 1990s to the present it has climbed steadily from 375th on the Fortune list to its present position.

General Dynamics had $31.3 billion in revenues in 2016 (roughly four times the annual budget of the state of Maine) and earned just under $3 billion in profits (a 9.4 percent return on revenues). It pays its chief executive officer $21.2 million annually, and four others in corporate leadership earn a combined $21 million annually.

Finally, BIW is acknowledged to be one of the most profitable of the company’s divisions; it has a near  10-year backlog of work. General Dynamics is so profitable and generated so much cash on hand that from 2009-2016 it engaged in stock buy-backs totaling $12.9 billion. As of September 2017 it still had $2.7 billion in cash and short-term investments on hand.

That’s 27 times more money than the $100 million BIW is committed to invest in plant modernization over the next 20 years under the provisions of LD 1781 – two-thirds of which ($60 million) would be reimbursed by the taxpayers of Maine if this legislation is adopted.

This is corporate greed run wild. BIW and its parent company are awash in money; they do not need $60 million from Maine taxpayers. They can bear the cost of any and all plant modernizations they deem necessary from cash on hand. Their competitive position versus the Huntington-Ingalls Shipyard in Mississippi is not at risk in the least degree.

The argument that BIW needs another $60 million in corporate welfare to keep up with Ingalls is a sham, and has always been a sham. It is a ruse used by both corporations to extort state and local tax concessions from their respective hosts –concessions that fatten executive salaries, returns to shareholders, and the corporate bottom line.

These two corporations are big, powerful, and an important part of the nation’s defense strategy, but they are not equal. Ingalls’ 2016 revenues were less than a quarter of General Dynamic’s revenues, and it ranks 380th on the Fortune 500. Its 2016 profit margins are comparable, but General Dynamics’ is slightly higher. Theirs is a friendly competition to produce military vessels for a single buyer, the U.S. government.

This buyer divides its purchases almost evenly between both of these yards. It wants the best and builds-in adequate profit margins to get the best. For strategic reasons, the government needs the geographic separation that Ingalls and BIW provide. The Trump defense budget suggests that both of these yards will do well for many years to come.

In short, LD 1781 is not needed. BIW and General Dynamics should be embarrassed to put this measure forward; it is an unconscionable corporate overreach. Maine has far more pressing demands for scarce tax dollars. The Legislature should say no.

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.

  • mainelysteve

    Disingenuous to compare GD to Ingalls. You’re ignoring the fact that Ingalls is part of the larger group Huntington Ingalls. You should be fair and compare BIW to Ingalls, or GD to Huntington Ingalls.

  • BobbyBangor

    Also, seems like it doesn’t really matter if General Dynamics is doing well if BIW is not making money or winning work. Haven’t we learned that because International Paper, Mead, Sappi or any corporation that owns a number of paper mills does not mean they will keep investing in or operating all of the mill locations, particularly if there are not many buyers and some mills operate more cost effectively than others. Don’t think it is any different at BIW with ships. Take your pick, would you like to live, work and raise a family in Bath or Madison, Bucksport or maybe Millinocket. And I don’t say that to be be harsh on these once proud towns I know so well. Professor can sit back in his perch from the liberal wonderland in Portland’s West End, collect his state pension from UMaine and know there are people in Maine who don’t share his same lot in life or his anti Maine business views.

    • James R. Olson

      Lost sailors, If you can’t see the difference between an enterprise whose only customer is the taxpayer by way of government with no competitors and a guaranteed profit, and a private company competing in the open market, I see no reason why I should listen to anything you say.

      • lostsailors

        You are mistaken, there are competitors, they lost a coast guard bid to a Florida company and Navy ships are competed against a shipyard in Mississippi. There is no guaranteed profit on ships built at BIW when they are fixed price contracts.

  • George Friant

    How much in wages does BIW pay annually ? Oddly Orlando quotes many financial tidbits but nothing on wages, add that to contractor and service contracts at BIW, along with maintenance, upkeep and repair of the facility. Along with the fact that most contractors and subs at BIW (along with BIW) pay livable wages, including benefits. Take those 5000 jobs away from the mid coast and we will all be in looking for someplace else to live, leaving no one in MAINE able to pay for the professor’s unfunded retirement from UMaine.

    • Sebago Pizza

      I think you miss the point. This tax reduction is in addition to the Federal corporate reduction from 35% to 21%. ( While General Dynamics was able to buy back substantial stock under the old standards. ) With such profits, how do they justify additional welfare ?
      The military industry, apparently, doesn’t justify their current business plan. More jobs would be created if BIW were to diversify into products that address renewable energy needs, public transportation projects and / or domestic infrastructure needs.

      • BobbyBangor

        ‘Tis you Sebago who misses the point. You propose a shipbuilding company wake up one day and declare itself a train manufacturer or a builder of solar panels. Aside from the fact that it is not their business, don’t you think the businesses already in that sector might already have captured the demand that exists? It like saying well, since you are a pizza maker, you should get in the business of making tofu, its so much healthier. You should not confuse the financial performance of General Dynamics with BIW, they don’t exist to prop up a business that cannot compete. Again, think multinational paper companies and their histories here in Maine.

  • disqus_dBIe0mKo35

    Why should Maine taxpayers give them any money they make enough from the Federal government and overpay the people they expose to Asbestos.

  • Merrill Hall

    The proles chime in that we need more battleships in the bloated, inflated defense budget for the invasive wars our country keeps prosecuting for the defense of the fatherland, or that the company will pack up and go elsewhere, which is impossible. Either way, These toughies say corporate-state blackmail must be paid, like the cowardly brainwashed children they truly are.

  • Chaim Yonkel

    More ships for stupid Navy officers to crash into other ships….billions pissed away.