Boeing’s 787 Manufacturing Move Has Implications for WA State Budget

It is official now — 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At Boeing’s request the legislature earlier this year repealed the preferential aerospace B&O tax rate responding to a World Trade Organization complaint.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.

Unlike during the great recession, state revenue is still increasing overall during the COVID pandemic. According to the September revenue forecast:

“Forecasted Near GF-S revenue for the 2019-21 biennium is now $50.022 billion, 8.6% higher than 2017-19 biennial revenue, and forecasted Near GF-S revenue for the 2021-23 biennium is $53.737 billion, an increase of 7.4% over expected 2019-21 biennial revenue.”

The bad news of course, this revenue growth is less than what lawmakers assumed when adopting the 2020 supplemental budget resulting in a projected budget deficit. Though more manageable than the original deficit estimate back in June, today’s details still should trigger the requirement in state law for the Governor or lawmakers to act now to balance the budget.

From the last week’s state revenue forecast:

“The September GF-S revenue forecast has been increased by $2.1 billion in the current biennium and $2.2 billion in the next. The forecast of GF-S revenue for the 2023-25 biennium has increased by $2.5 billion. This still leaves the GF-S forecast $2.4 billion lower than the February 2020 forecast for the current biennium, $2.1 billion for the next biennium and $2.0 billion for the 2023-25 biennium.”

As of today, the Office of Financial Management (OFM) does not currently have an updated GFS cash forecast for each month through the end of the budget (Sept-June) reflecting today’s revenue forecast. According to the state Treasurer, the GFS has run a cash deficit almost every day in September.

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. 

By Jason Mercier
Director, Center for Government Reform