Oklahoma gave Boeing $90 million in incentive money, along with a few other breaks

Since the mid-1990s, Oklahoma taxpayers have paid The Boeing Co. more than $90 million in tax rebates to create thousands of new aerospace jobs. But some of company’s incentive deals with the state have retroactive start dates or were later amended to lower the threshold used to calculate the number of jobs the company could claim payments on, The Frontier has found.

Although Boeing has thousands of employees in Oklahoma, the company’s baseline employment used to calculate incentive payments from the state is zero.

The Frontier reviewed 10 incentive deals Boeing has signed with the state of Oklahoma since 1995 worth millions of dollars in rebate payments from the Quality Jobs and 21st Century Quality Jobs programs, and found that the programs’ jobs creation targets have been moved to better accommodate the aerospace giant.

Boeing is the largest recipient of Quality Jobs and 21st Century Quality Jobs tax rebates in the state. The programs are used to lure businesses or business expansions to the state and create new jobs in exchange for tax rebates.

The incentive programs give companies quarterly cash payments from the state for up to 10 years in exchange for creating new jobs in Oklahoma. Employers can receive payments worth up to 5 percent of new payroll for the Quality Jobs Program and up to 10 percent of new payroll for skilled, higher paying jobs through the 21st Century Quality Jobs Program. Companies are required to meet certain wage and benefit requirements to participate.

The two incentive programs have paid out more than $1.5 billion combined to Oklahoma employers since the Quality Jobs Program began in the mid 1990s.

Boeing directed all questions about its incentive deals with the state to the Oklahoma Department of Commerce, which oversees the programs.

In a statement, the company said Oklahoma’s incentive programs played a significant role in its decision to move jobs to the state.

“The Quality Jobs program is a significant contributing factor to closing the business case for job creation in Oklahoma. Boeing has grown to more than 2,500 employees in the state and the business supports an estimated 22,000 direct and indirect jobs in Oklahoma,” the company said. “Boeing has invested $175 million in capital infrastructure and improvements to accommodate employment growth. The impact of Boeing’s job growth in the state is significant including approximately $2.3 billion in payroll since 1995. Boeing gives back to the community, proudly investing $1.2 million in charitable contributions to Oklahoma organizations in 2017.”

Review of Boeing contracts finds retroactive start dates, moving baseline employment

Although Boeing has more than 2,500 employees in Oklahoma, the company’s baseline employment in its most recent Quality Jobs contracts with the state is zero. This seems to contradict state code, which defines baseline employment as an “establishment’s total number of jobs, which existed in this state prior to the application date” to participate in the Quality Jobs Program.

The Department of Commerce uses baseline employment to determine which jobs are eligible for incentive payments from the state. Per Boeing’s incentive contracts, as long as the company generates a minimum amount of new payroll over the zero-job baseline — typically $2.5 million — the company can continue to receive incentive payments.

Officials with the Oklahoma Department of Commerce said Boeing has an accounting system in place to track each job that is subject to state incentives, ensuring that every new job and each employee is only counted once for the purpose of payment.

Richard Schwalbach, who manages the incentive programs for the Department of Commerce, said Boeing lobbied for a zero baseline employment in its most recent contracts as a way to reduce the complexity of tracking its multiple, ongoing Quality Jobs and 21st Century Jobs contracts with the state.

“That is not a standard practice, but it is legal and we are able to maintain it,” he said.

Boeing has six active contracts for job creation payments with the Department of Commerce.

The company’s seventh incentive contract with the state, signed in 2013, contains a clause stating that no jobs attributed to any of the previous incentive deals can be counted toward incentive payments. However, that clause is nowhere to be found in the company’s next three and most recent incentive contracts.

Both Boeing and the Department of Commerce said the company has not applied for or received rebate payments on any jobs that were previously counted towards past incentive contracts with the state. The jobs are tracked via the company’s payroll system.

One of Boeing’s incentive deals was later amended to reduce the company’s employment baseline for which it could receive incentive payments after the company lost a federal contract to a competitor.

In April 2006, Boeing signed a Quality Jobs deal with the state worth up to $14 million in rebates for creating up to 610 new jobs over 10 years. The baseline employment over which the company could claim incentive payments was initially set at 587 jobs.

In 2011, the Department of Commerce and Boeing retroactively amended the 2006 agreement to reduce the employment baseline to 447 jobs after Boeing lost a federal contract to another company in the state. The jobs transferred to another private company at Altus Air Force Base.

The Frontier also found that some of the company’s contracts for incentive payments contain retroactive start dates — including two deals that were retroactive by a period of 16 months.

In April 2013, Boeing signed two incentive contracts with the state worth a maximum of $54.8 million in tax rebates to create 864 new jobs in the state over 10 years.

Both deals were backdated to Jan. 1, 2012, meaning the company could count new payroll generated more than a year before the contract was signed toward incentive payments. Some of the incentivized jobs included positions Boeing moved from Wichita, Kan., to Oklahoma City after the company announced in January 2012 that it would close its Wichita facility.

The reason some of the contracts have a retroactive start date is because of the time it may take to apply for and get approval for incentive payments, said Charles Kimbrough, director of business development for the Department of Commerce.

There are other logistical and financial reasons the Department of Commerce may grant an employer a retroactive start date to receive incentive payments, such as relocating jobs from another state, or if a company is building a new facility to house workers.

“Sometimes they want a decision on whether they will be able to qualify on a program before they make a decision to move jobs,” he said.

Department of Commerce staff time-stamp a company’s applications to enter the program to help its baseline employment and contract start date.

However, applications for Quality Jobs incentives are not subject to state open record laws. The applications are considered confidential because they may contain trade secrets or competitive information.

Department of Commerce staff told The Frontier that the agency could not even release the time-stamped dates on Boeing’s Quality Jobs applications.

Staffing shrinks as incentive program grows

Though Oklahoma taxpayers have paid out more than a billion dollars in Quality Jobs claims over the past 25 years, there are fewer state employees monitoring the ever-growing number of incentive contracts than when the program started.

After several successive years of state budget cuts, the Department of Commerce now shares its general counsel with the Department of Tourism and Recreation.

Another staff attorney who prepared the incentive contracts retired and was not replaced.

There are now two staffers at the Department of Commerce who primarily oversee the program, along with one staff member at the Oklahoma Tax Commission who receives rebate claims and processes incentive payments on top of several other job duties.

“There used to be quite a few more people working here,” Schwalbach said. “…but it doesn’t preclude us from getting the work done between us.”

The Oklahoma Incentive Evaluation Commission, which periodically reviews the state’s incentive programs, stated in its most recent report that the Quality Jobs and 21st Century Jobs Programs are cost- effective job creation tools. Although a 2017 report found that industries incentivized by Quality Jobs still showed slower growth over the last five years, compared to the state as a whole, the commission found the programs to be a net benefit to Oklahoma.

The Quality Jobs programs are performance based, meaning the state only pays for jobs once they have been created, Kimbrough said.

“We have to compete hard with other states because Oklahoma does not pay anything up front,” Kimbrough said. “Oklahoma is protected in that way because we don’t pay money on anything we don’t get a benefit from.”

Coveted aerospace jobs boost state economy

Overall, Boeing’s presence in Oklahoma has been a boon to the state.

Lured by lower labor costs, rebates from the Quality Jobs Program and other state and local incentives, Boeing has moved business divisions from Seattle, Wichita and Long Beach to Oklahoma over the past decade.

The company is the largest aerospace contractor in the Oklahoma City region with contracts valued at more than $500 million in 2015, according to the Greater Oklahoma City Chamber.

Boeing estimates it spent $878 million with Oklahoma vendors in 2015 alone.

In 2015, in a ceremony attended by Gov. Mary Fallin, Boeing broke ground on a sprawling new $800 million engineering laboratory at its Southeast Oklahoma City campus near Tinker Air Force Base.

During the ceremony, state and company officials pulled a specially designed lever to release the first batch of concrete for the building from a waiting cement mixer.

“This is a big deal for Oklahoma,” Fallin said during the groundbreaking ceremony. “We are talking about good paying jobs. We’re talking about highly qualified individuals.”

Wherever Boeing locates, support industries like computer programming and parts manufacturing typically follow, said Jon Chiappe, director of research and economic analysis services for the Oklahoma Department of Commerce.

“The aerospace industry has one of the highest impacts for any industry in the nation,” Chiappe said.

Enticing aerospace companies to locate in Oklahoma with the help of incentives, such as tax credits and cash rebates like the ones the Quality Jobs Program provides, has been a key part of the state’s strategy to diversify its economy away from oil and gas.

Oklahoma also has to compete for Boeing’s jobs with lucrative incentives offered by other states.

But even the most generous incentive packages don’t guarantee Boeing jobs in perpetuity.

In 2013, Washington extended incentive deals to Boeing worth an estimated $8.7 billion through the year 2040, and yet the company still cut 15 percent of its workforce in that state over the next few years.