Weighing Washington's High Cost of Doing Business
The BMW i3 features parts made from carbon fiber processed at the SGL plant in Moses Lake. Because it is strong and lightweight, carbon fiber is used in the production of jetliners, fighter planes and racecars. Now, it’s making its way into the retail market to produce lighter more fuel-efficient vehicles that retain their strength and safety ratings.
The $100 million SGL plant is located in Moses Lake largely because of affordable energy from hydropower and tax incentives that encourage companies to locate in rural areas.
SGL currently employs 80 people and we hope that number will grow. “We’ve got a great opportunity to build a whole ecosystem of industrial development around carbon fiber in our state,” said the governor.
But that growth is not assured.
SGL would like to expand its Moses Lake facility, but the tax incentive that helped convince the company to locate there has expired. That puts a microscope on other factors that make Washington a high-cost state in which to do business — and those costs will weigh heavily on SGL’s decision whether or not to expand.
For example, workers’ compensation is an insurance program for workers injured on the job. Washington has the highest workers’ comp benefits in the nation. Until recently, those high costs were masked by income from the state investing employer premiums in the stock market. But the 2008 recession blew a big hole in that income, and we have not yet fully recovered.
Another big cost driver for Washington employers is unemployment insurance (UI). Our state has the fifth highest UI benefits in the nation. Ironically, the burden of those costs on employers is magnified in times of high unemployment, and they continue to weigh heavily on employers, even as the economy slowly recovers.
Our state’s top manufacturer, The Boeing Company, is dealing with many of those same issues.
The Seattle Times reports that, while Boeing is optimistic about the future of its 787 program, which is headquartered in the Puget Sound region, the company’s need to reduce costs is hampering job growth in Washington.Asked about recent job cuts and future job prospects, Boeing’s chief financial officer, Greg Smith, says the company is focusing on growing jobs elsewhere, in lower-cost regions of the country.
“We made choices to go to more affordable areas with the business to…drive productivity and profitability,” said Smith. As a result, says Smith, Boeing is shifting work to sites “where we see lower overall cost rates.”
“We peaked out [Washington employment] last year,” said Smith. “We’re starting to come down this year and will continue to assess that going forward.” Boeing defense jobs in the Puget Sound region have dwindled as well.
The Boeing Company was founded in Seattle in 1916 and has been part of our state’s identity for almost a century. But that’s no guarantee it will remain here.
Perhaps it is time to build on the success of tax incentives that convince employers to locate in Washington by offering similar incentives to existing employers to expand and add jobs here.
Employers need a consistent and predictable tax and regulatory environment to make long-term plans. That translates into good family-wage jobs with benefits.
Competitive pressures never cease, and firms such as Boeing and SGL are constantly re-evaluating their costs and productivity. If they’re not competitive, they won’t expand. Ultimately, they will leave.
Similarly, state lawmakers should constantly reassess the impacts of business costs in Washington and ensure that we offer competitive advantages to employers.
Washington state has many attributes that attract new employers to our beautiful state. The challenge may be convincing them to stay here.
About the Author
Don Brunell is the president of the Association of Washington Business. Formed in 1904, AWB is Washington’s oldest and largest statewide business association, and includes more than 8,000 members representing 700,000 employees. AWB serves as both the state’s chamber of commerce and the manufacturing and technology association. While its membership includes major employers like Boeing, Microsoft and Weyerhaeuser, 90 percent of AWB members employ fewer than 100 people. More than half of AWB’s members employ fewer than 10. For more about AWB, visit www.awb.org.