Weighing cost of doing businessAugust 15th, 2013
Gov. Jay Inslee was in New York recently for the world rollout of BMW's new electric car, the BMW i3, which is partially built in Washington. We are all justifiably proud of our state's role and see the car as a harbinger of Washington's economic future.
The BMW i3 features parts made from carbon fiber processed at the SGL plant in Moses Lake. Because it's strong and lightweight, carbon fiber is used in the production of jetliners, fighter planes, and race cars. 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 businessand 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 haven't 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, Boeing Co., 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.
Asked about recent job cuts and future job prospects, Boeing's chief financial officer, Greg Smith, said 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, said 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."
Perhaps it's 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.
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.
Our state has attributes that attract new employers. The challenge may be convincing them to stay.