January 15, 2018

Bill provides $60M in tax incentives for BIW over 20 years

Courtesy / Bath Iron Works
Courtesy / Bath Iron Works
An aerial view of BIW shows the Land Level Transfer Facility (foreground) the Outfitting Hall (left) and drydock (left foreground), elements of the roughly $500 million in facility investments made in the shipyard during the current tax incentive program that expires at the end of this year.

A bill that would create up to $60 million in tax incentives for Bath Iron Works over 20 years is linked to shipyard owner General Dynamics Corp. continuing to make "major investments in shipbuilding facilities" and maintaining a minimum employment level of 5,000 workers.

LD 1781, "An Act To Encourage New Major Investments in Shipbuilding Facilities and the Preservation of Jobs," is sponsored by Rep. Jennifer DeChant, D-Bath, and was sent to the 128th Legislature's Taxation Committee for its review on Thursday. A public hearing date on the bill has not been scheduled yet.

The Times Record reported Friday that the bill has been sent to the Taxation Committee for its review. If the bill is approved and signed into law, the tax incentives are intended to begin following the scheduled expiration of The Shipbuilding Facility Tax Credit that was approved by the Legislature in 1997 that enabled General Dynamics (NYSE: GD) to receive an annual tax credit of $3 million for 20 years as long as it invested $200 million in BIW's shipbuilding facilities.

DeChant's bill calls for the new tax incentives to kick in for tax years beginning on or after Jan. 1, 2020, and continuing for the next 19 years. To qualify for the credit, General Dynamics must spend after Jan. 1, 2018, "at least $100 million … related to the construction, improvement, modernization or expansion of the shipbuilding facility and maintain at least 5,000 employees."

If BIW employs at least 5,250 employees, the bill states that the shipyard would be entitled to an amount equal to 110% of the credit; if its employment dips below 5,000 in two separate years within the 20-year period, the shipyard would still qualify for the credit but at a pro-rated reduction.

The Times Record reported that according to Maine Revenue Services, "as of 2016, BIW had invested $480,736,639 since the credit went into effect."

Keeping competitive with Ingalls

In response to questions posed by The Times Record, BIW characterized the continuation of the tax incentive as necessary to remain competitive against Huntington Ingalls in Mississippi, its sole competitor in the Arleigh Burke-class of destroyers, which has received tens of millions of dollars in state bond funding over the past decade.

"Whether expressed as 3% of $100M or $3M, the tax credit helps the shipyard compete against Huntington Ingalls in Mississippi," BIW stated. "Ingalls' entire shipyard was built in 1967 with state funds. Ingalls leases the land from the state for just $130,000 a year, far less than BIW pays in property taxes."

BIW reported that Ingalls received state bond money from Mississippi in the amount of $45 million in 2016; $20 million in 2015; $56 million in 2008; $56 million in 2006; and $40 million in 2005. Additionally, in 2013 Mississippi provided $20 million to construct a 70,000- square-foot training facility at their shipyard.

"BIW builds complex surface combatant ships for the U.S. Navy, a customer who wants to buy ships as quickly and inexpensively as they can get them," BIW stated. "Mississippi understands that dynamic as well as the economic impact of having part of the nation's shipbuilding industrial base in their state. That is what BIW is up against. ...BIW must compete for work against a shipyard which is well equipped and aggressively seeks to win work that might otherwise come to Bath."

BIW has 5,700 employees, a payroll in excess of $350 million a year and spends $45 million annually for goods and services from Maine companies, including $30 million to small businesses.

"The credit will benefit the shipyard by lowering the cost of doing business in Maine and helping BIW's competitive position relative to its competitor in Mississippi," the shipyard told The Times Record, noting that future investments are planned for its Land Level Transfer Facility and dry dock, training and production machinery and equipment in its facilities in Bath and Brunswick.

Falls Church, Va.-based General Dynamics, a global aerospace and defense company that with nearly 100,000 employees worldwide, reported $3.1 billion in earnings in 2016 (on revenue of $31.35 billion), the highest earnings in its history, an operating margin of 13.7% and a company-wide backlog of work of $59.8 billion, according to its 2017 proxy statement to its shareholders. It also owns an ordnance-and-tactical systems site in Saco.

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