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When he gave his keynote address before the Chamber of Commerce of the Greater Portland Region in September 1997, then General Dynamics CEO Nicholas D. Chabraja had reason to celebrate.
It’d been two years since his company, annually among the nation’s largest defense contractors, had acquired local shipyard Bath Iron Works, and not long since it secured a $194-million megadeal with the state of Maine and the city of Bath to subsidize a massive infrastructure “modernization” at its newly acquired facility.
Chabraja decided to thank the more than 700 people gathered at the Holiday Inn By The Bay, as the Portland Press Herald reported, for the apparent role their community played in assuring the viability of a major Maine employer for decades to come.
“A great old shipyard that got its start in the 19th century will have all the support necessary to be a formidable shipbuilder well into the 21st century,” Chabraja, who stepped down as CEO in 2009, said, according to the paper. “In support of BIW, you’ve put your money on the people of Maine—and on a shipyard that will now be around for another hundred years.”
But, little more than 20 years on, officials at General Dynamics are no longer so sanguine. They’re back at the negotiating table, saying the company needs an extension of a key $60-million tax credit component of the 1997 deal in order to remain competitive with a rival shipbuilder in Mississippi.
“This is a problem,” Philip Mattera, research director at the Washington, D.C.-based policy resource center Good Jobs First, said in a recent phone interview. “Companies get hooked on these kinds of financial assistance, and they can always come up with another rationale for it.”
Mattera added, “If public officials believe them, they’re going to come up with more money.”
Bath Iron Works says it has “never operated in a more competitive environment” for new shipbuilding projects than it does right now, according to a news release quoted in the Bangor Daily News. The company has pointed to state subsidies to Ingalls Shipbuilding of Pascagoula, Miss., which competes with the Bath shipyard on Navy contracts, as justification for an extended tax credit.
However, the extent to which Bath Iron Works is feeling the pinch, or will in the future, is open to debate.
Records available at usaspending.gov show the company scored more in federal contract dollars during the government’s last fiscal year than in any other single year since 2011. At more than $2-billion in contract awards for 2017, Bath Iron Works received nearly double what it got from the Defense Department in 2016, and more than double what it received in 2015 and 2014, respectively.
The U.S. Navy’s shipbuilding budget could also expand substantially in the coming years as some key lawmakers and naval officials call for a major expansion of the country’s naval fleet.
Bath Iron Works, and Ingalls Shipbuilding are the sole builders of Arleigh Burke-class destroyers, 77 of which have been procured since 1985, according to the Congressional Research Service. Last month, the Navy announced it plans to issue a request for proposal to construct 10 Arleigh Burke-class ships between fiscal years 2018 and 2022.
In April 2017, the financial news website InvestorPlace named General Dynamics one of “3 Defense Stocks to Buy Now As Tensions Escalate.” In explaining the recommendation, author Aaron Levitt pointed to the long history Bath Iron Works, and submarine maker Electric Boat, another General Dynamics subsidiary, have building ships for the U.S. Navy.
“That’s wonderful for GD, considering President Trump wants to expand the number of ships from 275 to 355,” Levitt wrote.
The Maine bill proposing a new tax deal to Bath Iron Works is being introduced by state Rep. Jennifer DeChant (D-Bath). When asked by email about the company’s recent success in landing Navy contracts and its previous stance that a shipyard renovation would position it to be a “formidable” company for decades, DeChant said, “These aspects will be asked and addressed during the Committee process as it reviews, evaluates and works this bill.”
“BIW is the largest employer in my District,” she said. “The bill I submitted keeps the employment level as high as possible.”
But critics in the state say they have good reason to be suspicious of the company’s motives, rationale, and any future promises.
In 1997, employment at Bath Iron Works stood at roughly 7,400, according to the Press Herald, and company officials suggested “jobs might not survive without [an] expansion” subsidized by taxpayers. News reports have placed more recent worker ranks between 5,500 and 6,000, depending on the company’s workload.
Mattera, of Good Jobs First, said Bath Iron Works’ track record under General Dynamics calls into question the very rationale of the initial deal.
“Really the only justification for giving subsidies to companies is for job creation,” he said. “It really is not a good situation for taxpayer money to be used to help a company downsize.”
The original tax deal, as outlined by Good Jobs First, allowed Bath Iron Works to be incrementally rebated $81-million from the city of Bath, and provided for an additional $113-million in state-approved tax benefits, including a $60-million provision that permitted the company to annually keep a share of worker income tax withholdings, a credit set to expire this year that the company says it still needs.
Mattera said subsidy programs like the one that allows General Dynamics to benefit from worker withholdings have been used in numerous states. He added it can be a sign companies are already paying relatively small amounts in corporate income tax.
“The reason why a lot of states have resorted to that approach is because companies did not have that much of a corporate tax liability,” he said. “In a sense the corporate tax incentives weren’t appealing enough. What it tells you is that companies are already getting away with a lot.”
Mattera said, “It’s one thing to say that companies should get a break on their own taxes. But once you start giving them access to the tax revenues coming from other parties, including their employees, you’re really giving away the store.”
According to a 1997 article in the Press Herald, before it was acquired by General Dynamics, Bath Iron Works paid the state of Maine $400,000 annually in corporate income tax. Citing Chabraja as its source, the newspaper reported, “Under General Dynamics’ ownership, BIW will pay $6 million to $8 million a year.”
When reached by email, David Heidrich, director of communications for the Maine Department of Administrative and Financial Services, said he could not disclose the amount Bath Iron Works pays in corporate income tax because of taxpayer confidentiality rules.
Good Jobs First, which advocates for more equitable economic development practices, encourages states and municipalities to examine multiple factors before awarding subsidies to a corporation, including its pay scale, treatment of workers, and any fines or violations alleged against the business.
Since 1997, Bath Iron Works has drawn repeat scrutiny from the federal Occupational Safety and Health Administration, which has alleged multiple and serious worker health and safety violations by the company. Allegations include the use of unsafe scaffolds and ladders, blocked exits and fire extinguishers, defective industrial trucks, non-waterproof electrical boxes, unmarked electrical disconnects, and inadequate or missing guardrails, according to news reports.
The Press Herald reported that OSHA termed some of the alleged violations “repeat, willful and serious” and said “many of the violations could have led to serious physical harm or death.”
“Job quality doesn’t only mean pay; it also means safety,” Mattera said. “If a company has a bad record on safety, that should be as disqualifying as a bad record on wage levels.”
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