It is official. Boeing will consolidate its 787 manufacturing in South Carolina. This news has many implications for the state including a direct impact on the state’s budget outlook. Although the September revenue forecast didn’t make an assumption about what Boeing would decide, a downside risk to the forecast was if South Carolina was picked.

From the September revenue forecast:

“The potential consolidation of Boeing 787 production in South Carolina and resulting decline in Washington aerospace employment is also a major concern.”

Responding to the news that Boeing would likely pick South Carolina, the Governor said earlier this week:

“If this report is true, it would force a review of that partnership, including a hard look at the company’s favorable tax treatment.”

At Boeing’s request the legislature earlier, this year repealed the preferential aerospace B&O tax rate responding to a World Trade Organization complaint. From the bill report:

“Beginning April 1, 2020, the preferential B&O tax rate for the manufacturing, wholesaling, and retailing of commercial airplanes, airplane components, and tooling is eliminated.”

The Governor said last year that approving those prior aerospace tax preferences was the equivalent of being “blackmailed” and “mugged.”

Boeing said this about its decision today:

“It became clear that consolidating to a single 787 production location in South Carolina will make us more competitive and efficient, better positioning Boeing to weather these challenging times and win new business.”

Although the September revenue forecast made no assumption about the decision Boeing would make, a deficit was already projected for this budget and a shortfall in the next budget.

As a reminder, the Governor has a legal obligation to order budget cuts unless the legislature acts if a cash deficit is forecasted. It is clear that a special session is still warranted.

– Mercier is Director, Center for Government Reform for the Washington Policy Center, Tri-Cities office.