Capitol Alert: State subsidy for fighter plane contracts has rough landing

07/01/2014 10:58 AM

07/02/2014 8:33 AM

Fast-track legislation that would provide a multi-million-dollar state subsidy to help California win manufacturing subcontracts for a new Air Force fighter plane had a rough landing Tuesday in the state Senate.

The Senate Finance and Governance Committee approved the measure, Assembly Bill 2389, but only after adding amendments to limit its effect on the state's treasury, which proponents said could undermine hopes of gaining the project in competition with other states and companies.

The Assembly approved AB 2389, carried by Assemblyman Steve Fox, D-Palmdale, last week in hopes of getting it to Gov. Jerry Brown's desk before the Legislature leaves Sacramento for a month-long summer recess later this week.

It would grant tax credits totaling $420 million over 15 years for manufacturing, including "major first-tier subcontractors," on the F-35 Lightning II project for which Lockheed-Martin is the chief contractor. Qualifying firms would get tax credits for 17.5 percent of wages paid to manufacturing workers on the project.

Lockheed-Martin – which has a major facility in Fox's district – other elements of the states aerospace industry, business groups and Brown's "Go-BIZ" investment office all support the credit. They say the economic activity generated by winning contracts in California would offset the cost.

But the Senate's leadership, including President Pro Tem Darrell Steinberg, want the money to come from Brown's "California Competes" program of subsidies to new business, which has financial limits, rather than be paid outside the program, which would increase its hit on the state general fund.

Fox and other backers of the bill said placing those limits might undermine California's position vis-à-vis contractors in other states in the Defense Department and refused to accept them, But the chair of the committee, Sen. Lois Wolk, D-Davis, insisted on their inclusion and they were inserted into the bill on a 4-2 vote, sending it to the Senate Appropriations Committee.

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