Negotiations between aircraft manufacturer and potential Louisiana economic development target Hawker Beechcraft and the state of Kansas were thought to be all but agreed upon after Kansas Governor Mark Parkinson’s seven year incentive-filled deal was accepted by CEO Bill Boisture. However, the deal was contingent upon the aircraft workers union accepting the contract as a part of their new labor agreement. All sources close to the situation expected that the union would be acquiescent to the deal, including the union spokesman, Bob Wood.
On Saturday, though, the union surprised everyone by voting against the deal based on the caveats of the negotiation that would negatively affect job security. And in doing so, a somewhat-controversial but thought-dead potential Louisiana acquisition is now likely back on the table.
It was a shock to all officials familiar with the proceedings, including John Carpenter, aide to Baton Rouge mayor Kip Holden:
It looked to me like it was a contract they’d approve,” Carpenter, Holden’s aide, said. “I think it will take a week for the company to figure out what went wrong,” he said. “Until we find out a little more, I don’t know what it means.”
Union spokesman Bob Wood was on the record saying that union officials had actually encouraged its members to vote in favor of the deal. It was a vote that required a simple majority but was defeated by an opposition vote of 55%. However, Wood did give voice to the reasoning behind the negative reaction:
There’s a lot of mistrust out there about the company,” Wood said. “And those were very, very deep demands and cuts by the company.”
The deal proposed by Governor Parkinson was the most advantageous offer available to Hawker Beechcraft from a business standpoint. However, though it is extremely beneficial in this regard, it is not quite so appealing to union members who face several “very, very deep demands:”
Some 350 salaried employees will be laid off by Nov. 1. The union had estimated about 820 of the approximately 1,720 machinists’ jobs would have been cut under the proposed contract. It was not immediately clear what would happen to those jobs now.
[The] contract…contained a 10 percent wage cut to salaries that average $27 an hour and other concessions.
With the rejection of the negotiations, the door is reopened for the company to consider changing venues. Boisture, Hawker Beechcraft CEO, acknowledged that during the original shopping venture, the company had narrowed its interests to Louisiana and Mississippi. There is also a report that Louisiana had offered as much as $400 million for the relocation of the entire enterprise and $100 million for a portion of the industry.
However, these lucrative incentives have come under scrutiny by Kansas federal representatives. Republican Senators Pat Roberts and Sam Brownback expressed suspicions that Louisiana authorities were misusing federal relief funds in the form of United States block grants to “pirate” the industry from Kansas. The Senators along with Kansas representative Todd Tiahrt have called for a federal audit of Louisiana monetary appropriations. They also had choice words to say about the “unethical” behavior of Louisiana officials:
“I don’t think economic recovery for Louisiana should mean economic disaster for Kansas,” Tiahrt said
Sen. Pat Roberts said he supported Tiahrt’s inquiry. “Congressman Tiahrt is asking tough questions that need to be answered,” he said. “We must know all of the facts to ensure that taxpayer dollars are not being misspent at the expense of our state.”
The most accusatory statement came from Representative Tiahrt in response to the $400 million dollar Louisiana proposal, seeming to indicate he was incredulous that the state had the money to pay for such a deal without delving into federal relief appropriations:
Where is Louisiana getting the money for that kind of incentives package?” Tiahrt asked, “How does a state with 60 percent more population and similar gross revenue as Kansas come up with a package that big?”
Moret said he was unsure what “federal hurricane recovery” money the Kansas officials were talking about. Based on a conversation with Tiahrt last week, Moret said he suspected they were talking about Community Development Block Grants, called CDBG, which are overseen by HUD.
If these grants are the target of the allegations, it is unlikely that the accusations contain any substance. The U.S. Department of Housing and Urban Development is in direct control of approving federal aid spending:
Each use of CDBG must be approved by HUD following strict guidelines that specifically forbid spending on projects that would relocate jobs from other parts of the United States.
So, in order for Louisiana to abuse the funding provided by the federal agency, this abuse must be directly approved by the federal department. Further restrictions on the usage of federal aid funds make it nearly impossible for Louisiana authorities to mismanage resources. This money is tightly controlled by the federal government. It is not “cash on hand” waiting to be spent, but rather, the aid money is provided in the form of “authorization that allows reimbursement of already paid bills.”
In other words, this federal aid requires HUD to retroactively approve audited invoices of state expenditures. In the absence of this approval, the money would be coming exclusively from the state. Therefore, given the $100 million plus budget deficit facing Louisiana, it is unlikely state authorities would authorize such expenditures without first recieving advance approval from HUD for federal aid.
Regardless, the underlying issue is not a conflict between two states over control of an aircraft industry. It is the broader problem of attrition enacted by the federal government against corporations. Stringent government regulation creates situations of cut-throat competition between states. Our corporate tax rate is astronomical compared to other Western countries. Tiahrt addressed the issue:
A transformational shift is needed to ensure a favorable business climate in this country,” Tiahrt said. “Corporate taxes in the U.S., for example, are 35 percent, while Canada’s are 18 percent. And actions should be taken to streamline and help bring down the high cost of complying with a myriad of regulations the aviation industry must comply with.”
He also alludes to the relatively recent problems facing the private aircraft industry. During Obama’s presidency, the market for private aircraft has effectively collapsed, and his economic policies have surely played a role in this implosion. Over the last few years of economic recession, this industry has shrunk by a staggering 40%. These specific economic factors combined with broader corporate regulatory policies have created an industrial culture of desperation. The inevitable consequence of this industrial desperation is the onset of degrading interstate relations over competition for industries perpetually on the auction block.
Of course, another important issue here is the negative impact of powerful unions on business practices. In this case, the power of union veto eliminated the potential for a struggling corporation to take advantage of an incentive-laden business deal. The ridiculous power of labor unions cripples industry, and this situation is a prime example. Without union special interests, this entire issue of cut-throat competition over national industry would be far less extensive. However, the power of union veto essentially guarantees labor unions the power to change the business dynamics of the corporation.
However, since this interstate competition is the reality of our economic situation, states have to play within these parameters. While Louisianians would obviously prefer the state government to foster an environment conducive to the voluntary influx of industry, in the absence of this situationthe state must do whatever it takes to remain competitive on the national level. If that means effectively bribing a private aircraft industry, so be it. The fact of the matter is, if this company is likely to seek opportunities elsewhere in this country, why not make that location Louisiana? Furthermore, there is a distinct possibility that Hawker Beechcraft will decide to outsource its services overseas. Since there is a chance of that, Louisiana will be doing the entire country a favor by buying out the industry’s services.
The simple fact is that our economic situation is a zero-sum game. There are winners and losers. The economic pie has a limited number of pieces, and one state’s gain is another’s loss. It is an unfortunate situation to be sure, but it is simply irresponsible to ignore this reality. Perhaps different economic regulatory policies would have resulted in less conflictual conditions, but that is irrelevant at this point. The reality of our economic climate has resulted in a huge mess of national infighting. These tough times will pass, but in the meanwhile let’s grab as many pieces of the pie that we can and hope we come out on top in the end. Every other state should be doing the same. It’s not personal. It’s business.