Washington needs to compete for jobs

SEATTLE — Boeing’s announcement that it will build the second 787 production line in Charleston, S.C., is a sobering economic signal.  We should not ignore it.

Washington has had tremendous homegrown companies like Boeing, Starbucks, Amazon and Microsoft. But we cannot take it for granted that when these companies move jobs to other states, new companies will simply spring up here to replace them.

Boeing is not unique. Companies with headquarters in Washington frequently pick other states in which to locate their facilities.  Amazon and Expedia have company headquarters here, but their data and fulfillment centers are in other states where they can operate at lower cost. 

Dendreon developed its new drug for treating prostrate cancer here, but when the time came for this Seattle company to build commercial production facilities, the jobs and investment went to Atlanta and Los Angeles.

Politicians are accountable to voters for the local job environment they create.  Employers are accountable to shareholders for costs when deciding where to locate new facilities and jobs.  The working people of Washington need win-win partnerships, not stalemates, between them.

Counties along the Columbia River offer the nation’s lowest power rates. That should make Washington a natural home for cloud computing and Internet data centers, but not only are companies not coming here from out of state, Washington-based companies are selecting other states with higher power rates to house their data centers.  Why?

One answer is that our local economic development activities need to be updated for the new economy. 

A timber company that wants to build a $500 million pulp mill here receives a sales tax deferral on the plant and equipment.  Sounds good for the economy, but in reality a pulp mill hasn’t been built in Washington in more than 20 years.   If a technology company wants to locate a $500 million cloud computing center here, it is expected to pay full sales tax on the plant and equipment up front.

Sales tax is a particular problem for these computing centers because most of the cost of the centers comes from servers and routers, which must be replaced every three to five years, repeatedly putting the state at an economic disadvantage.

This is one of the reasons we see cloud-computing facilities going to states like Oregon, Texas and North Carolina.  Either these states have no sales tax or they offer exemptions to attract these investments.  In our case, neighboring Oregon gets the jobs, tax base and economic activity for these centers using cheap power generated in Washington.

Attracting computer centers to our state would be a huge win for Washington.  They create jobs to build, operate and service, they pay property taxes that provide economic stability to the counties and schools where they are located, and they attract suppliers and support infrastructure firms that are drawn to locate nearby.

Washington can be a worldwide leader in cloud computing and the new Internet economy but to make that happen we must remove barriers in the tax system that drive the investment to other states.

Now is a good time for us to focus on retaining good jobs here as well as on attracting the new jobs of the new economy.   The new economy is being created in large part through the vision and leadership of homegrown Washington companies.  It is ironic indeed that the cloud computing centers that power it are being located elsewhere despite our natural competitive advantages right here at home.

Mike Brown has lived in Washington for 56 years.  He is a graduate of the University of Washington and is past CFO of Microsoft and past Chairman of the Nasdaq Stock Market.