BATH

On Thursday, the Maine House of Representatives got its first look at a new bill that would provide up to $60 million in tax incentives for Bath Iron Works over 20 years.

The bill, sponsored by Rep. Jennifer DeChant, D-Bath, comes as a similar tax incentive is set to expire. The Shipbuilding Facility Tax Credit, which was approved by the Legislature in 1997 as part of a $198 million tax incentive package for the shipyard, expires this year. Under that legislation, BIW was able to receive an annual tax credit of $3 million every year for 20 years, not to exceed $60 million, as long as it invested $200 million in its shipbuilding facility.

DeChant’s bill is, in effect, a renewal of that 1997 credit with a few significant changes. However, whereas the 1997 legislation allowed a set tax credit of $3 million annually, the new bill allows an annual tax credit of 3 percent of cumulative qualified investments of at least $100 million in the shipyard.

As before, the credit is capped at $60 million over 20 years.

According to BIW, the change in the bill’s mechanics merely reflects the structure of the more recent IDEXX Headquarters Credit, which was passed by the Legislature in 2017 and also works as a percentage and not a set sum as in the 1997 credit.

Competition

“Whether expressed as 3 percent of $100M or $3M, the tax credit helps the shipyard compete against Huntington Ingalls in Mississippi,” reads a statement issued by the shipyard. “Ingalls’ entire shipyard was built in 1967 with state funds. Ingalls leases the land from the state for just $130,000 a year, far less than BIW pays in property taxes.”

Ingalls is BIW’s sole competitor for Arleigh Burke-class destroyers, the company’s most constant source of work for decades. Both shipyards are currently preparing for the next multi-year contract for 10 of the guided missile destroyers.

In its statement, BIW pointed to millions of dollars in state funding that has been provided to Ingalls in recent years as a reason for the new tax credit. According to BIW, Ingalls received state bond money in the amount of $45 million in 2016; $20 million in 2015; $56 million in 2008; $56 million in 2006; and $40 million in 2005. Additionally, in 2013 Mississippi provided $20 million to construct a 70,000- square-foot training facility at their shipyard.

“BIW builds complex surface combatant ships for the U.S. Navy, a customer who wants to buy ships as quickly and inexpensively as they can get them,” the company states. “Mississippi understands that dynamic as well as the economic impact of having part of the nation’s shipbuilding industrial base in their state. That is what BIW is up against.

“BIW must compete for work against a shipyard which is well equipped and aggressively seeks to win work that might otherwise come to Bath,” the shipyard stressed.

Investment

One major change is that while the 1997 credit required an investment of $200 million, the new proposal requires only half that. That could reflect the on-the-ground reality at BIW, where there’s been no hint at a major infrastructure overhaul. In 1997, the company had several major projects planned as part of a modernization of the shipyard, most notably the Land-Level Transfer Facility, which completely changed how the shipyard transferred vessels from land to water.

According to the latest report from Maine Revenue Services, as of 2016, BIW had invested $480,736,639 since the credit went into effect.

In testimony before the Senate Armed Services Committee Subcommittee on Seapower last year, General Dynamics Executive Vice President of Marine Systems John Casey said that BIW could double current DDG production with “no significant capital investment in new facilities,” though it could use additional funding for job training.

“Investment will occur in various parts of the shipyard, including production machinery and equipment in its facilities located in Bath and Brunswick,” said BIW in a statement. “Investments in training as well as in maintaining significant facility infrastructure like the Land Level Transfer Facility and dry dock are critical to being able to construct and launch ships in the Kennebec River.”

Employment

In order to be eligible for the full tax credit, BIW must maintain an employment level of 5,000. Falling below that level will cause the credit to decrease. The shipyard can have two “exception years” in the 20-year time frame where it can fall below certain employment thresholds without losing the credit; 5,000 up to 2023 and 4,000 for the remainder.

On the other hand, if employment levels are above 5,250, the company will be eligible for a 3.67- percent credit instead of 3 percent.

According to the bill’s summary, the purpose of the proposal “is to encourage major investments in shipbuilding facilities in this state, to ensure the long-term survival of the shipbuilding industry, to preserve numerous opportunities for jobs for the people of this state and to make the state more competitive in the shipbuilding industry and thus ensure the preservation and betterment of the economy of the state for the benefit of its people.”

The Legislature referred the bill to the Taxation Committee, where it will be scheduled for a public hearing. If enacted, the legislation would go into effect in 2020 and expire in 2039.

DeChant did not return a request for comment on this story.

However, the shipyard addressed how the credit will also benefit the rest of the state.

“BIW is a significant economic engine for the state of Maine,” according to its statement. “With a payroll in excess of $350 million a year and $45 million ($30 million to small business) in payments annually to 300 Maine companies for goods and services, BIW’s impact is felt throughout the state. The credit will benefit the shipyard by lowering the cost of doing business in Maine and helping BIW’s competitive position relative to its competitor in Mississippi.”

nstrout@timesrecord.com

At Ingalls

• BATH IRON WORKS, in a statement, pointed to millions of dollars in state funding that has been provided to competitor Huntington Ingalls in Mississippi in recent years as a reason for the new tax credit. According to BIW, Ingalls received state bond money in the amount of $45 million in 2016; $20 million in 2015; $56 million in 2008; $56 million in 2006; and $40 million in 2005. Additionally, in 2013 Mississippi provided $20 million to construct a 70,000-squarefoot training facility at their shipyard.