AUGUSTA — Democratic State House leaders are threatening to roll back a $45 million tax break granted to Bath Iron Works, questioning whether the shipyard is meeting job creation and pay requirements outlined in a 2018 law.

House Speaker Sara Gideon and Senate President Troy Jackson sent a letter to BIW President Dirk Lesko noting that since the legislation passed, the average wage at BIW has declined, the company has hired mostly low-wage scale workers, and that it is planning to hire out-of-state subcontractors.

“We championed this legislation based on the promise of continued good-paying  jobs at the BIW shipbuilding facility,” Gideon and Jackson wrote in their letter dated Dec. 20. “It would be unfortunate if the Legislature had to reconsider this special tax credit because of the ever-growing evidence that BIW has not lived up to their end of the bargain.”

BIW Vice President and General Counsel Jon Fitzgerald, replied to the lawmakers on Dec. 23, disputing the allegation that the shipyard hasn’t met its obligations. He pointed to a tight labor market, the retirement of highly skilled workers who earned higher wages than their replacements, and the requirement to meet Navy deadlines for completing work on ships.

“While it is your prerogative to revisit the terms of the prior legislative approval of this tax credit, we ask you to stay the course,” Fitzgerald wrote. “BIW has lived up to the bargain it struck with the Maine Legislature almost 2 years ago.”

Lindsay Crete, press secretary for Gov. Janet Mills, also a Democrat, said Wednesday that Mills had no knowledge of the letter.

“The governor was not aware of the correspondence, but she believes it is important that companies who receive taxpayer-funded incentives meet their requirements as established by law,” Crete said in a written statement.

However, top Senate Republicans blasted Gideon and Jackson in a joint statement.

“It is mindboggling to me that the Democratic leadership of the state Legislature would send a letter to one of the state’s largest employers – one that provides good wages and benefits to thousands of Maine workers –threatening them with a ‘reconsideration’ of their tax credit because they were not able to hire enough local workers in what everyone knows is a very tight labor market,” Assistant Republican Leader Jeff Timberlake said. “I know that Speaker Gideon and President Jackson did not speak for Senate Republican leadership in this letter.”

Sen. Dana Dow, the Republican leader, said he chaired the Taxation Committee when the bill was heard in 2018, and that BIW was performing well under the circumstances affecting its workforce.

“From the response by BIW, it is clear to me they have more than met their obligations as intended by the Legislature at that time,” Dow said. “I am disappointed that this major employer of Maine workers was forced to respond to unfounded allegations and threats from Democratic leadership.”

The tax break legislation, which provides a $45 million credit over 15 years, was approved with broad bipartisan support. It passed the House of Representatives on a 117-31 vote and cleared the Senate a day later on a 25-9 vote. The original bill would have provided the company with $60 million in tax credits over 20 years, but the amount was whittled down by lawmakers.

During debate on the measure, the bill’s sponsor, Rep. Jennifer DeChant, D-Bath, said that BIW had an annual payroll of $350 million, drew employees from all 16 Maine counties and contracted with more than 300 other companies in the state.

“There is no denying, Madam Speaker, that BIW is a statewide economic driver,” DeChant said on the House floor in March 2018.

The company pays well over $10 million a year in real estate and personal property taxes to the city of Bath, according to municipal tax records available online. But BIW’s state tax payments are not a matter of public record and were not disclosed when the Legislature took up the bill, and Fitzgerald did not reveal them in his letter to Gideon and Jackson last month.

However, Fitzgerald did highlight the company’s annual payroll, which now exceeds $374 million. He said BIW hired 2,000 new employees since the law passed, spent $13 million on recruitment, hiring and training, and intends to hire another 1,000 workers this year. The company also has invested $100 million in new equipment, tools and facilities, as it promised to lawmakers, Fitzgerald wrote.

BIW currently employs 6,700 workers. In 2017, when the shipyard had roughly 5,600 employees, it was Maine’s fourth-largest private employer and the state’s largest manufacturer.

In his letter, Fitzgerald acknowledged that the average annual wage for production workers at BIW has dropped from $53,000 a year to $49,379, but he also points out the company saw the voluntary retirement of some 700 skilled workers.

“This exodus of very senior employees and the disproportionate influx of lower skilled employees – which simply reflects what the market has to offer – is the reason why the average annual base wage for production workers has (decreased). …” Fitzgerald wrote.

He noted that BIW’s average annual wage for all employees of $58,178 far exceeds the law’s requirement that it be greater than the average annual per capita income in Maine of $31,253. Its average wage for its production workforce of $49,379 greatly exceeds the state’s average production worker wage of $41,414, he said.

A BIW spokesman said Wednesday that the company would have no comment beyond Fitzgerald’s letter.

Members of Local S6 of the International Association of Machinists, the union representing the largest number of workers at the shipyard, referred questions Wednesday to the union’s national spokesman, John Carr. He did not respond to a request for comment.

Under the terms of BIW’s collective bargaining agreement with the union, the company has been negotiating how it plans to use outside subcontractors to perform certain jobs at the shipyard, Fitzgerald said in his letter. He said the company’s subcontracting efforts did not violate any terms of the tax credit law.

“BIW simply does not currently have enough people to complete work in the needed sequence,” he wrote. “BIW has contractual obligations to meet Navy contract delivery schedules. BIW must meet those schedules if it wants an opportunity to win new, available work from the Navy.”

A number of local union members voiced their support for the tax credit when it came before the Legislature. At the same time, dozens of people testified in opposition to the bill as a gift to BIW’s parent company, General Dynamics.

Gideon, who is seeking her party’s nomination to challenge incumbent Republican Sen. Susan Collins, has faced criticism on the campaign trail from members of her party for supporting the tax cut for General Dynamics. Gideon herself has been critical of Collins’ support for a federal tax bill that provided federal tax cuts to U.S. corporations in 2018.

Gideon and Jackson issued a joint statement about their letter on Wednesday.

“The Senate president and the speaker of the House believe that Bath built is best built and that means employing talented Maine workers, not out-of-state contractors,” they said. “We look forward to working with BIW to ensure the company and its employees continue to succeed.”

No new bills to roll back the the tax credits have been introduced at the Legislature, which started its work for 2020 on Wednesday.

 

 

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