Copyright © 2004 by Seattle Weekly
• Boeing Wins, Dec. 24, 2003
• $64 Billion Falls Through the Tax Cracks, Feb. 18, 2004
A consulting company that the state of Washington paid $715,000 to help land the new Boeing Dreamliner assembly plant was also a paid consultant for Boeing, and its sister company is Boeing's auditor. Deloitte Consulting, which has earned more than $5 million from its work for Boeing in recent years, speedily compiled a state advisory study last June that inspired Gov. Gary Locke to hand Deloitte client Boeing a tax break worth an estimated $3.2 billion over 20 years.
Insiders say Deloitte put the tax-break approach on Locke's table. State documents also show the company urged Locke to do something "extraordinary," such as giving Boeing hefty tax subsidies similar to those its rival, Airbus, receives in Europe.
The Locke-Deloitte-Boeing connection, known to state insiders but not noted publicly until now, raises questions about ethical and financial conflicts in hiring Boeing's consultant to recommend how public assets should be used to benefit Boeing and the consultant. On the taxpayer's dime, Deloitte effectively lobbied for tax relief that its other client has long sought. After Locke offered the single biggest tax incentive in state history, Boeing in December agreed to build its new, fuel-efficient Dreamliner in Everett. The lame-duck governor triumphantly declared the tax giveaway was a symbol of Washington's new way of doing business (see "Boeing Wins," Dec. 23, 2003).
Deloitte and its sister corporation, Deloitte & Touche, Boeing's longtime outside auditor, have an interest in seeing Boeing succeed. The Deloitte firms earned at least $52.2 million in fees from Boeing in 2001–2002, the latest figures available.
"How this isn't a conflict of interest," says Jason Mercier, an analyst with the Evergreen Freedom Foundation, a taxpayers' watchdog group in Olympia, "is beyond me." The foundation is fighting for disclosure of contract documents the state and Boeing deem privileged. The state has released hundreds of contract pages it once claimed contained trade secrets—which, it turns out, didn't. But a judge has allowed Locke and Boeing still to withhold nine key contract pages from public view.
The state says it cleared the Deloitte arrangement legally—and with Boeing. In a statement, Locke's office says Martha Choe, former head of the Department of Community, Trade, and Economic Development (CTED), "cleared the selection of Deloitte Consultants LLP through the state attorney general's office. CTED contracted with Deloitte Consultants LLP, a separate—although affiliated—entity from Deloitte & Touche LLP, which has provided audit services to Boeing since 1932. The Boeing Company expressed no concerns regarding the selection." Boeing spokesperson Peter Conte says Boeing "did not have any objections or concerns."
Deloitte did not respond to requests for comment. In a Feb. 5 interview with the weekly Mercer Island Reporter, Deloitte's Olympia team leader, Tom Captain, who is also part of Deloitte's private Boeing consulting team, appeared to take credit for his client's massive tax break. "It was unbelievable," the paper quoted him as saying. "Not only did they [the state] do all we asked them to do, they also fixed the other things" Boeing wanted, including unemployment and worker compensation reform and a $24 million workforce training center. "I know what's important to Boeing," Captain added.
Deloitte Consulting and Deloitte & Touche are held by Deloitte Touche Tohmatsu, a global provider of auditing, tax, and corporate consulting services. According to the U.S. Securities and Exchange Commission (SEC), Boeing in 2001–2002 paid Deloitte $33.6 million for auditing services, $13.3 million for tax services, and $5.3 million for consulting.
Deloitte has already assumed audit responsibility for the 7E7's development. Boeing's latest SEC filings, dated March 5, outline the prospect of growth and costs related to the airplane. The filings were audited by Deloitte & Touche during the same period Deloitte Consulting was advising Locke on 7E7 strategy.
In its promotional material, Deloitte regularly cites Boeing as one of its famous clients (along with Microsoft and Nordstrom, among others). The company also promotes Boeing's products. "You can bet that there are people waiting to commit to this," the 7E7, a Deloitte spokesperson recently told The New York Times. "In the first few months, they should accumulate a good book of orders."
Deloitte was hired for the 7E7 job by Locke and Choe last May after Boeing announced its site selection criteria in a nationwide competition for the prized next-generation assembly plant. A 10-member Deloitte team had only a month to collect economic data and devise a strategic approach. Both Locke and Choe—now the state-paid 7E7 program coordinator—said Deloitte's report was the key to victory.
According to state documents, one of Deloitte's persuasive presentations, called Project Blue Sky, urged Locke to mount "an extraordinary response to provide a competitive environment for the 7E7." Charts and graphs made sharp comparisons to Airbus, which has passed Boeing in passenger-jet sales. One presentation notes that "Airbus receives significant external support: The A380 launch was 40% funded with government and supplier aid." Locke's $3.2 billion break brought Boeing's total state tax incentives to more than $4 billion, experts estimate.