State economic development officials have taken a major step toward getting more aerospace jobs in Utah by signing an agreement with McDonnell Douglas that provides money to bring equipment from Long Beach, Calif., for major commercial aircraft assembly.
Lynn Blake, co-director of the Utah Division of Business and Economic Development, said the agreement has been signed by Stanley B. Parrish, Utah Department of Community and Economic Development executive director, and forwarded to McDonnell Douglas officials in Long Beach for signature.Blake said the company expects to draw between $3 million and $4 million in the next few months from the $10 million Industrial Assistance Fund established by the recent Legislature. McDonnell Douglas officials asked the Legislature for a $10 million loan to transfer their equipment to their existing plant in Salt Lake City so entire fuselages can be assembled.
Currently, the 600 employees at the McDonnell Douglas plant assemble floor sections and other components that are shipped to Long Beach for final assembly.
An explanation of how the fund will work was given Tuesday to the Board of Business and Economic Development. The bill establishing the fund said the money will be administered by Parrish's department under direction of the board.
That means the division will hire a person to monitor how the money is being spent and a subcommittee of the board will serve in an oversight capacity.
Blake said 45 states have funds to assist businesses, but Utah's is the only one that requires repayment. He said state officials face a major public relations effort to let the public know how the fund works.
Some board members were concerned about their liability in the event that someone borrowing from the fund goes bankrupt, so Parrish invited John Clark, assistant Utah attorney general, to explain their responsibility.
He said the Governmental Immunity Act prohibits them from being liable for any money lost from the fund because a company goes into bankruptcy, and when a new law passed by the 1991 Legislature becomes effective April 29 they also will be immune from punitive damages.
Clark said the board can act as the lender and department officials can administer the loan and apply strict standards to make certain the state is repaid. He said if it looks as if McDonnell Douglas can't meet its repayment commitment, the board has the authority to deny future funding.
Parrish said the agreement is predicated on the assumption that even if McDonnell Douglas goes into Chapter 11 bankruptcy but continues to manufacture airplanes, the state will get its money back as long as the company has back orders for aircraft and options from consumers to purchase additional airplanes.
Although HB451 was passed to help McDonnell Douglas, the bill allows for any qualifying company to receive loans or other financial assistance from the fund related to establishment, relocation or development of industry in Utah.
In exchange for the loan, anyone borrowing from the fund must demonstrate they will spend $5.70 in the state with contractors and subcontractors for every $1 borrowed from the fund.
Also, the borrower must spend $10 million more in Utah than it spent in the previous year and also must demonstrate that the company's economic activity in Utah will be sufficient to repay the money borrowed.
According to the agreement, McDonnell Douglas will spend more than $500 million on aerospace and create at least 2,500 new jobs in Utah in the next 10 years.