Golden State Today

State and local governments are grappling with unprecedented budget shortfalls as the impact of COVID-19 continues to reverberate throughout the economy. Here in California, the budget hole is more than $50 billion, yet lawmakers approved a plan that could hurt employers, slow our recovery, and curtail future innovation and growth by taking aim at Research and Development (R&D) Tax Credits and the Net Operating Loss (NOL) provisions.

Companies big and small across the state rely on the R&D Tax Credits and NOL provisions to improve current technologies and develop new ones. Without these essential tools, California businesses will suffer. This is particularly true for our Aerospace industry, which accounts for more than half a million jobs, produces more than $62 billion in annual economic activity, and generates over $7 billion in state and local taxes annually. Without the current R&D Tax Credit and NOL provisions, these jobs at risk. 

Further, it places an additional burden on companies that are among the hardest-hit by COVID-19. Air travel fell 95 percent in April, and is currently 75 percent below 2019 levels. Industry groups project it will take another three years before passenger travel volumes to return to where they were last year. Airlines across the globe are restructuring or risk going bankrupt. Many others airlines are canceling orders for new aircraft every day. In this rapidly-evolving market, companies need the NOL provisions to remain solvent through this crisis. If these businesses go under, it will have long-term negative effects on commercial air travel when it begins again in earnest. 

The supply chain can’t be turned on and off like a light switch. It takes time and money to replace suppliers that go out of business. That delays production and delivery of aircraft, ultimately causing fewer flights at greater expense. During my more than 40 years in the aerospace industry, I witnessed how critical research and development is. Without opportunities to test new theories, try innovative ideas, and develop new technologies to improve safety and performance, we would not have the travel industry we’ve enjoyed for decades. Research and development is imperative to ensuring that the highest quality products enter the market. 

The NOL provisions and R&D Tax Credit are not only vital to our economic recovery, but are crucial to ensuring California remains a leader in the global aerospace industry. COVID-19 has and will continue to change the way we live and work. 

Businesses and individuals need to adapt to the “new normal” in order to be successful now and in the future. Our leaders must put forward smart policies that take the current challenges into account and encourage continuing research and development, not stifle it.

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David Spong is a Performance Excellence Consultant with more than 40 years’ experience in the aerospace industry. He retired from Boeing as President of Aerospace Support for Boeing Integrated Defense Systems in 2004. An engineer and scientist by training, Spong earned a doctorate of science degree in engineering from Washington University of St. Louis and a master of science in engineering from the University of Rolla.