GENERAL DYNAMICS Bath Iron Works Jon A. Fitzgerald Vice President General Counsel December 23, 2019 Honorable Troy Jackson Honorable Sara Gideon President of the Senate Speaker of the House Maine State Senate Maine House of Representatives 3 State House Station 2 State House Station Augusta, ME 04333 Augusta, ME 04333 Dear Speaker Gideon and President Jackson, Thank you for your December 20, 2019 letter and the opportunity to respond to your concerns. This letter provides current information about Bath Iron Works? continued commitment to providing high quality jobs and investing in its workforce. As previously expressed during your visits to the shipyard earlier this year, BIW is grateful for your support and sponsorship of LD 1781 An Act to Encourage Major New Investments in Shipbuilding Facilities and the Preservation of Jobs. Since passage of the bill, BIW has undertaken signi?cant actions to ensure it remains in full compliance with the statute, as well as the spirit and intent of this legislation, by exceeding the total employment, hiring, and quali?ed investment criteria necessary to qualify for the tax credit. As demonstrated by the facts outlined in more detail below, your support for this important initiative was well placed. In particular, I bring your attention to the following: BIW has hired more than 2,000 new employees and increased its total workforce by more than 1,000 individuals, from 5,776 to 6,784 employees, since January 30, 2018.I BIW has spent more than $13,000,000 recruiting, hiring, and training employees in 2019. BIW expects to hire an additional 1,000 employees in 2020. BIW had a 2019 total company payroll exceeding $374,000,000, which represents an increase over 2018 of more than $30,000,000 with all the new employees and is expected to increase further in 2020. The average annual wage for all employees at BIW is $58,178 which compares extremely favorably to the statutory requirement: to exceed Maine?s average annual per capita income of $31,253.3 The average annual base wage for the production workforce is $49,379, comfortably above average Maine production wages at $40,414.4 By the end of 2019, BIW will have invested more than $100,000,000 on new equipment, tooling and facilities that provide a place for our employees to apply their skills in a safer, cleaner and more ef?cient manufacturing operation. In 2018 and 2019, BIW has spent $125,000,000 on goods and services with Maine suppliers. 1 BIW's Public Hearing testimony on January 30, 2018 before the Joint Standing Committee on Taxation stated that BIW would hire up to 2000 people over the next ?ve years. 2 36 M.R.S. 3 02 18 4 melmn 700 Washington Street Bath, ME 04530 Tel: 207 442 5841 jon.fitzgerald@gdbiw.com December 23, 2019 Page 2 In light of these facts, the statements in your letter that jobs ?are not jobs that pay well? or that anyone is ?being undermined with regard to salary and opportunity? are dif?cult to understand. That perspective is not shared by either BIW or the more than 2,000 new employees whose actions speak louder than anything else. 5 BIW employees live and work in 292 cities and towns across Maine, from Bangor to Berwick, Lewiston to Liberty. Many relocated or travel long distances to work at BIW, an environment that is rich with opportunity for all who are motivated and receptive to learning and leading. Furthermore, any suggestion that BIW has intentionally reduced the average wage of its production employees is not a fair conclusion. The average age of Maine?s population is the oldest in the nation, as you both well know. Over the past several years, Maine has begun experiencing historically low unemployment rates. The majority of the available labor pool is entry level and needs signi?cant training to gain pro?ciency. At the same time, BIW has experienced the voluntary retirement of more than 700 shipbuilders, many of whom had decades of experience in skilled trades now in such demand. This exodus of very senior employees and the disproportionate in?ux of lower skilled employees which simply re?ects what the market has to offer is the reason the average annual base wage for the production workforce has gone from $53,000 to $49,379. BIW nonetheless has provided hundreds of Maine people opportunities in general laborer positions for which the collectively bargained starting wage is $15.97/hr. After 1000 hours of work, an L40 employee will earn a 7% increase to the rate of $17.15 per hour, usually accomplished within 6 months of employment. An employee then begins working toward a second 1000 hour increase, which after 2000 hours of work brings a ?rst-year BIW employee to the rate of $18.36-a 14% raise in income one year after being hired.6 BIW certainly would be hiring more skilled employees at higher wage rates if they were available. Your letter raised concerns related to exercise of its collectively bargained right to subcontract work.7 BIW understands that your letter was sent in the spirit of advocating for employees, and, therefore, I want to assure you that BIW employees will not lose work or jobs because of the proposed focused subcontracting.8 There are, however, consequences for failing to act. Temporary targeted subcontracting is part of a larger plan, including sustained recruitment, hiring and training efforts, along with offering overtime in critical areas, to recover schedule and meet the requirements of our Navy customer. 9 BIW simply does not currently have enough people to complete work in the needed sequence. 5 New employees in Local S6 receive both preparatory and on thejob training at no cost, a bene?ts package that includes comprehensive healthcare (choice of 3 plans), pension, 401(k) with company match on employee contributions, paid time off and insurance savings superior to most entry-level jobs available in Maine. 6 0f the increases awarded in 2019, from January 1 through November, 70% received their anticipated raises on time and 30% received them early. Grade 9 pay For tradespeople is usually reached within 4 years oremployment with an hourly rate of $25.51. 7 BIW and MM Local 86 have recognized and agreed for over two decades that BIW in certain circumstances might need to subcontract work normally performed by its employees. Speci?cally, BIW may subcontract work normally assigned to the bargaining unit to (1) meet or achieve a competitive position; (2) obtain new work; auditor (3) overcome severe manning shortages, lack of equipment, or lack of facilities. 8 The Collective Bargaining Agreement sets forth a process for handling the subcontracting of work that involves timely notice by the Company to the Union of its intent to subcontract, followed by negotiations under the Article 39 joint agreement process which result either in agreement or implementation. The parties have met more than 30 times since October 15, 2019, agreeing to work more targeted overtime and reaching special agreements to work during the holiday shutdown in speci?c areas and to rehire retired employees. 9 The subcontracting is related to the performance of work on US Government contracts. It is not related to any of the ?quali?ed investments? de?ned as ?related to the construction, improvement, modernization or expansion of a Maine shipbuilding facility.? 36 M.R.S. 5219-RR December 23, 2019 Page 3 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. 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. BIW has lived up to the bargain it struck with the Maine Legislature almost 2 years ago. It would be unfortunate, unprecedented and unfair for Maine to change the terms of that bargain without granting any bene?ts after reaping the economic bene?ts of qualifying $100,000,000 investment, as well as the hiring and job growth successes that were precisely what the legislation was intended to accomplish.10 As it has for over 100 years, BIW is committed to hiring Maine workers and remaining an important pillar in Maine?s economy. We look forward to helping achieve Governor Mills? recently released plan to grow Maine?s economy in the next decade. BIW is open to further discuss or a meeting to respond to your questions directly, if you have any lingering concerns. Sincerely, '0 Let there be no confusion over what a state competing with Maine will do to ensure the continued economic bene?ts and employment opportunity afforded by shipbuilding jobs. $440,000,000 in Mississippi Bond Appropriations for Huntington Ingalls Shipyard since 2003- Capital improvements are tax exempt due to state ownership. Bond legislation contains exemption for shipyard improvements from ad valorem taxation. in funding to construct Haley Barbour Maritime Training Academy - 70,000-sq. ft. training facility at the Huntington Ingalls Shipyard located next to Human Resources Building. 2015-Mississippi Legislature agreed to invest additional in bonds as part of an initiative called ?Shipyard of the Future.? Bill Legislative Session Amount Number (in millions) SB 2886 2003 $48 $3 2010 2004 $40 SB 2010 2005 $40 SB 2073 2006 $56 SB 2993 2008 $56 SB 2906 2015 $20 HB 1729 2016 $45 SB 3033 2017 $45 HB I649 2018 $45 11 983 2019 $45