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California expands tax credit for stealth bomber to Northrop Grumman

By Sharon Bernstein

SACRAMENTO Calif. (Reuters) - California on Friday offered tax incentives to an aerospace company seeking to build the next generation of stealth bombers, after controversy that the state had earlier offered the valuable tax breaks only to its main competitor.

The bill to expand a nearly $500 million tax break to Northrop Grumman Corp that had previously been limited only to Lockheed Martin Corp was signed Friday by Democratic Governor Jerry Brown.

"This is a victory for fairness, the aerospace industry and all Californians," said Northrop Grumman spokesman Tim Paynter.

Northrop Grumman, which headquarters its aerospace operations in Southern California and had already committed to building the planes there, was not initially offered the tax incentive.

Northrop Grumman complained, saying the tax credits would benefit the team of Maryland-based Lockheed Martin and Chicago-based Boeing Co in their efforts to win the estimated $55 billion contract to build the new stealth bombers.

The plan exposed sharp divisions among Democrats, some saying the credit amounted to corporate welfare, and others saying it was unfair to offer the break only to Lockheed Martin, which was working as a subcontractor to Boeing in pursuit of the federal contract.

The initial bill, passed last month, did not mention Lockheed by name, but said the tax credit would apply to subcontractors working on the contract. Lockheed is the only subcontractor in the running.

After a tense session on the senate floor, lawmakers agreed to support the Lockheed credit only if a similar bill benefiting Northrop was also introduced.

"As a legislature we committed to leveling the playing field," said Democratic state Senator Richard Roth of Riverside, a co-author of the Northrop bill. "The state of California is not in the business of determining winners and losers when it comes to the Department of Defense contracting process."

His measure does not name Northrop but expands the tax break beyond sub-contractors to primary contractors.

It was not clear why the state initially offered credits to just one company. Roth said he was told Brown's economic development team did not know of Northrop's concern until the last minute.

Republican state Senator Steve Knight, co-author of the Lockheed bill, also co-authored the Northrop measure.

"These extraordinary efforts show that the aerospace industry is important to California," said Knight, who received a $1,500 contribution from Lockheed in November, campaign finance reports showed.

Lockheed Martin did not immediately respond to requests for comment.

(Reporting by Sharon Bernstein; Editing by Lisa Shumaker)

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