The Paducah Sun
The Paducah Sun
Paducah, Kentucky
Sunday, March 31, 2002

NO WINNERS
USEC's defeat won't help workers


The management of USEC Inc. is the apparent loser in the power struggle in the legislature over a proposed tax break for the company. But the unfortunate fact is, this battle has no winners not the workers represented by the union blocking the company's bid for a sales tax exemption, not the state of Kentucky, and certainly not the people of the Purchase region.

At the political level, the Paper Allied-Industrial Chemical and Energy Workers union did outmuscle USEC officials and stop their bid to exempt enriched uranium from the state sales tax.

Lawmakers who represent McCracken County and surrounding areas say they don't want to take sides in the dispute, but they clearly have bowed to pressure from PACE. The bill to create the tax exemption did not advance because PACE officials persuaded lawmakers they needed to use it as a bargaining chip in negotiations with USEC over other issues, including future job cuts.

Although the bill could still be attached to other legislation on Tuesday, the last day of the regular session, the chances of a "deal" look bleak.

House leaders and local legislators gave the union veto power over the tax break. However, USEC, which is struggling to increase its profitability and shore up the value of its stock, so far has refused to play the bargaining chip game.

This confrontation has in no way improved the future prospects of PACE workers in Paducah. Union officials predict that more job cuts are coming, and they say that is the reason they oppose the sales tax exemption.

In all likelihood, the company will have to lay off more of its employees. The hard truth is, USEC is reeling from the impact of the national security policy that required it to buy uranium from dismantled Russian nuclear warheads, the glut in the world uranium market, which has driven down prices; and the inefficiency of the outmoded gaseous diffusion technology the company inherited when the enrichment industry was privatized four years ago.

As a result, USEC shareholders are demanding that company officials take more steps to increase profitability. The company shut down its plant in Portsmouth, Ohio, and is in the process of consolidating its operations in Paducah.

Even so, more job cuts may be necessary. USEC is a private company now this point can't be emphasized enough and it must deliver value to its shareholders.

The enrichment industry is no longer under the control of the federal government, which means the old political tactic of politically negotiating employment levels and handing the bill to taxpayers isn't applicable anymore.

The most likely outcome is that the defeat will leave a bad taste in the mouths of USEC officials. Two years ago USEC chose Paducah over Portsmouth, and, by extension, Kentucky over Ohio.

Following the announcement of the decision to close the Portsmouth gaseous diffusion plant, USEC's president and chief executive officer, Nick Timbers, said, "The decision to choose Paducah was mostly based on economics, but be assured that this community's support did not escape our attention."

An unavoidable conclusion is that the legislature's failure to grant the tax exemption USEC enjoyed in Ohio will not escape the attention of USEC officials as they plan for the development of new enrichment technology that will, in a matter of a few years, replace gaseous diffusion.

The fact that USEC was spurned while the legislature was putting together a generous package of incentives to lure Hyundai, a Korean automaker, to the state does leave the clear impression Kentucky's political leaders aren't interested in helping the state's existing industries.

It's difficult to believe that won't play a role in the decision on the location of the gas centrifuge plant that will replace USEC's gaseous diffusion facilities.

A local PACE official told the Sun, "I don't know of any state that has offered incentives to a company in which they got nothing in return."

In our view, USEC's decision to keep hundreds of high-paying jobs in western Kentucky jobs that easily could have gone to Ohio justifies the legislature offering the company a minor tax break. After all, USEC staked its future in western Kentucky at a time when a number of large employers were shutting down their plants and leaving the region.

In any event, the state will not gain a penny from the tax on enriched uranium. The company will avoid the tax by changing the ownership transfer point to the states where the nuclear fuel is shipped.

Company officials obviously would prefer not to go that length, but given USEC's financial condition they will use every available tactic to save money.

The net result here is that USEC, one of western Kentucky's most important employers, has been snubbed by the legislature and forced to jump through hoops to avoid a new tax.

That's it. Despite all the posturing about jobs, not one Kentucky job has been protected. Nothing has been done to raise any hopes for the area's economic future. If this is a victory for workers in western Kentucky, we'd hate to see a defeat.