Aerotropolis Tax Credits Are Still a Bad Idea

Today, the St. Louis Business Journal published a letter by Jeff Rainford, chief of staff for Saint Louis Mayor Francis Slay. In it, Rainford argues that $300 million in tax credits for warehouse construction near the Saint Louis airport and $60 million in tax credits for international cargo flights are essential to bringing in new economic activity to the region. That bundle of subsidies, which was proposed during the past legislative session, was contained within the so-called “Aerotropolis” bill.

Christine Harbin, Patrick Ishmael, and I all took issue with the form of those tax credits, and with statements made by public officials in favor of the tax credits:

• We were concerned that public officials had not explained why tax credits for new warehouse construction made sense if the area had 18 million square feet in vacant warehouse space already available.
• We repeatedly asked for the in-depth study promised by Aerotropolis proponents in late 2010, only to be disappointed by an eight-page report that merely extended the poor assumptions already contained within the Aerotropolis legislation.
• We dug into the changes made to the legislation and pointed out that lawmakers had actually reduced the requirements for individuals and businesses to draw upon the proposed Aerotropolis tax credits.
• We even looked at the Midwest China Hub Commission’s internal review of the proposed tax credits and, perhaps surprisingly, agreed with its concerns. Most troubling was the fact that the areas that likely would be eligible for the Aerotropolis tax credits had already received or could have already received hundreds of millions in taxpayer subsidy. Why add more to the total?

Rainford writes:

[W]e are not gambling. The Aerotropolis credits cannot be used until the facilities are built and are being used for international cargo. If none of that happens, then no one will have used the Aerotropolis credits, and the state will lose nothing.

With all due respect, I find this statement misleading. True, the legislation does specify that some new warehouses must process some level of international cargo. But the devil is in the details.

Owners of warehouses with international cargo consisting of as little as 20 percent of their operations could receive the Aerotropolis tax credits for an overall subsidy of up to 30 percent of their demolition, construction, and equipment costs. Owners of warehouses with international cargo consisting of as little as 10 percent of their operations could receive the Aerotropolis tax credits for an overall subsidy of up to 20 percent of their demolition, construction, and equipment costs.

Most strikingly, owners of warehouses that use two modes of commerce — not necessarily air cargo, but perhaps road and rail transportation — could draw on the tax credits. So could owners of warehouses that are refrigerated for storage of perishable materials. Again, the Aerotropolis legislation doesn’t require those facilities to process international cargo.

My concerns with the proposed subsidies stand. Couldn’t these tax credits be used to pay for business as usual? There’s no protection for taxpayers specifying that, if the international agreements never materialize, the tax credits won’t be awarded.

For readers interested in the gritty details of the tax credit proposal and the flaws behind assumptions and statements made by Aerotropolis supporters, stay tuned. Look for a longer, more detailed publication in the next week or so. In it, we wonder, can Missouri really ship beef to China, as proponents have stated? Are the projected increases in flights realistic? And how have the results of tax credits fared in the past?