Trade Promotes Growth, Except When Hijacked by Subsidy-Seeking Special Interests

Many cities are pursuing “Aerotropolis”-style development in the hope that establishing a new global air trade hub can help a city grow its economy. In itself, the desire to engage in trade is by no means misguided. In fact, increasing trade among countries is one of the best ways to improve economic welfare. Unfortunately, as with many large government programs, the Aerotropolis idea can be easily hijacked by the politically powerful in order to gain access to a great deal of taxpayer money.

In no place was this clearer than in Saint Louis during the 2011 legislative session. Under the guise of increasing international trade, Saint Louis developers and politicians pushed hard for creating $360 million in state tax credits. Unfortunately, those tax incentives had little to do with realizing the Aerotropolis dream.

Of the $360 million, $300 million would have gone toward subsidizing the construction of warehouses, while the remaining $60 million would have been devoted to encouraging international freight forwarders to send flights to Saint Louis.

Although one sixth of the total package would at least go toward bringing air traffic to Saint Louis, the remaining $300 million in warehouse subsidies was troublesome. Warehouse subsidy proponents excitedly discussed the 27 million square feet of new warehouse space that could be constructed with those millions, without mentioning that more than 18 million square feet in developed warehouse space near the airport was already vacant and available.

“If someone’s looking for space, we have space available,” said David Randolph, vice president of CBRE, an area real estate brokerage firm that managed the sale and lease of many of those vacant warehouses. Randolph said that the subsidies for new construction would be unfair to individuals who had already built warehouses in the area.

The Midwest China Hub Commission (MCHC), the same Missouri organization promoting the creation of an Aerotropolis in Saint Louis, noted in its internal review of the Missouri tax credit legislation that the state money slated for warehouse construction could end up funding activities unrelated to air transportation.

The MCHC worried that the Aerotropolis tax credit legislation defined “cargo activity” too broadly. From its analysis: “The definition … specifically includes facilities related to truck, rail and water transportation; this may be appropriate, but may incentivize facilities that have only a limited relationship to the Air Cargo facility …”

Furthermore, the MCHC noted that the areas most likely to be awarded the warehouse tax credits had already received nearly $100 million in development tax incentives, and had the ability to draw upon nearly $200 million more. Here at the Show-Me Institute, a nonpartisan research organization dedicated to studying Missouri state and local policy, we wondered why there was such a push for the $300 million in new tax credits, given the incredible amount of tax incentives already available to area developers. At some point, the state must stop subsidizing failure.

At no point had the Chinese government or Chinese cargo companies stated publicly that the hundreds of millions in subsidies were a crucial prerequisite to sending more flights to Saint Louis. In fact, the idea of increasing international trade at the Lambert–St. Louis International Airport had been in the works for years. Only at the last minute did a prominent developer’s attorney, who was also involved in the talks with China, propose the subsidies.

Increased trade is important for any economy, and the United States should not wall itself off from other countries. Air cargo is certainly one way to expand trade throughout the world. Unfortunately, though, the best ideas can be co-opted in order to push benefits for the politically powerful.

If Aerotropolis-style development is the right move for a city, private investment and development will blossom without handouts. The Aerotropolis idea should not be used as a back door to push through large-scale subsidies for the select few. Hopefully, other cities can avoid the political posturing and favor-trading that Saint Louis found itself mired in.

Audrey Spalding is a policy analyst with the Show-Me Institute, an independent think tank promoting free-market solutions for Missouri public policy.