Even the Midwest China Hub Commission Knows “Aerotropolis” Tax Credits Are Flawed

You know a policy proposal is bad when its proponents admit internally that the proposed policy is problematic.

It turns out that we weren’t the only ones who had reservations about the $360 million in so-called “Aerotropolis” tax credits that would have subsidized warehouse development and international flights.

The Midwest-China Hub Commission (MCHC), the organization that has been pushing for increased cargo flights between Saint Louis and China, itself raised many of our concerns — and even more of its own — in its analysis.

In response to an information request, the Show-Me Institute received the MCHC’s review of the Aerotropolis tax credits, and it is interesting. So, consider this blog post as having been written with a great deal of assistance by the folks at the MCHC. I think they raise excellent points about the bill, and ones that taxpayers should be concerned about.*

A Lot of Tax Money Has Already Been Spent or Will Likely Be Spent in the Area

Most concerning to me is the MCHC’s analysis showing that much taxpayer money has already been spent on sites that would likely qualify for the Aerotropolis tax credits. Much more will likely be spent in the near future.

From the MCHC’s analysis: “… 192 million in prospective incentives are currently available at the major development sites located at or near Lambert Airport.” According to the analysis, another $93 million has already been authorized or expended at those sites, bringing the total amount of taxpayer money spent, authorized, or available in the future already to more than $285 million.

The Aerotropolis tax credit package would lump another $360 million on top of those tallied in the MCHC’s analysis.

Then, the analysis notes that other existing tax credit programs could be used to subsidize the promised development and resulting warehouse jobs, including Missouri Quality Jobs tax credits.

So, why exactly is more taxpayer money needed? Haven’t these sites received enough subsidy already? Why award an additional $300 million to subsidize warehouse construction on top of the subsidies already available?

How Do We Know That Increased Cargo Flights Will Materialize?

In its review, the MCHC notes that “Many unknowns remain such as: catalysts for increased flights, cargo market share capture, background analysis, etc.”

This is exactly the point that I have raised repeatedly. So far, the Regional Chamber and Growth Association has produced an eight-page “study” that purports to show the benefits of awarding $360 million in tax credits. But the study doesn’t show that increased flights will materialize if tax credits are awarded. In fact, it doesn’t show that increased flights will materialize at all — the RCGA study just assumes that those flights will appear. Out of thin air, as it were.

I think legislators should heed this review and wait for more information that would reveal exactly what could cause more international flights to come to Saint Louis.

Could the Tax Credits Go to Activity That Has Little to Do With International Air Cargo?

The MCHC review raises a fascinating point. Could the Aerotropolis tax credits go to companies for activity that has little to do with international air cargo? The commission’s analysis notes that the Aerotropolis tax credit legislation defines “cargo activity” broadly. From the 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 …”

So, would the proposed tax credits go to new economic activity? Or, given the broad definition of cargo activity, could the tax credits end up subsidizing business as usual at Lambert?

The concerns listed above are ones that I think persist in the bill, despite recent changes to the legislation. I want to point out that although the Show-Me Institute was the only organization publicly raising questions about unlimited costs contained in earlier versions of the Aerotropolis legislation, the MCHC’s analysis raised the concerns internally.

From the review:

Most critically, a close read of [the tax exemptions included in the initial version of the Aerotropolis bill] indicates (by omission) that there is NO cap placed on the total cost to the state of these two programs.

Thankfully, legislators took those uncapped exemptions out. And, luckily for taxpayers, the Aerotropolis subsidies did not pass the Missouri legislature this session. But many legislators are not giving up hope. Some public officials are even suggesting that the governor call a special legislative session in order to pass the subsidies this year.

Maybe instead of pushing to award $360 million in taxpayer money, legislators should address our — and the MCHC’s — concerns. Why throw more money at this area? Where’s the evidence of increased international cargo flights? Why write tax credits into law that could end up subsidizing business as usual?

* For the policy wonks: I know that this review by the commission concerned SB 390, and that the most recent version of the Aerotropolis tax credit proposal was contained in HB 116, which had some changes from the previous version of the bill. The problematic issues listed in this post are still present in the HB 116 version of the Aerotropolis tax credits. I did not include the commission’s concerns about eligible costs or tax exemptions, because those provisions were removed.