Aerotropolis Revisited

Many Missouri residents remember the ill-fated effort to create a China Hub at Lambert-St. Louis International Airport. The plan, dubbed “Aerotropolis,” envisioned more than $300 million in subsidies for developers and air freight carriers to construct a Midwest hub for exports to China. Analysts at the Show-Me Institute argued that the high subsidies would harm Missouri economically and the supposed benefits to Saint Louis would be illusory. The plan was defeated in 2011, and cargo flights from China to Saint Louis have halted due to a downturn in the international cargo industry. However, like the broom from the Sorcerer’s Apprentice, bits of the chopped-up Aerotropolis legislation are still taking on a life of their own.

The sliver that has come back to life this time is “freight forwarding tax credits.” These tax credits are available to airlines or air freight companies that transport cargo on a direct international flight. Missouri House Bill 1500 (HB 1500) proposes a 40-cent/kg. cargo tax credit for any of those flights leaving a Missouri airport. The proposal calls for eventually allocating $60 million, with a yearly cap of $8 million. The purported purpose of the bill is to encourage foreign trade, presumably by making it cheaper for Missouri products to reach international markets.

However, as of this year, no direct international cargo flights leave Lambert. In addition, the only international passenger flights from Lambert go to resort destinations in Latin America. Whatever demand there is for Missouri exports in Latin America generally, it is unlikely that this demand is in seasonal resort towns such as Cancun and Montego Bay. As HB 1500 only allows tax credits for cargo on direct international flights, there may be few or no companies to take advantage of the proposed tax credit.

So who benefits? One possibility is that this bill is designed to subsidize Brownsville International Air Cargo Inc., which was in negotiations with Lambert for cargo space that could involve freight forwarding to Mexico. Another possibility is that the tax credit will act as another carrot to attract direct international flights to Lambert. Passenger airlines make 5-10 percent of their revenue from “belly cargo” on passenger flights. Making that cargo more profitable could make Lambert more competitive.

While these might seem like enticing goals to some, they are far from promoting Missouri’s foreign trade. The fact is, most cargo hubs in the United States are at either the major air passenger hubs (Los Angeles International Airport, JFK International in New York, etc.) or centers for major shipping companies (Memphis International Airport). Export tax credit or not, Lambert will not become a major air traffic hub when its landing fees are three to four times those of competing airports. Subsidizing a direct flight to Europe or Latin America may bring benefits to a few, but there is little reason the whole state should pay for this.

Like the original Aerotroplis plan, HB 1500 gives tax credits to select industries with only long-shot hopes for significant increases in Missouri exports. Saint Louis could be better off by making the airport, the city, and the state more competitive and economically vibrant, not pinning hopes on tax credit magic.