Aerotropolis and the Climate for Substantive Tax Credit Reform

News on the proposed China Hub tax credits has been pretty sparse the past few weeks. Just before the Missouri Senate went out of session for all practical (albeit, not technical) purposes on Sept. 23, it kicked its economic development bill containing Aerotropolis over to the House for that chamber’s consideration. Yesterday, the House passed its version of the tax credit package, which, like the Senate version, left out the China Hub’s $300 million warehouse provision, but it also left out the sunsets — that is, the statutory phaseouts — that the Senate placed elsewhere in the bill on some of the state’s most expensive existing tax credit programs.

The Missouri house has pushed through the China hub bill after putting in nine amendments and leaving out tax credit sunsets.

Senate leadership says a tax bill with no sunsets doesn’t stand a chance, but the House passed China hub anyway. Speaker of the House Steve Tilley says he hopes the Senate is willing to compromise.

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The bill passed the House by a vote of 98 to 48 and heads back to the Senate Tuesday.  The Senate will take the issue up when they resume Tuesday.

As a reference point, the original House tax credit bill passed with a 142-14 vote during the regular session in April. Big change.

Setting aside the political considerations in play — considerations that, granted, are nearly indispensable to understanding the day-to-day dynamic in the chamber — it is mystifying to me that budget hawks in the House aren’t demanding sunsets on most tax credit programs. When an amendment was introduced yesterday that would have phased out the Low Income Housing and Historic Tax Credits, it was resoundingly defeated with a 131-17 vote.

That’s unfortunate. Taken together over the last decade, the LIHTC and HTC have carved out a multi-billion dollar hole in Missouri budgets for a highly questionable return. An 11-cent return for every tax dollar spent on the former? A 23-cent return for every tax dollar spent on the latter? Whether or not you’re inclined to believe those findings, it’s worth keeping in mind how economic development tax credits have been distributed, and in what amounts. If tax credits are the spur to economic growth that proponents in the House say they are, I’d like to know what evidence precisely has brought them to that conclusion.

It would be apropos, however, that a House which initially envisioned an enormous half-billion dollar Aerotropolis tax credit would effectively reduce the program to $0 because it chose not to sunset — and therefore require legislative reauthorization — for a host of tax credits that have had ample time to prove their value to the state, but failed to compellingly do so. Barring a breakthrough between the House and Senate before the constitutionally-required close of the session in early November, that’s precisely where the House will find itself: without a bill passed into law, and therefore, without an Aerotropolis tax credit of any amount. We’ll know more next week.

Collecting fiscal boondoggles is not a credible economic strategy, and setting Missouri’s fiscal ship on a new course does not simply mean stopping bad policy from becoming law; it also means reforming existing law. Until Missouri’s legislators get serious about reforming or ending economic programs that are failing and, simultaneously, reducing the tax burden for all rather than a select few, Missouri will continue to drift into troubling budgetary waters.