Embedded below, at Show-Me Sunshine, and on our DocumentCloud. You can search the entire bill below.
What’s Wrong with Aerotropolis: Airplane Optional?
For more on how businesses could receive Aerotropolis tax credits without using an airplane or even exporting a product, see this post.
An Aerotropolis Intensity Gap?
Here is a fun graph from a (non-scientific) online poll on Aerotropolis from the St. Louis Business Journal, which not too long ago endorsed the Aerotropolis project. Presumably, the readers voting here reflect, broadly speaking, the business community in the region, and yet the sentiment of the more than 1,700 voters seems solidly opposed to the project.
That’s not a good breakdown for Aerotropolis supporters.
Do online polls always offer an impeccable snapshot of the electorate? Not generally, so sufficient salt-graining is required here. That said, if legislators think that it’s inevitable the law will quietly pass without anyone noticing, they may want to rethink that impression.
‘Aerotropolis’ Bill: A Giant Step Backwards in Public Policy
For many years, I have worked to promote free-market solutions to a broad range of public policy issues in the state of Missouri. Indeed, Rex Sinquefield, Michael Podgursky and I founded the Show-Me Institute in 2005 because of our shared conviction that nothing would be more effective in promoting faster economic growth than a renewed appreciation of, and commitment to, free enterprise — and a concomitant rejection of the notion that our elected political officials should engage themselves in trying to pick our future economic winners and losers.
I thought that we as a state were making steady progress toward that end. As I see it, there have been a number of real pluses:
- Over the past couple years, the Missouri legislature responded to a challenging fiscal environment with responsible spending cuts, as opposed to harmful tax increases;
- Missouri is home to a robust Tea Party movement; and
- Missouri fielded a bumper crop of candidates espousing strong free-market principles during the November 2010 mid-term elections.
But now I am wondering how much progress we have really made — given what seems to me the complete abandonment of principle by some self-described conservatives in the legislature. These so-called conservatives have thrown their support behind the proposed bill to grant $360 million in tax credits for the supposed purpose of creating a “China Midwest Hub” or “Aerotropolis” at Lambert-St. Louis International Airport.
This legislation — which may be considered at a special session of the legislature in September — would spawn the largest tax credit subsidy in Missouri history.
The proposed bill is also the epitome of bad public policy. Let me count some of the ways that it fails the test of serving the public good:
- It would take from the many (basically, all Missourians who pay income taxes, as individuals or businesses owners) and give to the few (mostly to owners or developers of warehouses and real estate in designated areas near the airport, some of whom have already received or are in line to receive substantial tax credits);
- The legislation is being rushed to a vote in the absence of anything resembling a serious cost-benefit analysis — and in the absence of any proof the Chinese government or ANY major air carrier is committed to a plan to turn Lambert into a major air cargo hub;
- It therefore represents a huge (and completely misplaced) leap of faith in the ability of our legislators to outsmart and outthink the marketplace in putting taxpayers’ money at risk.
In a positive development earlier this year, top business leaders in the Kansas City metropolitan area called on the governors of Missouri and Kansas to declare an armistice in a senseless “border war” over the use of economic development incentives to poach jobs from one side of the state line to the other. The two-way traffic of companies chasing tax credits has depleted tax revenues in both states without a net increase in wealth or employment. We should all give thanks for this outbreak of common sense.
Now, however, supporters of the Aerotropolis legislation would have us believe that it will create thousands of jobs in the Saint Louis metropolitan area and generate nearly $34 billion in economic activity over a 20-year period — paying back the original investment in taxpayers’ money more than 100 times over. Why, then, is the smart money (private capital) staying on the sidelines? Why hasn’t it acted on its own — given the supposedly fabulous returns cited by supporters?
The answer is clear: The underlying economics is not there. Heavily promoted “investment opportunities” predicated on tax credits or other subsidies are almost always accidents waiting to happen.
A dozen or so years ago, we were told that subsidizing a new runway at Lambert would bring new traffic, and it didn’t. We were also told the Mid-America Airport — deeply subsidized on the Illinois side — would bring huge traffic. Now there is just one subsidized cargo flight a week out of the entire airport.
Karl Marx (not normally someone I quote) said that history repeats itself, “first as tragedy, then as farce.” Let’s hope that history is not about to repeat itself with the misconceived and hugely expensive Aerotropolis legislation.
R. Crosby Kemper III is chairman of the Show-Me Institute, an independent think tank promoting free-market solutions for Missouri public policy.
Aerotropolis: The Wrong Way to Get-It-Done
At his July 21 press conference at the Danforth Plant Science Center in Saint Louis, Gov. Jay Nixon did his best imitation of Larry the Cable Guy, the stand-up comic with the signature line “Git-R-Done!”
In officially joining the “Aerotropolis” bandwagon and calling for a special session of the Missouri Legislature in September, Nixon used the phrase “Let’s get it done” several times in a twenty-minute speech. That was his way of endorsing the much-talked-about bill to support the development of an air cargo hub at Lambert-Saint Louis International Airport.
The bill would pass out $360 million in tax credits – with $300 million going to support the development of additional warehousing space and the rest going as an inducement to freight forwarders to send additional cargo through Lambert.
But if the goal is to transform Lambert into the world’s next great cargo hub, will this legislation be enough to “get it done”? Will it succeed in creating thousands of new jobs and providing a major boost to the region and state?
There is no reason to suppose it will.
As policy analysts at the Show-Me Institute have pointed out in a number of papers and commentaries, there are acres and acres of unused warehousing space in and around Lambert. If setting up a Midwestern cargo hub at Lambert is such a great idea, why has the sensible money stayed on the sidelines? Why does the hub need tax credits or other government guarantees to attract investments for upgrades, retrofits, or new construction for refrigeration?
After months of discussion, supporters of the Aerotropolis legislation have yet to produce a serious cost-benefit analysis of what Missouri taxpayers should expect in return for a substantial investment in the project.
The St. Louis Regional Chamber and Growth Association (RCGA) produced an eight-page statement making the claim that $300 million in public incentives for new warehousing would lead to $34 billion in private economic activity over the next two decades. That is an economic multiplier of more than 100. Perhaps suggesting the lack of a sound basis, the RCGA has yet to identify the assumptions used in reaching this astounding conclusion.
At the same time, no group supporting the proposed legislation has produced a shred of evidence that the Chinese government or even a single international carrier is committed to turning Saint Louis into a major air cargo hub.
Greg Lindsay, who co-wrote the book Aerotropolis: The Way We’ll live Next, has publicly scoffed at the pending legislation. He has called the proposed investment both “too much” – in representing an egregious waste of taxpayers’ money – and “too little” – as billions of dollars of additional investment would be required to enable Lambert to compete with established powerhouses such as Dallas Fort Worth and Chicago O’Hare International Airports.
It is not surprising that supporters of the Aerotropolis legislation are anxious to stop talking and swing into action in passing a bill. Even they must know the economic case behind the legislation does not survive close scrutiny.
In his press conference in Saint Louis, Governor Nixon engaged in the kind of chest-thumping that often accompanies large job creation schemes, calling for “decisive” action by the public sector. “We need a bold spirit and competitive vision again,” Nixon proclaimed. “We are competing against the world.”
But if business generation is the real goal, you don’t start by slaying the great Goliath of global competition. Instead, you begin by providing a better product or service that someone else will want to pay for – at a price that will provide a decent profit.
That kind of thinking is alien to glory-seeking and intervention-minded politicians. It is also alien to rent-seeking business people – business people, that is, who would rather lobby for special favors from government than compete in the open market; business people who would rather drop the real risk of capital investment at the feet of taxpayers rather than lift it onto their own shoulders.
Over the past several years, we have seen many examples of much touted job creation and pump-priming economic schemes, at the federal as well as the state level – everything from “cash for clunkers” to the massive $787 billion stimulus bill.
What they all have in common is simply this: They don’t “Git-R-Done.”
The Mayor, the County Executive, and the RCGA All Likely Have Vested Interests in the Aerotropolis Legislation: It Could Enhance Their Power
If the Missouri legislature calls a special session and passes the so-called “Aerotropolis” legislation, it will award a great deal of power to the St. Louis Mayor and the nearby county executives. It should come as small surprise that some of the strongest voices arguing for the Aerotropolis legislation come from the very individuals who stand to benefit from it.
The Aerotropolis bill would give the mayor of St. Louis or the executive officers of nearby counties the power to designate “gateway zones.” While this power sounds innocuous, it has important ramifications.
First, those chief executives would become gatekeepers in the distribution of millions of taxpayer dollars. The Aerotropolis legislation would create $300 million in tax credits that would subsidize warehouse construction. That tax credit money could be awarded only to warehouses built in gateway zones.
Even if motives are pure, the ability to pick what areas could be eligible for hundreds of millions in tax credits would be an incredible power. The legislation does not say anything about monitoring such designations. Nothing in the legislation would prevent one of these chief executives from using such power as an indirect way to acquire campaign contributions or other untoward benefits.
A simple way to stop any such potential abuse of power would be to take the city and county chief executives out of the equation. If the state, despite a lack of substantive empirical evidence that these tax credits will do any economic good, really wants to subsidize warehouse construction, then all vacant land owners should be able to compete equally for the tax credits. There is no need to give special powers to city and county executives.
Second, this legislation would allow city and county executives appoint a three-person board to oversee millions in special tax revenues.
That board could impose a special tax on the warehouses receiving the Aerotropolis subsidies, and then oversee how those tax revenues are spent. Of those special tax revenues, 50 percent would go to the St. Louis airport. But the other 50 percent would be given to a “tax-exempt regional economic development association or associations….” The three-person board would select which associations would receive the money.
This, too, represents increased political power. The chief executives of St. Louis and nearby counties will be in a position to appoint people to determine what agency gets part of those special tax revenues. Nothing will prevent them from appointing individuals who have a vested interest in where those special tax revenues go.
Interestingly, it seems that the St. Louis Regional Chamber and Growth Association (RCGA), the organization that pushed hard for the Aerotropolis tax credits, is a “tax-exempt regional economic development association.” There are others, such as the St. Louis County Economic Council. It appears that these organizations could qualify for the Aerotropolis special tax revenues. Awarding a steady stream of tax revenue to organizations that argued for the legislation that created that tax revenue is exceptionally poor public policy.
There’s a simple answer to all of these problems. Remove the possibility, however remote, of using the Aerotropolis subsidies and tax revenue as a political tool. There doesn’t seem to be a practical reason to include these mechanisms in the Aerotropolis legislation. They do, however, invite corruption into the process. The economic merits of the Aerotropolis tax credits are highly questionable, but if the legislature insists on enacting them, it should not allow that money to be controlled by political figures.
A Starry-Eyed Proposal To Rescue an Airport and Revitalize a Region
In 1998, the airport authority in St. Louis approved the construction of a third runway at its 70-year-old airfield (the first municipally-owned airport in the United States) – knowing that this would require the demolition of nearly 2,000 homes and the displacement of 5,000 people. The planners expected to reap large rewards in reduced flight delays and increased traffic that would offset the high cost of acquiring land and compensating home-owners.
To say that things have not gone according to plan at Lambert-St. Louis International Airport is a considerable understatement. During the 1980s and 90s, Lambert ranked as the nation’s ninth or tenth busiest airport. Today it is no longer among the top 30. Since the year 2000, it has experienced a 60 percent decline in enplanements. Lambert also went from debt-free to being saddled with $877 million in long-term debt when the third runway opened for public use in 2006.
Because of the adverse combination of reduced traffic and heavy debt (now equal to seven times annual revenues), Lambert has been forced to raise its landing fees to more than double or even quadruple those of competing airports, and that, in turn, has caused a number of carriers to vote with their wings in shunning the airport.
The third runway is seldom used. It isn’t needed at today’s traffic levels (less than one third of what the airport’s planners were anticipating), and remaining airlines avoid using it unless forced to do so by bad weather (the two pre-existing runways are too close together to permit simultaneous instrument landings) because it is farther away from passenger terminals. Even the “International” in airport’s formal name has become a misnomer, as St. Louis has the unenviable distinction of being the biggest metropolitan area in the nation with no direct scheduled air service outside of North America.
All of which has led to an improbable question as political and civic leaders in the St. Louis region ponder the future: Can the self-styled “Gateway to the (American) West” reinvent itself a futuristic, airport-centered Gateway to the Far East?
Joined by the Saint Louis Regional Chamber and Growth Association (RCGA), political leaders in St. Louis City and County have appealed to the state of Missouri for assistance in boosting the ailing airport. That is to be expected. What is remarkable, however, is the broad bipartisan support that has emerged at the state level for a hastily conceived plan – described by RCGA and others as “The Big Idea” – aimed at inducing the Chinese government and world air carriers to establish a major air cargo hub at the under-utilized Lambert-St. Louis airport.
The proposed legislation would dole out $360 million of state tax credits for the purpose of creating a “China Hub” or “Aerotropolis” at Lambert. And that in itself is a tell-tale sign of an“investment opportunity” that is an accident waiting to happen. As we have argued in number of commentaries, targeted tax credits are very similar to “earmarks” – narrow public subsidies handed out to powerful special interests. We have shown that several of the likely applicants for Aerotropolis tax credits are warehouse and real estate developers already eligible to receive millions of dollars of state and local tax incentives.
In truth, for all that it has been touted as the “Big Idea,” the Aerotropolis plan seems to consist of little more than a hope and a prayer, accompanied by a good deal of political grandstanding with unrealistic projections of massive job growth and economic stimulus. The RCGA produced an eight-page statement making the claim that $300 million in public incentives for the Aerotropolis – to facilitate the construction of new warehousing space – would pay for itself more than 100 times over in just two decades – leading to $34 billion in private economic activity. Saying little about the methodology that was used, the organization cited a single computer forecasting model to support this extraordinary claim.
Neither the RCGA nor any other organization has produced a detailed feasibility study. No one supporting the Aerotropolis has produced evidence that Chinese authorities and major carriers are contractually or otherwise committed to turning Lambert into a major air cargo hub – provided that the airport is able to meet certain conditions in the provision of additional warehousing space and other facilities. In fact, we have shown that St. Louis already has acres and acres of surplus warehousing space in the immediate vicinity of the airport – enough, according to Michael Webber, an international air cargo consultant, to provide for the projected traffic of eight weekly freighters cited by Aerotropolis supporters.
So where is the evidence that massive tax credits are the magic ingredient needed to turn St. Louis into one of principal caravansaries along the aerial Silk Road of the future – connecting China and other Asian nations to the American Midwest, with onward connections for air cargo to other parts of the world as well?
There is none that we found in months of diligent searching. Instead, proponents rally support by making it sound as though other airports – in Detroit, Chicago, Cincinnati, Indianapolis or other cities – will seize the gold ring for themselves if the city and state fail to take preemptive action. It’s the old argument – Build it and they will come.
At the Show-Me Institute, we have cited numerous instances, both in the St. Louis region and around the state, where targeted tax credits have failed to produce promised economic results. The list includes failed shopping centers, a stalled “Ballpark Village” in downtown St. Louis, and other supposed economic wonders that have turned sour.
Meanwhile, the cost of this misguided corporate welfare has mounted. Over the past 12 years, tax credit redemptions in the state of Missouri have quintupled – growing from $103 million to $522 million per year. Every time our lawmakers pass out more “gifts” to some businesses, they are forced to dig deeper into the pockets of other taxpayers – both businesses and individuals.
That is not fair. And it is not smart public policy either.
More than a decade ago, Lambert-St. Louis International Airport rolled the dice on an ill-advised gamble on future growth that wasn’t there. Let’s hope it’s not about to repeat the same mistake.
Andrew B. Wilson is a fellow and Patrick Ishmael is a policy analyst at the Show-Me Institute, which promotes market solutions for Missouri Public Policy.
Shockingly, Volunteers Not Happy With City Management of KC Animal Shelter Either!
Now that the city has taken over the operation of the Kansas City animal shelter, from a private operator who was failing miserably, and is saving money and increasing pet adoptions, how do the dedicated volunteers think the city is doing?
Not so well. As I wrote here on March 15:
I have suspicions from reading these articles that there is a core group of animal rights activists involved who will never be satisfied until they get a no-kill shelter, either publicly- or privately-operated — no matter how well it is run.
Sure enough, at the end of the interview in this news story on the KC animal shelter, one of the volunteers (who the city told not to return after she complained about the quality of treatment at the shelter) states that she hopes the city moves in a no-kill direction for the shelter. No matter who is operating the shelter, it seems clear there is a core group of activists who are going to “volunteer” at the shelter and complain about the care – no matter how well it is run – until they get a no-kill shelter.
Whoever is bidding on taking over the shelter operations from the city next month probably is taking this into consideration.
Wow: RCGA Suggests “Aerotropolis” New Warehouse Building Requirement May Go Bye-Bye
We’ve talked about how an Aerotropolis “new building” doesn’t actually have to be “new” to get tax credits. Now, Steve Johnson of the RCGA says there currently are discussions of explicitly removing the “build” requirement entirely. Amazing.
So where are these supposed 20,000 construction jobs coming from again?
The whole segment is worth hearing. The relevant part starts in at around 12:15.
Johnson also told Charlie Brennan that “freight forwarders would have to become members of the RCGA” to receive their credits — a requirement which isn’t in the legislation and would have utterly no policy value. Maybe Johnson was joking or misunderstood what seemed to be Brennan’s core question — how do you get these tax credits? — but given that the “joke” was interwoven into what sounded like a serious answer, Johnson should clarify.
