Mitigating the Harmful Effects of the ‘Aerotropolis’ Legislation

Posted on by Audrey Spalding

Show-Me Institute Policy Analyst Audrey Spalding was contacted by Missouri legislators concerned with modifying the “Aerotropolis” bill to mitigate the possible harms of the proposed legislation. What follows is her response.

Legislators are considering moving forward with the so-called “Aerotropolis” legislation, a bill that would create $360 million in tax credits. Of that total, $300 million would go toward subsidizing warehouses, and $60 million would go toward subsidizing cargo flights from Saint Louis to international destinations. The bill’s proponents promise that these tax incentives will increase air cargo traffic to the region and boost the state and local economy.

Policy analysts at the Show-Me Institute have researched this proposal extensively. Based on a thorough review of the legislation, we believe that the proposal is a raw deal for Missouri taxpayers, and that certain provisions are indistinguishable from the cronyism often seen at the federal level.

Furthermore, the use of tax credits to encourage economic development has a poor track record, both in Missouri and nationwide. Our case study detailing the most serious problems with the bill, and with tax credits in general, is available online. We encourage all who are interested in good government to read that paper.

Without endorsing the use of any tax credits in this case, changes to the legislation might mitigate the harmful effects on the state economy and taxpayers. Below are revisions that we believe should be considered if the legislation moves forward despite a lack of substantive empirical support.

Allow all new warehouse owners to compete for the tax credits
All arbitrary limits on Aerotropolis eligibility should be removed.

The Aerotropolis tax credits would subsidize warehouse construction, as well as cargo flights from Saint Louis to international destinations. Up to $300 million in tax credits — more than 80 percent of the bill’s tax breaks — would be made available for the construction of new warehouses around the airport. Those tax credits could be used to pay up to 30 percent of a warehouse owner’s demolition, construction, and equipment costs.

The bill requires that warehouses qualifying for those incentives must be built on 100 contiguous acres of land or in specially designated areas. There does not seem to be any practical reason for the “100 acre” requirement contained within the Aerotropolis tax credit bill. The requirement seems to serve only to restrict who could draw upon such tax credits, narrowing the field to a small pool of large-scale developers.

This restriction should be removed. If the state is determined to subsidize warehouse construction — without any substantive empirical evidence that such subsidy would lead to increased economic growth and international trade — such subsidies should at least be made available as broadly as possible.

Accountability measures
Include clawback provisions and reporting requirements in the legislation.

In its current form, the Aerotropolis legislation does not include any sort of clawback provisions or reporting requirements. Accountability provisions should be added. If claims of job creation and investment are used to sell the creation of $360 million in state tax credits, then those credits should be evaluated objectively on the merits of job creation and investment.

In 2010, Gov. Jay Nixon tasked the Missouri Tax Credit Review Commission with reviewing the state’s tax credit programs. The commission recommended that:

…strict statutory clawbacks to be enforced by the State in cases of non-compliance with program requirements be included in all tax credit programs currently lacking such provisions.

And that:

…all applicants for state incentives be required to enter into a contract with the agency administering the tax credit specifying standards of performance, program requirements, and penalties in the issue event of non-compliance.

The commission’s recommendations are sensible, and should be extended to all prospective tax credit programs, including the Aerotropolis legislation.

As written, the legislation requires that new warehouses be built, and little else. If the state subsidizes warehouse construction, but there is no increase in demand for warehouse space, the state will be either subsidizing the construction of vacant warehouses, or helping owners of new warehouses drive owners of older warehouses out of business. Either case is not a desirable outcome for the state or for the area economy.

If legislators move forward with the Aerotropolis bill, a provision that would require an objective evaluation of the tax credit program — that is neither conducted by nor commissioned by an organization receiving any benefit from the Aerotropolis legislation — should be added.

Such an evaluation could be made three years after the inception of the tax credit program. It could include a comparison of the level of international cargo processed at area warehouses, employment numbers at area warehouses, and area warehouse vacancy rates before and after the creation of the tax credit program. If that objective review finds that the Aerotropolis program has not delivered on its promises, then the state should cease authorizing tax credits under the legislation.

In line with the Tax Credit Review Commission’s recommendations, the Aerotropolis legislation should also include clawback provisions. If warehouse owners receive Aerotropolis tax credits, and are found not to be in compliance with its requirements, or are not processing any level of international cargo, then the state should have a mechanism to recover the tax credits awarded to such noncompliant owners.

Furthermore, the Show-Me Institute has highlighted the fact that, despite proponents’ statements to the contrary, the Aerotropolis legislation would allow tax credits to be issued to owners of warehouses that do not process any international cargo. Since the primary argument for the Aerotropolis tax credits is that the incentives would promote international trade, the definitions within the Aerotropolis bill should be revised so that only warehouses processing international cargo may receive the credits.

Grants of Extensive Political Power (135.1503)
Remove the provision that would grant power to the mayor and county executives to determine who could receive the warehouse tax credits.

The Aerotropolis bill gives the authority to the mayor of Saint Louis or the executive officers of nearby counties the power to designate “gateway zones.” While this power sounds innocuous, it has important ramifications.

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 may 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 power to city and county executives. The language creating this power should be removed.

If this delegation of power is kept in the Aerotropolis legislation, then the Mayor and county executives should be required to make their gateway designations at a public meeting, with any and all applications and correspondence to the mayor or county executives requesting such a designation treated as public information.

Restrict the ability to layer tax credits with other tax incentives
It is fiscally irresponsible for the state to heavily subsidize projects under certain programs.

It is no secret that the state heavily subsidizes some projects through a myriad of its tax incentive programs. The level of subsidy for those projects can reach absurd heights. According to an analysis of state tax credit data, Missouri’s fifth Senate District – which includes downtown Saint Louis – was the recipient of nearly $1 billion in state tax credits between 2000 and 2010. This total does not include local tax subsidies, such as property tax abatement and tax increment financing (TIF), which likely are substantial. The Aerotropolis tax credits, as proposed, could easily be layered on top of existing tax incentives already offered by the state or local government.

In fact, in an internal review of the Aerotropolis legislation, Saint Louis County identified five areas near the airport that would likely be eligible for Aerotropolis tax credits. According to the county’s analysis, those areas had already been authorized to receive or were eligible to receive almost $300 million in state and local tax incentives, including Brownfield and Enhanced Enterprise Zone tax credits, as well as tax increment financing, property tax abatement, sales tax exemption, and state tax increment financing.

Some existing Missouri tax credit programs place restrictions on the layering of tax credits. For example, the Missouri Quality Jobs tax credits explicitly prohibit recipients from also receiving Enterprise Zone or Enhanced Enterprise Zone tax credits, Business Facility Program tax credits, Rebuilding Communities tax credits, or Brownfield Jobs and Investment tax credits.

It would be prudent to add similar restrictions to the Aerotropolis tax credit legislation. Similar tax incentive programs that should not be combined with the proposed Aerotropolis program include: Distressed Areas Land Assemblage tax credits, tax increment financing, state tax increment financing, Enhanced Enterprise Zone tax credits, and Brownfield tax credits. Those tax incentive programs are designed to encourage similar activity – construction – that the Aerotropolis legislation is designed to encourage. The state should not award redundant incentives.

Final thoughts

The proposed Aerotropolis legislation is problematic, especially in light of questionable jobs claims and the expansion of power for local government executives contained within the bill. There appears to be an incredible amount of political pressure attempting to push the tax credit measures forward, despite a lack of substantive empirical study. Moreover, China, the country cited by proponents as the source for increased international cargo traffic, has not stated publicly that warehouse construction tax credits are necessary before it will consider sending more cargo flights to the Lambert Airport.

All of the above facts should give legislators pause. But, if the state legislature is prepared to go forward and pass the Aerotropolis tax credits despite those concerns, then provisions designed to protect Missouri taxpayers should be added to the bill.

Two Bad Transportation Vetoes

Posted on by David Stokes

I wish Missouri had a line-item veto for more than just budget bills. That way, Governor Nixon could have vetoed the part of HB 430 he didn’t like concerning billboard laws, and leave intact the other good parts of the bill. Especially — and if you visit here much you probably know where this is going — the parts of the bill that substantially changed and reduced Missouri’s ridiculous requirements for mover company licensing.

The other veto is just strange. It is not that I support the bill as much as I find the reason for the veto perplexing. The Governor vetoed HB 1008 because he felt it might authorize toll roads in Missouri. Of course, I want more toll roads in Missouri. But the legislation says nothing about tolling, and the author of the bill, Rep. Thomas Long, says it has nothing to do with tolls. But even if it did have something to do with tolls, allowing private parties to finance and operate highways and bridges would be good for Missouri’s economy, not harmful.

I repeat that I think Missouri should allow line-item vetoes for more than just budget bills.

And a hat tip to Combest for the original link to the story.

The Mayor, the County Executive, and the RCGA All Likely Have Vested Interests in the ‘Aerotropolis’ Legislation: It Could Enhance Their Power

Posted on by Audrey Spalding

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 Saint 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 to the mayor of Saint Louis or the executive officers of nearby counties the authority 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 only be awarded to warehouses built in gateway zones.

Even if motives are pure, the ability to determine which areas are 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 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, at least let all vacant land owners compete equally for tax credits. There is no need to give special powers to city and county executives to achieve this (questionable) goal.

Second, this legislation would allow city and county executives to 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 would oversee how those tax revenues are spent. Of those special tax revenues, 50 percent would go to the Saint 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 Saint Louis and nearby counties will be in a position to appoint the 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 Saint 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 Saint 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 questionable as it is, but if the legislature insists on enacting them, they should not allow that money to be controlled by political figures.

A “How To” Guide for Brentwood Residents

Posted on by Charles Carson

The Post-Dispatch revealed this weekend that after an embezzlement investigation into Brentwood City Administrator Chris Seemayer, police discovered that Brentwood firefighters were allegedly paid “sham overtime” for 24 years.

Would it surprise you to learn that the State Auditor does not have the jurisdiction to audit the Brentwood Fire Protection District?

According to the State Auditor’s website:

The State Auditor’s office does not have original jurisdiction over most local governmental entities except school districts or counties with no county auditor. Therefore, the only way the State Auditor’s office can obtain jurisdiction to perform an audit in these areas is either through the petition process, or through a governor’s request.

This year, the Brentwood Fire Department has been allotted $2,190,664 from the city budget. The Post-Dispatch alleges that anywhere between $12,000 and $28,000 was misused every year.  The city could hire an independent auditing firm to investigate, but various firms have missed this is in the past.

If Brentwood residents want the State Auditor to review how their taxpayer dollars are spent, residents must petition for an audit. According to Ch. 29.230 of the Missouri Revised Statutes, the petition requires a minimum number of signatures. In Brentwood’s case, the petition would need 15 percent of the total number of ballots cast for a gubernatorial candidate in the most recent election.

In the 2008 General Election, 4,805 of the 5,738 registered voters in Brentwood cast ballots, according to information provided by the St. Louis County Board of Election Commissioners.  Some of those ballots may not have included votes for a gubernatorial candidate, but, assuming that they did, 721 registered voters must sign the petition to trigger an audit under state law.

For additional information regarding an audit request, please visit the State Auditor’s website by clicking here.

The Undue Burden

Posted on by Charles Carson

Hundreds of St. Charles County residents received a surprise letter from the Department of Revenue (DOR) this week — requiring them to pay several hundred dollars in sales tax on vehicles purchased one, two, or even three years ago.

In a recent audit, the city of O’Fallon discovered that the license office had undercharged residents for the sales tax due on their motor vehicles. Now, DOR has billed many residents for the difference in what they paid and what they should have paid in taxes. (Even three years later, the DOR may legally assess these taxes under Chapter 144 of the Missouri Revised Statutes.)

This case is an example of how inefficient government bureaucracy results in undue burdens on citizens.

To a family hit hard by the recession, several hundred dollars can be difficult to come up with on short notice. This isn’t a case of citizens paying their fair share; it’s a case where a relatively minor governmental mistake can have unexpected and burdensome consequences on individuals.

Sales tax rates in Missouri differ from municipality to municipality because the total is comprised of special, local, and state sales taxes. While there is a general state rate of 4.225 percent, each municipality may charge its own additional rate. On top of that, special taxing districts within a municipality may impose relatively small sales taxes for specific purposes, causing sales tax rates to differ block by block in some areas.

In this case, the multiple layers of taxing authorities did not properly communicate and failed to charge residents the correct amount.

It is unclear who exactly made the error, but it likely occurred because of outdated maps that did not reflect O’Fallon’s recent annexations. Many vehicle owners were charged sales tax rates for unincorporated St. Charles County, when, in fact, they lived within O’Fallon’s city limits. When they paid the sales tax on their vehicles, the licensing office apparently acted on incorrect information.

According to Tom Drabelle, O’Fallon’s Director of Public Relations:

“It is very possible some of the maps being used by the local office, maybe even the state, weren’t updated as they should have been with all the annexations that took place and the changes that occurred literally on the fly sometimes.”

Because of confusion at different levels of government, hundreds of Missouri taxpayers are forced to bear an immediate burden. For more information, please see the article on KSDK’s website.

Should Teachers Get Grades, Too?

Posted on by Turner Trapp

Tennessee has recently taken an important step toward ensuring that its public schools provide a quality education by setting up a system for grading teachers. Missouri should follow suit and go one step further, streamlining teacher termination policies.

Starting this fall, all public school teachers in the state of Tennessee will be receiving yearly grades, which will play a role in decisions for termination as well as tenure attainment.  Half of the evaluation will come from principal observations, with the remainder based on student academic performance and other factors.  The new system will also require that all teachers, tenured or not, be evaluated each and every year.

Collecting more detailed data on teachers, and therefore school performance, will help to bring much needed competition to the public school system.  Given access to this information, concerned parents will be able to make better decisions as to where their children should attend school.  With renewed pressure to perform, however, schools and districts will need to be able to remove teachers found to be ineffective.

Here in Missouri, even for schools or districts that choose to implement an evaluation system, the removal of bad teachers is a slow and cumbersome process. Missouri law sets out detailed procedures that must be followed in terminating an under-performing teacher.  These include a list of the only acceptable reasons for termination, in addition to a requirement for a thirty-day warning period prior to the hearing. In the event of a successful termination, Missouri teachers can still appeal to the district court, possibly reversing the decision.

Given the power to more easily terminate bad teachers along with an effective evaluation process, principals and superintendents could much more successfully manage their schools and districts.   Furthermore, if school administrators had the ability to fire poor teachers, less education spending would be wasted on prolonging the careers of bad teachers held within the schools by the promises of pension plans and tenure agreements.

Public school districts’ primary concern should be providing a quality education to students. In fact, this quotation is found in many district’s policies:

“Because the school district exists for the students, and the main obligation of the Board of Education is to provide an education for the district’s students, and not to provide employment, the Board will, through procedures carried out by the administration, determine which employees can best serve the needs of the students.”

Employing ineffective teachers until they reach retirement age hurts every student the teacher fails to teach. Tennessee has given us a strong example to follow, but to see true success here in Missouri, school administrators should be given the power to more easily remove bad teachers for the sake of both our tax dollars and the students’ education. The legislature cannot possibly foresee every situation and prepare for it accordingly.  Control over the system should be decentralized and placed in the hands of those that live and work within it every day.

On Aerotropolis and High-Speed Rail

Posted on by Patrick Ishmael

Over the weekend the St. Louis Post-Dispatch published a commentary written by Ripley Rasmus of the consulting firm HOK. In his piece, Rasmus sketches out a not-so-distant future that includes a bustling Saint Louis Aerotropolis and a high speed rail line from Chicago, telling readers that “[f]ortunately there are visionary leaders in our community who fully understand that these scenarios are not just a dream.” Rasmus’s nod to the “flight of fancy” argument is, for obvious reasons, much appreciated.

That said, it’s worth reiterating the manifest problems with the Aerotropolis project. It’s also fair to describe Rasmus’ high-speed rail dream as a billion-dollar boondoggle, based on the Show-Me Institute’s own research in the area. As Randal O’Toole observed, the cost of the system envisioned to connect just Saint Louis and Kansas City would be enormous:

Upgrading the 250 miles of Missouri tracks in the FRA plan to run trains at 110 mph would cost taxpayers at least $875 million, or nearly $150 for every Missouri man, woman and child. Subsidizing passenger trains over those routes would cost millions more per year, yet the typical Missourian would take a round trip on such trains only once every six years.

It is exceedingly important to emphasize that these “dreams” cost real money, and Rasmus does not reference a single price tag for any of the ideas these “visionary leaders” have put forward anyplace in his commentary. Visions can be as amorphous as they please; budgets and good sense cannot.

One other interesting thing: Rasmus cites back to the RCGA for his jobs numbers on Aerotropolis, saying that the project will “directly employ more than 5,000 people, and create an additional 5,000 jobs in secondary businesses serving the trade hub” — added together, that’s 10,000 jobs.  I’ve taken issue with the job mad libs of the RCGA and others before, with particular criticism for the two different figures offered by the RCGA and cited in the media. I’ll leave it to readers to determine whether Rasmus’ assessment clarifies or further muddles the Aerotropolis jobs forecast(s).

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