Changes to the “Aerotropolis” Legislation: A Critical Review

Last week, Missouri legislators worked late into the evening to iron out the details in a lengthy tax credit bill. The legislation, which now stands at 330 pages, contains a tangle of changes to several tax credit programs, including a reduction of subsidies for the low-income elderly.

A set of subsidies for the construction of warehouses around the Lambert–St. Louis International Airport are now buried about halfway through this lengthy tax credit bill. If you’re an avid reader of Show-Me Daily, you already know that Christine Harbin and I have highlighted these subsidies extensively.

After all, it doesn’t seem to make much sense to award hundreds of millions of dollars to subsidize warehouse construction in the hopes of attracting increased international trade — without a comprehensive study demonstrating that more warehouses could help the state economy.

I don’t want to rehash all that. Instead, I want to detail the changes made to the “Aerotropolis” legislation. To summarize: The bill is more about subsidizing construction near the Saint Louis airport than attracting international trade.

The Good: Reduced Costs

• The cost to taxpayers has been reduced by $120 million. The old legislation would have awarded $120 million in tax credits to reimburse warehouse owners for a majority of the interest costs on their debt. That has been completely stripped out of the new legislation.
• Special tax exemptions for companies operating within a warehouse have been removed. If the old version of the Aerotropolis legislation had passed, companies operating within the already subsidized warehouses would have been exempt from state income tax and corporation franchise tax. Those are no longer in the legislation. I took particular issue with those exemptions because there was no limit imposed. Who could know how much revenue the state would forgo? Don’t get me wrong, lower taxes are definitely a way to encourage economic growth, but the legislature needs to lower taxes for all Missourians, not just the favored few (in this case, companies operating out of subsidized warehouses near the Saint Louis airport).
• The legislation no longer has a provision that would allow employers to keep the state income taxes withheld from employee paychecks. Thank goodness. The proposed legislation didn’t limit this amount, and the fiscal note didn’t estimate how much revenue the state would lose as a result. Additionally, this particular provision within the Aerotropolis bill seemed to match up with state tax increment financing (TIF) that had already been awarded to the Lambert Eastern Perimeter Redevelopment Project in 2006, meaning that development in this area is already subsidized.
• The Aerotropolis legislation awards $300 million in tax credits to developers and owners of warehouses. Under the original legislation, owners could receive partial reimbursement for their closing costs, brokerage fees, attorney fees, and maintenance costs of a property before actually building a cargo warehouse. With the new legislation, those costs are not eligible for state reimbursement. Only the costs of construction and demolition are now eligible.

The Bad: Lower Standards

• Originally, for an owner of a warehouse to get tax credits, the warehouse had to have a certain level of international shipping activity. The new legislation drastically reduces how much international cargo activity that a warehouse owner must process in order to be eligible for state tax credits. According to this version of the bill, a warehouse could be eligible for state subsidy if as little as 10 percent of its operations consisted of sending cargo to international destinations. And remember, legislators used the prospect of increased international trade to justify handing out hundreds of millions of dollars in taxpayer money. Is this legislation really just an effort to have the state subsidize the poorly managed city airport, which is currently carrying about $900 million in debt?
• The new legislation exempts warehouse companies and employees from the Saint Louis earnings tax. The state tax exemptions were eliminated from the earlier draft, and the city tax exemption was added. Again, it’s true that lower taxes encourage more economic growth, but why award that exemption only to a politically favored few? And wasn’t the city saying only a month ago that losing earnings tax revenue would result in a loss of city services?

The Ugly: Subtle Admission That Increased International Trade Is Unlikely

• The new legislation would award even more in state tax credits for each international export flight. In some cases, the increase is as high as 25 percent. The cap on those air export tax credits is still $60 million. Why would legislators increase the payout per flight but keep the cap the same? The only reason I can think of is that they think there won’t be enough export flights to hit the tax credit cap. This all goes back to my concern that there isn’t a firm commitment in place from any international company that, if more warehouses are built, there will be more international cargo flights traveling to and from Missouri.
• The new legislation would award more in state tax credits for warehouse construction. Again, the cap on the warehouse tax credits stayed the same, at $300 million. But the percentage of warehouse construction costs that the state will reimburse has increased in the new legislation. Is this an admission that fewer warehouses will be built?

There you have it. Although revisions to this legislation lowered some costs, the new bill reduces requirements to get state subsidies, and lowers the amount of “new activity” needed to hit the $360 million tax credit cap. Based on the changes made to the “Aerotropolis” subsidies, I would suggest a new name. How about “Lambert Warehouse Tax Credits”?