Ms. Harbin and Ms. Spalding Go to Jeff City

Yesterday, Christine Harbin and I testified about the proposed “Aerotropolis” subsidy bill before the Missouri Senate Jobs, Economic Development and Local Government Committee. As readers of Show-Me Daily are aware, Christine and I have a number of questions and concerns about the proposed legislation, which would award $480 million in tax credits primarily to subsidize debt and the construction and operation of warehouses around Lambert–St. Louis International Airport. The idea, proponents say, is that this will enable the airport to build up infrastructure to encourage more international flights to and from Saint Louis. But, as is true with any project, there is the chance of failure. Is the cost of this proposed bundle of subsidies worth the chance of success?

(As you will see in the video of our testimony, which will be posted soon on Show-Me Daily, the committee members seemed aggravated by our presence and offended by the questions that Christine and I raised.)

Our testimony yesterday came down to a single concern: Why award $480 million in tax credits (and more) if tax credit programs in Missouri have a poor track record?

There are some indications that this particular proposal may be at greater risk of failure than other tax credit programs. It was proposed without any sort of study of the costs and benefits associated with this project. A closer read of the legislation also reveals many hidden costs above and beyond $480 million. There isn’t any protection for taxpayers if the hoped-for increase in air traffic does not materialize. Furthermore, part of the proposed legislative language takes care to account for other subsidies awarded in 2006, meaning that, at minimum, the area is already subsidized.

None of the facts Christine and I presented were disputed — the only argument was whether this proposal would cost taxpayers money. But tax credits are an actual cost to taxpaying Missourians, as we have explained before.

So, what safeguards do legislators say are in place for taxpayers? The line repeated during yesterday’s hearing was that the the tax credits won’t be awarded without an extensive review process, and that the award of taxpayer money will be spread out over a period of 15 years.

However, given human ingenuity, it certainly is possible that creative entities might find a way to receive more from the Aerotropolis subsidies than legislators think possible.

Just last week, the St. Louis Post-Dispatch reported that less than six months after Liberty Mutual was scheduled to receive $1.6 million in state tax credits, 45 employees were told that their positions had been eliminated. Those employees were invited to apply for new lower-paying positions.

From the Post-Dispatch:

Under the terms of the Missouri Quality Jobs program, Liberty Mutual will still qualify for the tax credits if, within 24 months of its agreement with the state, the insurer has added 100 “net new jobs” to its payroll at a salary equal to or exceeding the prevailing average wage in St. Louis County — $48,291.

The Liberty Mutual case illustrates that even the best-intentioned legislation can have unintended consequences.

Frankly, I appreciate that the Aerotropolis bill includes an attempt to slow the expenditure of tax credits, and proposes a review process. But hoping for an outcome does not guarantee it. It is almost impossible to account for every last detail. Giving away millions in taxpayer money each year certainly creates an incentive for recipients to meet state-imposed benchmarks with the least amount of effort.