September20,2011

MissouriNeedsJobsandRevenue
ExaminingtheefforttosupportinternationalaircargoinSt.Louis WrittenByColeGoodrich,DanielS.Leritz&FrankDeGraaf Missouri,muchliketherestofthenation,isindirestraits.Theeconomyisfaltering,the housingmarketisstillonlifesupportandthejobmarketdoesntshowmuchimprovement. Manyhomeownersarestillunderwaterontheirmortgages,andforeclosuresarehappening eachandeveryday. ThenumberofjobsintheSt.Louisareaisroughlythesameasitwas10yearsago.Weve experiencedzerogrowth.Manyavailablejobspaylessandcomewithfewerornobenefits.We areactuallyworseoffthanwewereadecadeago. Missouriiscurrentlyawelfarestate.Itreceives$1.32fromthefederalgovernmentforevery taxdollarpaid.Despitethisreality,CongresswomanVickyHartzlerfromMissouris4thdistrict saidthisonaradioshowlastOctober:Wejustwantthegovernmenttoleaveusaloneherein Missouris4th.Hartzlersfarmreceivedmorethan$750,000infederalsubsidiesbetween1995 and2009.Ourconundrummightbebestdescribedbyexactlythisattitude. Besidesthefederalgovernment,MissourilargelyreliesontheSt.Louisregionforitsincome.In fact,45%ofstaterevenueisearnedintheSt.Louismetroarea(Missouriside),anetpayerto thestate.Missouriagriculture,forinstance,makesuponly1.5%ofthestatestotalrevenue.At thesametime,itreceiveshugesubsidiesfromthefederalgovernment.Itsobviousthatthisis notasustainablesituation.Missouricannotcontinuetospendmoneywithoutearningitfirst andneedstogetoffofthefederalteat. Tobecompetitiveintheglobaleconomy,andreally,thereisnoalternative,Missouriwillneed tobeabletotradeworldwideandconnectitselftothegloballogisticsnetwork.St.Louisand KansasCityhavetobecomebreedinggroundsforinnovation,researchandtechnology.Our universitiesarecrucialinbuildingandmaintainingaskilledworkforcethatcancompetewith thosearoundtheglobe.

Currently,theMissourilegislatureisdebatinganeconomicdevelopmentbillthatincludes Aerotropolis(theChinacargohub),seniorlowincomeassistedhousing,andhistorictaxcredits. TheStateDepartmentofEconomicDevelopmentcalculatedtaxcreditsforthelowincome housingprogramtoreturnabout11centsonthedollarandhistorictaxcreditsabout21cents foreachtaxdollarspent.Wereabigproponentofhistorictaxcredits,assistingpoorandsenior citizens,andwewouldliketoseetheseprogramscontinue.However,wellalsohavetoface therealitythattheseprogramsWILLcostthestatemoney.ThisiswhereAerotropoliscomesin: TheAerotropolisbilloutlinesobjectivecriteriathatanentitymustmeetinordertoqualifyfor availabletaxcredits.Moreover,thesecreditsarecappedandexpireafter7years(freight forwardingcredits)or15years(warehousecredits),atwhichtimethestatewouldfullycollect onhuboperations. Thecreditsarealsoheavilybackloaded,whichwouldprovidetaxpayerswiththeopportunity toevaluatethemeritsofthehubbeforethebulkofcreditsaredisbursed.Importantly,thebill targetsbusinessactivitythatdoesnotcurrentlyexistintheregion,whichmeansthatthe incentiveswouldnotdrainstatecoffers. TheMissourilegislaturerecentlyrequestedthattheMissouriDepartmentofEconomic Developmentconductastudyonthecostsandbenefitsoftheproposedlegislation.Thestudy concludedthatin15ofthe16scenariosanalyzed,facilitiesthatqualifiedfortaxcreditswould generatemoremoneyforthestatethantheyconsumedintaxcreditswithina10yearperiod. Moreover,after15years,revenueswouldexceedtheamountconsumedintaxcreditsunder everysituationanalyzed.Itisworthagainemphasizingthattheseincentivesaretaxcreditsthat targetbusinessactivitythatdoesnotcurrentlyexistintheregion.Additionally,thestudy merelyanalyzedtherevenueeligiblefacilitieswouldprovidethestate.Itdidnotattemptto examinethefulleconomicimpactofestablishinganenduringtradehubwiththecountrythe IMFpredictswillemergeasthelargesteconomyintheworldby2016. AlthoughtheChinesewouldnotreceiveasingletaxcreditunlesstheythemselvesinvestinair cargofacilitiesandjobshere,theyhaverepeatedlyemphasizedthenecessityofprovidingsuch incentivestothelocalandnationalaircargoindustry.Infact,theyhavestatedtheirintention toestablishhuboperationsinanotherMidwesterncityshouldtheMissourilegislaturefailto passthelegislation.Inlightofthisconditionalcommitment,itisapparentthatthevarious privateentitiesontheAmericansidewouldnotmakethenecessarymassiveinvestments absenttheincentivesincludedinthelegislation. AnothercriticismoftheinitiativeisthatrecipientsoftheseincentiveswouldleaveSt.Louis afterexhaustingavailabletaxcredits.Althoughitisunlikelythatsuchpartieswouldabandona citythatservesasahubfortradewiththecountryprojectedtobethedominanteconomyin
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theworldby2016aftermakingsubstantialinvestments,legislatorscouldreducethelikelihood ofthisoutcomebyretainingtheprovisionthatawardscreditstocompaniesthatdevelopair cargofacilities. Indeed,thosetaxcreditsdesignedtoencouragerealestateinvestmentscouldactuallyserveto ensurethatnecessarypartiesremaincommittedtotheSt.Louisarea.Themoresuchentities investintheproject,thelesslikelyitisthattheywouldwalkawayaftersunsetofthetax incentivesprogram. Additionally,opponentshavearguedthatsufficientwarehousespacealreadyexistsinthe region.However,itishardtoreconcilethisclaimwithColliers2ndquarter2011report,which statedthatthecurrentindustrialvacancyrateintheSt.Louisareaissignificantlylowerthanthe nationalaverage.AccordingtoColliers,the8%vacancyrateinSt.Louisis2.5%lowerthanthe nationalaverage.Purewarehousevacancyisevenlowerat7.4%.Infact,St.Louisistheonly Midwestmarketwherewarehouserentsaregoingup. Furthermore,manyexistingfacilitiesareinadequatetoaccommodatethedemandsofhandling perishablesinsocalledcoldchainconditions.Assuch,itisclearthatsignificantdevelopment mustoccurinordertosupportafunctioningtradehub.Opponentsfurtherclaimedthat18 millionSquareFootofwarehousespaceisavailablearoundtheairport. This18million,infact,isthetotalsquarefootageavailableintheentiremetropolitanstatistical areainMissouriandIllinois,mostofitinadequatefortheintendeduseofthecargohub. Despitetheclaimsofcritics,theAerotropolisTaxCreditActprovidesMissouriwithalowrisk meansofenticingtheChinesetoestablishanaircargohubatLambertFieldinSt.Louis. Becausetheincentivesareperformancebased,thestatewouldawardtaxcreditsonlytothe extentthathuboperationsmaterializeatLambert. Ifthetaxcreditsmanagetobringthenecessarypartiestothetable,theChinahubcould revitalizetheregionaleconomy.Missourimaybeatacrossroads;statelegislatorswilleither enactlegislationthatcouldpositiontheregiontobecomeacompetitiveplayerintheglobal economy,ortheywillrefusetorevivetheoriginalAerotropolisbill,orsimilarprovisions, potentiallycondemningthestatetofutureeconomicirrelevance. WehavearealshotatestablishingSt.LouisandMissouriasthegatewaytothecountry predictedtobecomethelargesteconomyintheworldwithverylimitedrisktotheMissouritax payer.ThisisexactlywhatMissourineeds:neweconomicdevelopment,jobcreationandthe generationofrevenue.

Withoutnewincome,otherprogramslikehistorictaxcreditsorlowincomehousingprograms willeventuallybecomeunaffordable.Thatswhythecutswereproposedinthefirstplace. ThosecutswereneverandarestillnotrequiredtofinancetheAerotropolistaxcredits. ItisessentialthatthelegislaturepasstheentireAerotropolispackage.StatessuchasColorado, IllinoisandOhioarealreadyputtingtaxincentivespackagestogetherinordertolurethe Chineseandothersawayifwefailtoact.Evenifwedontliketheuseoftaxcredits,wehaveto bepragmaticandfacereality:Ifwedontdoit,someoneelsewill. OpponentsarecriticizingtheChinahubefforts,buttheyhavenotbroughtasingleideatothe tabletoserveasaproperalternativetothebigidea.Webelievetherearenoalternatives. TheAerotropolisreturnsportendsignificantincreasesintotalemployment;taxrevenues;new businessopportunitiesandpartnerships;businessrelocations;constructivereuseof undercapitalizedland;importsandexports;andreturnoninvestmentintaxcreditprograms. AmoreintangibleaspectofLambertasaninternationaltradehubwithdirectflightsto ShanghaiisthefactthatSt.LouisandMissouriwouldberecognizedagainasplayersonthe worldstage.JustthefactthatwereattemptingthisAerotropolisconceptisdeemedimportant enoughtogarnerattentionfrompublicationsworldwide. Further,ChinaEasternisamajorairlineandanewmemberofSkyteamAlliance,whichincludes airlineslikeDelta,KLMandAirFrance.Globalairlinesworktogethermorethaneverandcode sharemanyoftheirpassengerflightsbutalsotheircargo,onfreightersandinthebelliesof passengerplanes.DeltaalreadyhasasignificantpresenceatLambertandcodesharingcargo, andinthefuturepassengers,iscertainlynotoutofthequestion. Missourilawmakersmuststopfightingthecityandtheworld.Instead,wemustunderstand thatwhatsgoodforSt.LouisisgoodforMissouri.Wesincerelyhopethelegislaturewillact responsiblyandnotsquanderthisopportunity.Anopportunitywewillsurelycomeupononly onceinalifetime.Weneedtostartthinkinglikewinners.Ifwedont,wewillcertainlybecome losers.