Editor's Note: This article first appeared in Air Cargo News June 21, 2011.
We’d like to thank Air Cargo News for the opportunity to comment on the substance of Missouri's proposed “Aerotropolis” legislation, first critiqued in these pages by air cargo expert Michael Webber and since muddled by a response from the director of Lambert–St. Louis International Airport, Rhonda Hamm-Niebruegge.
If the director of the airport did indeed help introduce the bill that has gone before the Missouri legislature, as she asserted, there are serious questions she needs to answer. Contrary to her implication, the Aerotropolis legislation’s original price tag was not $360 million, but $480 million, which included tax credits for the payment of $120 million in interest costs for the building of warehouses.
For somebody who seemed particularly interested in Webber’s rhetorical precision, Hamm-Niebruegge’s obscuration of the original cost of the bill as she introduced it is revealing. She should have been more forthright about the details of her bill.
To her credit, Hamm-Niebruegge admits that warehouses would be fully eligible for $300 million in tax credits, in support of a projected maximum of eight flights per week — a meager result for such a large amount of taxpayer money.
More importantly, though, Hamm-Niebruegge has failed to explain why the legislation specifies that Missouri would restrict the $300 million in Aerotropolis warehouse subsidies solely to new warehouses located on 100 contiguous acres, in urban redevelopment areas, within the boundaries of the airport, or in areas managed by a port authority. Those strange provisions demand an explanation. Hamm-Niebruegge says that she helped introduce the legislation (original price tag: $480 million); she had the opportunity to explain these preferential carve-outs here, but declined to take it.
We doubt that there is a practical explanation. The 100-acre stipulation and other requirements serve only to limit the individuals that could have access to the tax credits, and it is disheartening that the executive director of an airport would be concerned with making sure that only a few politically powerful individuals and businesses would be eligible for hundreds of millions in state tax money.
Hamm-Niebruegge says that the proposed bill's provisions “require that investment or export activity take place before the application for tax credits.” This is incomplete. A close reading of the legislation reveals that owners of these newly built warehouses who use two modes of commerce — perhaps road and rail transportation — could qualify for the Aerotropolis tax credits. Owners of the comparable refrigerated warehouses would qualify in this way, as well. There is no requirement in the legislation that those warehouses store any amount of international cargo. Is the purpose of the Aerotropolis tax credit legislation to encourage international trade, or is its purpose to subsidize warehouse construction?
Hamm-Niebruegge optimistically writes that the $300 million in warehouse tax credits could result in millions of square feet of new warehouse space, yet she does not mention the approximately 18 million square feet in developed warehouse space already vacant in the Saint Louis area. Why does the state need to subsidize the construction of more warehouse space if, as market research from CB Richard Ellis has shown, a great deal of space is already available? Again, we are disheartened by the possibility that public officials are in such a rush to subsidize the owners of vacant land that they fail to consider the considerable existing supply of warehouse space.
Proponents of the Aerotropolis subsidies, including Hamm-Niebruegge, point to an eight-page study commissioned by the St. Louis Regional Chamber and Growth Association (RCGA) purporting to show that the $300 million in warehouse construction tax credits would result in economic activity worth billions. We were disappointed, but hardly surprised, that the RCGA study failed to consider the cost of taking $300 million from all Missourians in order to award it to a favored few. Aerotropolis proponents fail to understand that tax credits are not free money. Every dollar that is given away in tax credits is a dollar that the state government must replace with cuts in current programs, or — more likely — through increased taxation.
Let us be clear: The Aerotropolis dream of attracting international trade to a region is by no means a poor one. In fact, increasing trade among countries is one of the best ways to improve economic welfare. However, we are concerned that the dream is being used as an excuse for public subsidy.
If the Aerotropolis dream is viable, as Hamm-Niebruegge states, where are the private investors clamoring to make a substantial positive return? The absence of such investor interest without heavy subsidy reveals that the “big idea” pushed by Hamm-Niebruegge, other public officials, and industry lobbyists is in trouble — with or without this extraordinarily problematic legislation that the director helped introduce.
Patrick Ishmael and Audrey Spalding are policy analysts at the Show-Me Institute, an independent think tank promoting free-market solutions for Missouri public policy.