How badly do some Missouri development officials and lawmakers want St. Louis to become a hub for Chinese air cargo shipments into the U.S.? Badly enough that they negotiated a substantial 15-year, $360 million incentives package to finance the so-called "Aerotropolis" complex at the city's Lambert International Airport.

However, the much-watched plan was in serious trouble at press time. On Sept. 13, 2011, the state Senate approved legislation stripping $300 million of the $360 million, making the viability of Aerotropolis highly problematic at best. The project could well die during the special legislative session.

In microcosm, the Aerotropolis debate gives a perfect example of the intensified scrutiny being given nationwide to spending on corporate tax breaks, in comparison with a decade ago during a healthy economy.

Backers hoped state tax credits would spur construction of warehouses and other freight-related facilities around Lambert. About $300 million of credits would be allocated to eligible investment costs (for example, machinery to move and process cargo containers), and another $60 million of incentives given to freight-forwarders situated in "gateway zones," based on the tonnage of air exports handled.

Only owners of newly constructed warehouses would be eligible for public assistance.

Complaints Of Adding To Capacity Glut

However, Aerotropolis spokesmen had no problem drawing critics, who condemned a giveaway of taxpayer money to corporate interests at a time when heated discussion was already ongoing in legislative committees about scaling back tax credit programs.

Some critics pointed to the potential benefits to politically connected developers such as St. Louis builder Paul McKee, who owns land near the airport. Others noted the existing supply of warehouse space, such as a taxpayer-subsidized cargo and passenger facility just 40 miles away at MidAmerica Airport in southwestern Illinois (a project that itself is widely viewed as an expensive failure). And, still others questioned the need for another air cargo hub between Dallas and Chicago.

Pierce Powers III, a policy analyst at the Missouri Budget Project non-profit watchdog group in St. Louis, told TIA his group's study found substantial unused capacity at and around Lambert - 18 million square feet worth. [ I1110A-006]

"With existing infrastructure, Lambert handled 20% more cargo a decade ago," he added.

Tax Credits Already Under Fire

The Aerotropolis matter also offers a prime example of how the near universal desire for more economic development increasingly butts heads these days with the cost and impact of tax credits and exemptions.

In Missouri, the Tax Credit Review Commission (a bipartisan panel of legislators, business leaders and others assembled by Gov. Jay Nixon) found expenditures in the state's quiver of tax credit programs (currently numbering 61) exploded by more than four-fold over 12 years, to $522 million in 2010 from $103 million in 1998.

At the same time Aerotropolis backers were starting to push their case for tax credits, this commission was urging the Legislature to kill dozens of incentives.

An aviation consultant told TIA there also were palpable fears of a repeat of MidAmerica Airport, with its essentially unused terminal and hundreds of millions of dollars in tax breaks, befalling St. Louis.

"The taxpayers are stuck with that boondoggle" in Illinois, said Mike Boyd, president of Boyd Group International/Evergreen, Colo. "People think that's what you'll be stuck with if you also do it at Lambert."

Powers, who has studied both Aerotropolis and MidAmerica, thinks Missouri officials would be well served to take more study time "before committing hundreds of millions of dollars of scarce public funds."

What's Still Up For Consideration

Senators struck the $300 million of credits for development of warehouse and manufacturing facilities from the Aerotropolis bill. Still on the table are $60 million in tax credits for companies that facilitate exports. Advocates argue these incentives would be a wise expenditure that would help St. Louis compete better with Chicago air cargo concerns.

And, while the proposal has been scaled back, it could still have traction and even be amended later to include warehouse development aid. The key question is whether the plan as now funded is worth pursuing.

Contact Info : Pierce Powers III, (314) 652-1400; Mike Boyd, (303) 674-2000.

Source: Tax Incentives Alert, 10/01/2011

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