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Economy & Business

China hub debate moves to Jefferson City

This article first appeared in the St. Louis Beacon, April 1, 2011 - For Missouri state Sen. Eric Schmitt, not much differentiated Chicago from St. Louis in the 19th century. That is, he said, except for one big idea -- Chicago's willingness to adapt to transportation changes.

"There's this town in Illinois called Chicago that recognized the emerging new mode of transportation and commerce, which was the railroad," said Schmitt, R-Glendale. "We were still fixated on the steamboat. Chicago jumped on the opportunity and became the rail hub. And the rest is history: The two cities' economies and trajectories have been set ever since."

But Schmitt sees an opportunity to change course. He's offered legislation that he says could bring a steady international trade route from China -- and possibly elsewhere -- to Lambert-St. Louis International Airport. In the process, the measure could provide needed incentives to put to use some of the region's idle complexes -- such as the former Chrysler Plant in Fenton or the NorthPark Business Park.

The bill, which could hit the Missouri Senate floor next week, has a broad set of supporters. It's won plaudits from business groups, some rural lawmakers and Democrats. And it passed out of a Senate committee without opposition.

On the surface, such a coalition should lead to a bill's swift passage. But other lawmakers wary of tax credits are not as enthusiastic and could sink the legislation. The proposal could prompt more debate over tax credits, a common fight in the Missouri Senate over the last few sessions of the Missouri General Assembly.

Still, Schmitt said, the bill is a course change from prior economic development initiatives.

"A lot of what we do is reallocation. What we do is move pieces from one side of the chessboard to the other," Schmitt said. "This is new. This is new investment. This is new economic activity that we just don't have. When you have zero flights a week and we want to move forward and actually create this kind of international trade hub, which is what it is, that's activity that we don't have now."

Shifting Course

Federal, state and local officials have been jockeying to establish a "China hub" at Lambert for years. They argue Lambert, which doesn't have as much runway traffic as Chicago, could be China's cargo gateway to the Midwest.

Schmitt's legislation would provide up to $60 million in tax credits for companies shipping exports out of Missouri, which Schmitt said is a way of steering cargo away from cities such as Chicago.

"Right now, Chicago is the incumbent. And we need to unseat the incumbent," Schmitt said. "The way you do it is [to incentivize] freight forwarders to divert the traffic now going to Chicago. Like I said, they've got capacity issues and they're costing people money. We can capitalize on that."

The bill also would provide roughly $420 million of incentives to build warehouses and distribution centers within a 50-mile radius of Lambert. That aspect of the bill, which Schmitt said is "critical" for the hub's "sustainability," is aimed at bolstering infrastructure to make the China hub more robust and permanent.

"A lot of our misfortune over the last 20 to 30 years actually -- in an ironic twist -- helps us," Schmitt said. "I grew up in Bridgeton where a lot of middle-class families were bought out for this billion-dollar runway that sits empty right now. We've got the Chrysler plant, which happens to sit in my district, and the old Ford plant in Hazelwood. You've got all these large tracts of land that a lot of other cities don't have that are developable for these clusters of warehousing and assembly."

NorthPark, a 550-acre complex east of Lambert, stands to benefit greatly. State Rep. Clem Smith, the Democrat from Velda Village Hills whose district includes part of NorthPark, said the legislation could go a long way toward developing the compound.

"It could be a logistics hub for moving products that come in from wherever -- whether it'd be China, India or Europe," Smith said. "And [it could be] a warehousing hub. We've got a lot of acreage that's sitting there that's ready to go. It's ready to be developed."

An Unusual Coalition

The bill has won plaudits from a number of business groups, including the Missouri Chamber of Commerce. In a statement, Chamber of Commerce President and CEO Dan Mehan said the measure will "create an infrastructure to spur demand to open trade lines for new markets."

"Added incentives of this type will continue to shed a favorable light on St. Louis and Missouri during trade negotiations and bring us one step closer to securing valuable partnerships in North America and worldwide," said Mehan, who has served as vice chair of Midwest China Hub Commission.

Dick Fleming, the president and CEO of the St. Louis Regional Chamber and Growth Association, wrote in his association's March newsletter that Schmitt's legislation would be "groundbreaking."

"While we are very encouraged by China's recent designation of China Eastern and its cargo affiliate China Cargo as the proposed airline to establish this hub, several cargo flights each week will not qualify as 'The Big Idea,'" Fleming wrote. "It's only when our state and region seize the opportunity that these flights represent and completely restage St. Louis as the center of commerce, transportation, and the distribution of goods, that this initiative will become truly transformative and fulfill its full potential."

Some rural lawmakers have embraced the bill as a way of helping agriculture. State Rep. Caleb Jones, R-California, for instance, is sponsoring a similar bill in the House, while cosponsors for Schmitt's bill include rural lawmakers such as state Sens. Brian Munzlinger, R-Williamstown, and Bill Stouffer, R-Napton.

"Most people wouldn't expect a rural country lawyer to be filing a bill that affects an airport in St. Louis," Jones said. "And that speaks a lot to the gravity of the bill. It's not just going to affect St. Louis. This is a bill that's going to affect the entire state and likely states around us, too."

Schmitt said complexes that fall under the bill could be used to store meat that could be sent to China, a sentiment echoed by Munzlinger.

"Agriculture's one of the largest industries we've got in this state," said Munzlinger, whose district encompasses much of northeast Missouri. "And I see this as a major, major export enhancement that we can offer to ag producers in this state."

The measure also received praise from Democrats. St. Louis Mayor Francis Slay, for instance, sent out a Tweet earlier this year calling Schmitt's bill one of "the most important economic development bill the state Senate will consider this year." Rep. Eileen McGeoghegan, a Democrat whose St. Ann district includes part of Lambert, said the legislation "thrilled her to death" because its potential to create jobs. And Sen. Joe Keaveny, D-St. Louis, said he "loved" the bill, adding it would assist in reviving St. Louis' economic prospects.

"We need it to stimulate the airport; I think we need it to stimulate the region," Keaveny said. "I don't think that activity is going to happen until we have a bill like this."

Roadblocks Ahead

Even though Schmitt's legislation is supported by what would seem to be a broad coalition, it still could face a difficult legislative path. That's because a group of senators in the past few sessions have tried to curtail tax credits.

In 2009, for instance, the Senate quarreled over the Historic Preservation Tax Credit to rehabilitate old buildings. Last year, a tax credit bill to assist a Ford plant in Clay County sparked controversy even though it eventually passed in a special session of the legislature.

State Sen. Chuck Purgason, R-Caulfield, led the filibuster last year against the Ford bill and said he would also actively oppose Schmitt's legislation.

"[The cost] is under the assumption that Illinois says, 'Please go to Lambert; just take it and go,'" Purgason said.

State Sen. Brad Lager, R-Savannah, has supported restrictions on tax credits in the past. While he hasn't read Schmitt's legislation, he said that the big price tag is a sizable problem.

"It's difficult to understand or to make a promise today that we fund something like that when we don't know whether we're going to fund Parents as Teachers or fund transportation line items or make sure schools are operating," Lager said. "It's also about priorities. While we want to be supportive of moving economic activities forward, there's a cost-benefit analysis that has to play out."

Schmitt cited several differences between his legislation and, for example, last year's Ford bill. For instance, he said the legislation's allocation is not unlimited and it has a "sunset."

"What you have here is the accountability of knowing that if somebody's going to build this facility, if somebody's going to make this investment, they have to build the building," Schmitt said. "And when you're talking about these kinds of facilities, you're talking about facilities that -- let's say it's $80 a foot -- to build a warehouse. It's a $20 million to $25 million investment."

Lager said without tax credit "reforms" -- which he said would include phasing out or placing caps on existing programs -- there's very little chance of it getting out of the Senate.

One way that the bill may be able to move forward, Lager said, is if it is tied to cuts in other tax credits.

"You can't keep spending new until you reform what's in place today," Lager said.

Purgason said he isn't even sure the measure will come to floor because details haven't been worked out on it. And he doesn't buy the argument that the tax credit will be transformative.

"I hear that from every tax credit we've ever passed, and somehow we're facing higher unemployment and we're still trying to figure out a way to invent the wheel," Purgason said. "That's an argument we hear every year. Apparently it hasn't worked very well."

Not everybody who opposed the Ford bill is rejecting Schmitt's legislation outright. State Sen. Will Kraus, R-Lee's Summit, was against the Ford legislation last year when he was a member of the Missouri House, but said there are differences between targeting a single company and trying to foster economic activity for an entire region.

"I'm more amenable to a concept that's going to bring in international [import and export trade] right here to Missouri," Kraus said. "That's something we need to look at, especially since that's 1 billion people over there in China. And if they're looking at our cattle industry or our agriculture, like corn or wheat, to be shipped back over there, that's going to be huge for our No. 1 industry in Missouri -- agriculture."

In any case, Schmitt said the stakes are high. Without the initiative, Schmitt doesn't see the China hub materializing.

"There has to be a path to sustainability of it," Schmitt said. "There's been a lot of work by a lot of important people to get the world's largest trading partner at the table. But if you just have two flights a week for a period of time, it's not sustainable. Because you don't have the infrastructure, you don't have the demand, you don't have assembly, you don't have the warehousing, you don't have the distribution that draws business, commerce and demand to that trade hub you're trying to establish."

Jason Rosenbaum, a freelance writer in St. Louis, covers state government and politics.

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