Tax credits for elderly, historic preservation may be sacrificed for China hub
This article first appeared in the St. Louis Beacon, May 2, 2011 - St. Louis area political and civic leaders, Republican and Democrat, are ecstatic that the Missouri General Assembly appears on the verge of approving $360 million in state tax credits to help Lambert St. Louis International Airport become a cargo hub for goods coming from and going to the People's Republic of China.
Monday, the state Senate voted 32-2 in favor of the measure. It now goes to the state House.
But the tax credits do have a cost -- which will be footed, at least in the state Senate version, by cuts or outright repeal of other credits helping the elderly, self-employed and those seeking to restore historic structures.
The state Senate measure would end Missouri's tax credit for low-income elderly renters as well as the state tax credit for self-employed people who buy their own health insurance. The Senate estimates that the state will save $57 million a year by ending the tax credit for elderly and disabled renters, and offering it only to elderly and disabled homeowners.
The measure also would put a $75 million-a-year lid on historic tax credits that have been employed extensively to renovate buildings in downtown St. Louis. Annual historic tax credits now approach $140 million a year. A cap of $100 million a year would be placed on tax credits for the developers of low-income housing.
According to the Senate's statement after passage, additional trims include:
"The value of tax credits for contributions to the following programs would be reduced from 50 percent to 35 percent if the contribution exceeds $1,000: Healthcare Access Fund Tax Credit and the Family Development Account Tax Credit. Other changes in values include 50 percent to 30 percent for cash contributions of $50,000 per taxpayer and $10,000 on food donations in the Food Pantry Tax Credit. Contributions to the Food Bank Tax Credit Program would be reduced to 50 percent of those less than $1,000 and 35 percent for those over $1,000. Affordable Housing Assistance Program tax credit values would be reduced from 55 percent to 40 percent."
A Senate spokeswoman said the cuts are part of a broad-ranging economic development package to reduce the state's array of tax credits by $1.5 billion over 15 years. The cuts are even deeper to pay for the $360 million aid for the China hub, which the bill calls the Aerotropolis Trade Incentive and Tax Credit Act.
The $360 million is divided mainly into two parts. One provides tax breaks for so-called "freight forwarders,'' to promote transportation between Chicago and St. Louis, while the second part would offer incentives for firms that build facilities within 50 milles of Lambert to engage in foreign trade.
Missouri Chamber, Tax Credit Critics on Board
The China hub aid has won the support of the Missouri Chamber of Commerce and Industry. Chamber president and chief executive Dan Mehan said in a statement that "all of the pieces that are coming together this year have the potential to bring an entirely new industry into our state and create jobs for generations to come."
"This investment will open the door for Missouri employers to markets of millions in Asia, South America, Africa and Europe, while creating thousands of new jobs for Missourians here at home," Mehan said
State Sen. Eric Schmitt, R-Glendale, has been the chief driver of the effort to create China hub incentives. He calls the effort a "huge opportunity to change the trajectory of our economy."
Schmitt said the Senate bill no longer contains proposals for income-tax breaks. But he is happy with the final version and believes it provides the right incentives to help St. Louis' effort to become a major Midwest player in trade with China.
"At the end of the day, it's about seizing an opportunity that's right in front of us to be an international cargo hub and to have the infrastructure necessary for it to be sustainable long-term," Schmitt said.
Some longtime critics of the state's broad array of tax credits -- such as Sen. Brad Lager, R-Savannah -- had threatened to block the China hub incentives unless there were cuts elsewhere.
A leading critic -- state Sen. Jason Crowell, R-Cape Girardeau -- cited the 2010 legislative battle over tax credits to preserve and expand a Ford automobile plant in suburban Kansas City. He linked that effort to the state government's action -- with legislative approval -- to revamp and reduce the pension program for state workers.
"I think that precedent has carried over," Crowell said. "One of my big concerns is that whenever an economic development bill is pushed and moved forward, no one wants to look at what we've done in the past. But by saying we want new stuff, you're tacitly admitting that the old stuff isn't working."
Crowell said he likely wouldn't have supported the China hub incentives, if it weren't for the bill's overall reduction in state tax credits.
"Finally we are shifting the paradigm to say, 'You know what, we're not only going to look at the new stuff that you're talking about, but we're going to look at the old stuff,' " Crowell added. "We're going to reallocate existing resources that also result in a net savings to the taxpayers because in this new paradigm of the economy and this new paradigm of state government and this paradigm of personal budgets, you have to do more with less."
State Sen. Chuck Purgason, R-Caulfield, said he was particularly pleased that the Senate's version caps the historic preservation tax credit.
"We fought for a long time to get the cap on it," Purgason said. "Two years, three years ago we struggled to get $150 million (a year) cap on it. And to go from $150 million to $75 million is pretty huge."
Rcga Backs Incentives, Monitoring Cuts
Back in St. Louis, Richard C.D. Fleming, president and chief executive of the St. Louis Regional Chamber and Growth Association, said he was thrilled with the proposed China hub incentives. He contended that the "Aerotropolis" plan could help establish the St. Louis region as a major trade destination.
Fleming predicted that the incentives could produce thousands of construction and trade-related jobs over the next few years.
Fleming also is pleased with another provision of the economic development bill -- the Missouri Science and Innovation Reinvestment Act -- which seeks to attract technology and science jobs to the state.
Fleming also is a fan of the historic preservation tax credit, saying that it has been a "critical tool" for reinvestment in St. Louis and throughout the state. He said his group will be monitoring the proposed cuts to the program.
He added that he recognizes compromises are necessary to get the China hub aid. "There's a legitimate issue of striking a balance in terms of overall obligations to the state and predictability, in a budgeting sense," Fleming said. "The governor's commission recommended a number of specifics. There is a particular number in the Senate bill. The House clearly is going to have its point of view on what that correct number is."
Tilley May Seek Changes
House Speaker Steve Tilley, R-Perryville, already is indicating that he may press for changes when the Senate bill gets to his chamber.
Tilley said he plans to closely examine the legislation to weigh the negative and positive aspects of the bill. The speaker indicated that he may not go along with some of the provisions eliminating or restricting certain types of state tax credits.
Mike Jones, chairman of the Midwest China Hub Commission and chief policy advisor to St. Louis County Executive Charlie Dooley, said he's not getting involved in the specifics of what happens to other state tax-credit programs.
"I'm a professional and I only have one client in that bill -- and that's the China hub," Jones said.
He portrayed state tax incentives as crucial to the region's efforts to persuade Chinese officials and their airlines to locate a cargo-transit hub at Lambert. And Jones said he was pleased that legislative leaders in both parties shared that belief.
"The legislature has shown support since Day One,'' Jones said. "It sends a message to the Chinese that we understand on a state level what we need to do."