Missouri Senate leader calls for cut in state tax credits for the 'China Hub' | St. Louis Public Radio

Missouri Senate leader calls for cut in state tax credits for the 'China Hub'

Sep 13, 2011

This article first appeared in the St. Louis Beacon, Sept. 13, 2011 - Missouri Senate President Pro Tem Rob Mayer, R-Dexter, announced this morning that he plans to present the Senate with a substitute bill to reduce drastically the proposed tax credits for a proposed China cargo hub at Lambert-St. Louis International Airport.

Mayer said his substitute would remove $300 million in tax credits aimed at encouraging construction and renovation of warehouses around Lambert. Instead, Mayer said, the bill would contain just $60 million in tax credits to entice freight forwarders to direct shipments to the St. Louis airport.

The move amounts to a major cut in any state help for the China Hub effort, also known as Aerotropolis.

Mayer said his action reflects "an erosion of support for Aerotroplis," despite a Senate committee's 7-2 vote last week in favor of an economic development package with the entire $360 million in tax credits.

"The opposition to Aerotropolis has worked hard and effectively over the last six weeks," Mayer said, referring to the original deal in July that indicated broad support for the Hub effort. "It's obviously worked. And I think there are more questions that have been asked by senators and more information has been obtained.

"And so, what they were once comfortable with, now they don't feel too comfortable with," the Senate leader added. (Click here to view a video of some of Mayer's remarks.)

Businesses involved in the China Hub effort could still apply for tax credits through other state incentives handled by the Missouri Department of Economic Development.

Gov. Jay Nixon stopped by Mayer's office this afternoon and later told reporters that the Senate was making progress. The governor reaffirmed his support for the China Hub and indicated he remained optimistic that General Assembly would approve some sort of economic development package.

The governor added that he was pleased that lawmakers were focusing on how best to pay for the tax incentives. (Click here to view the video of the governor's remarks.)

Jeff Rainford, chief of staff for Mayor Francis Slay, downplayed the impact of Mayer's proposed cut.

"It's the first quarter and Aerotroplis is in the bill, and that's a good thing," Rainford said. "And the House hasn't been heard yet. So we're still on track, but it's a long and winding process. The most important thing is to get a bill out of the Senate and over to the House and to have Aerotroplis in it."

Asked if the warehouse-facilities aspect was vital to cementing a China Hub at Lambert, Rainford said, "The most important thing is for the industry -- both the shippers and the people who move cargo for the shippers -- is to know that this (China Hub) is going to be here more than a few years."

In what is seen as a test, the Chinese are planning to send over their first cargo shipment later this month.

As we reported earlier:

Missouri senators still appear unsure of the fate of a sprawling economic development package -- slated for floor debate Tuesday -- that includes incentives to bring international trade to St. Louis.

Among other things, some compared the proposed "China Hub" project in St. Louis to a troubled economic project in Moberly that also involves tax credits and the Chinese.

The 300-plus page economic bill features $360 million in proposed state tax credits to entice China to locate a cargo hub at the underused Lambert-St. Louis International Airport, along with proposed tax credits for a variety of other economic incentives. In exchange, a number of other state tax credit programs would be reduced or repealed.

The economic package also includes the Missouri Science and Innovation Reinvestment Act -- MOSIRA -- aimed at spurring the expansion of science-related businesses, including life sciences. Other proposals in the bill include incentives to establish data centers, attract major sporting events and bolster the state's job training programs.

On Monday, senators were treated to a seminar where state economic officials laid out the projected viability of the China Hub program, also called Aerotropolis. The presentation was set up, in part, in response to the discord last week as senators first began looking at the economic development package -- particularly the hub proposal.

The majority of the $360 million for the project's proposed tax credits would be aimed at encouraging construction or renovation of warehouses around Lambert. About $60 million would be used to encourage "freight forwarders" to steer cargo to the airport.

The project has Republican and Democratic backers and opponents. Supporters say "Aerotropolis" could have a substantial impact on St. Louis' economic future and revitalize St. Louis' airport and the region. Opponents paint it as a wasteful giveaway in a time of economic uncertainty.

About two dozen of the state Senate's 34 senators attended the presentation, where -- for roughly two hours -- officials with the Department of Economic Development detailed and answered questions about the economic analysis released Friday afternoon.

The analysis projected that a warehouse project involving a capital investment of $10.25 million and creating 160 jobs would -- in one scenario -- provide the state with roughly $1.07 for every dollar in tax incentives. Some projections estimated the return as high as $2.04 for every dollar in tax incentives.

But if other state tax credit programs, such the Quality Jobs program, also were added as an incentive, the project's theoretical return was reduced to 85 cents on the dollar.

State Sen. Jason Crowell, R-Cape Girardeau is the Senate's leading critic of the hub. He contended that the proposal had inadequate protections to ensure that the credits aren't paid out until jobs are created.

"That money goes out whether or not those jobs are created," Crowell said. He contended that the proposal amounted to an entitlement.

Sen. Kurt Schafer, R-Columbia, also said that the Department of Economic Development's analysis is a projection, based on specific numbers, and not a prediction of what can happen in real life.

To underscore that point, Schaefer noted that a model was run for a company, Mamtek International Ltd, that last year had been approved for $17.6 million in state tax credits to build a new facility in Moberly, Mo., to produce sucralose, a no-calorie sweetener.

State economic officials projected that the new facility would create about 659 new jobs in the first year. In actuality, the company employed four people in the first year and employes no one now. City officials confirm that Mamtek is defaulting on $39 million in municipal bonds issued to build the project.

Gov. Jay Nixon's administration, which had initially highlighted the project, notes now that none of the state's $17.6 million in tax credits had been given to Mamtek because the credits hinged on the creation of the expected jobs.

Schaefer's point Monday night was that the state's analysis is "only as good as the data you've entered into it."

Chris Pieper, the official with the Department of Economic Development who answered questions Monday night, agreed that its theoretical analysis is based on theoretical numbers.

Crowell said afterward that the analysis did not ease his concerns.

"And this is what the whole debate really comes down to," Crowell said. "Are we going to bet (on the Chinese selecting Lambert for a hub), or are we going to have basic assurances and guarantees to the taxpayers? I want to subsidize job creation. I don't want to subsidize developers' extensions on their homes and more money for a select few people."

The Senate's chief supporter of the Hub is state Sen. Eric Schmitt, R-Glendale. He said the point of the $360 million in tax credits was to create "a different tool for something we don't have right now. Right now, we're trying with this to bring the operations into the state that we don't have, and to do that and to realize the full benefit of the incentive, you have accountability where you have to prove the qualifying activity for five years,"

Crowell said he thought the presentation was helpful for those senators who were less acquainted with the state tax credit programs. But Crowell added that he couldn't predict how the Senate debate will progress.

Said Schmitt: "I look forward to the debate. ... I'll continue to work with people, try to address their concerns on that issue and try to find solutions and keep working together."

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