Masking the failed attempt at Bombardier with good intentions

It is OK for our Missouri legislature to go down new paths to fix the sinkhole of economic floundering and suburban sprawl, but the attempt at luring Bombardier to Kansas City can be a lesson well-learned.

The idea of giving tax credits to wealthy business men so that they can start a colossal factory, leading to thousands of jobs doesn’t sound so bad in theory. However, history has shown that although tax credits do and will help solve some state issues, in the long run, the health of Missouri and especially large cities like St. Louis and Kansas City will depend on the lowering of income and earnings taxes that are cutting through small businesses and driving city dwellers elsewhere. Lowering taxes, thus giving businesses the chance to start and compete in the big cities will create more of a balanced job source, and boost the economy.

A need for tax relief

Missourians have been hurt by crime, hurt by failing schools, and hurt by gas prices…relief needs to come from somewhere.
Studies have shown that Missouri is one of the top states that is affected the most by gas price trends, meaning that when gas prices rise, Missourians are more affected fiscally by the percentage of gas taxes taken away, then other states are.

Then, if one is a resident of St. Louis, the earnings tax and income tax are added on to the plate. No wonder people in Missouri are driving less and not sending their children to better, more expensive schools; they don’t have any money.

Local politicians are painting the economy as one of the main issues in the upcoming year. What better way to help the economy fix itself than by taking away those earning and income taxes, and getting revenue elsewhere?

Contribution Critics

Just as a baseball player may blame a loss on a call from the umpire, politicians often fault government officials for their failure to succeed. Sports critics will explain how there are a number of reasons that can lead to a loss, and that trying to the shift the weight of the problem behind an umpire is only shielding players from recognizing their own weaknesses they must develop to win. Politicians finding themselves behind in fundraising, losing races, and unhappy with their success are now turning to contribution limits as a crutch rather than making an effort to their own money. Every candidate starts out with the same score in their account, but those who raise more money are simply working harder and developing the relationships they will need to be an effective legislator for their district. Rex Sinquefield is constantly being criticized for his efforts and contributions in the political arena. Looking at the facts, it would be hard to find anyone as generous and giving as he has been in terms of sharing his money for a good cause. How can critics spend their time knocking Rex Sinquefield when he has used his money to help special needs children, poor and disadvantaged urban children, and doing whatever is in his power to develop the St. Louis community? It would be one thing if Rex was spending his days with financial advisers and do whatever he could to make himself even wealthier, but he is reaching out and trying to make positive change with the resources he has been fortunate enough to acquire. Because Rex Sinquefield has passion in these areas, he has found legislators who share his interest and donate towards their campaign in an effort to help people, not hurt opposing politicians. Every campaign focuses their fundraising around finding donors who will support their interests, but those who cannot find people to support their views and back up their campaign need to focus on their personal appeal to their constituents rather than trying to blame the laws for their opponent’s success. Our world needs more citizens like Rex Sinquefield who want to put back into their community rather than be money hungry towards their personal interests, and those who are criticizing his donations are ultimately criticizing the effort to help disadvantaged children. Baseball players striking out are encouraged hit the batting cage and start swinging at pitches rather than getting upset at an umpire calling a third strike; critics on contribution limits need to stop searching the web for loopholes and pointing fingers and get out in their community to find their own support.

Columbia Daily Trib Campaign Finance op-ed misses the mark

After reading through the article “Wealthy get their money’s worth from Missouri politicians” in the Columbia Post, it is striking to once again notice that critics of Rex Sinquefield’s spending methods fail to report the good reasons behind this spending, skipping instead to point out that Missouri should not be given over to only the opinions of the wealthy. This article in particular has a very negative connotation when reviewing Sinquefield’s ‘sincere’ motivations for donating money to politicians—alluding to that idea that his personal opinions are shaping laws at the drop of a hat. For one thing, politicians must be given some credit here, as each individual has his/her own ideals as well, and one would hope that we would elect people that would not be swayed by the views of constituents throwing money in their face, and not go against their personal views. Also, the article fails to review some of the areas that Sinquefield promotes through contributions, and to point out the outstanding results, especially in our failing education system, that can come about. By attaching negative words, the readers are led to believe that Sinquefield is not only shaping the state government singlehandedly, but also shaping it in a scandalous way. Shouldn’t well-informed, educated people who have lived in Missouri and who have seen the effects of its internal problems be the very people helping to make decisions? Sinquefield is not throwing money out at random, trying to get politicians to pass legislation making him benefit—one of his major goals is to reshape the struggling school system, that needs a budge in the right direction(like implementing school choice), and this is a selfless goal. The idea of fixing the school system, which will in turn fix other areas—crime and poverty—is not a new concept, as cities like Milwaukee have implanted things like school choice. If indeed, there is a direct correlation between the wealth’s donations and passing of legislation, then we must examine what exactly the interests of those donors are. And, it is usually not too difficult what these interests are. For Sinquefield, much of the interest he takes is in helping the poor and helpless in St. Louis get that funding or opportunity they need to succeed in life. If people are going to criticize the way in which donors “affect” passing legislation, they need to also to into account where exactly this money is going.

Penny-pinching politics

Missouri election season is really starting to kick into high gear, and one of the main issues is the economy—especially in the big cities. More and more people are starting to move out of the cities and into the surrounding suburbs, and the economies in the cities are starting to suffer. There are many factors to blame (education being a large one), and one of the largest is the city earnings tax in St. Louis and Kansas City. On the surface, the earnings tax seems like no big deal, right?

Not so much. An article written by the Show-Me Institute showcases this example: “Consider a Missouri household with an adjusted gross income of $35,000, which is near the 2007 state median. The members of such a household would pay an additional $350 in income taxes each year simply by living or working in Saint Louis or Kansas City.” Okay, $350 that I’d much rather use elsewhere, but it’s not THAT much. It gets better: “If members of this household chose to save the extra $350 they would keep each year in lower taxes, rather than spending it on increased annual consumption, their total household wealth during the following 40 years would be more than $80,000 higher than if they had paid the earnings tax each year. In other words, simply by choosing to live and work a couple miles down the road, the household’s earners would garner more than an additional $80,000 during the course of their careers.”

Now THAT is an eye-opener. $80,000 is a lot of money, even if it’s spread out through 40 years. Imagine if you set aside what you would normally pay in city earnings tax and saved it for your retirement. That extra 80 grand would really make the difference when you’re living on a fixed income.

So even though the 1% tax doesn’t seem like much, you shouldn’t blow it off as an unimportant matter during this election season.

Click here to read the rest of the Show-Me Institute’s article.

Unlike any other...Bombardier a Red Herring?

Missourinet has an interesting ex post facto plug for why we should all love Bombardier.

Creators of the tax credit program pronounce it unlike any other economic development tool in the nation or maybe in the world [was that a pun? the French language is hard for some people!]. It provides millions but it also says no tax credits will be given until people are on the job..and the company has to pay back all of that money over time, with a five percent interest.

Does it say if Kansas City or Bombardier is responsible for actually building the thing? Does it say what to do if, like their Canadian loans, they DON'T pay them all back?

Although legislators think Missouri's chances are 50-50 at worst...and maybe as good as 75-25 that Bombardier will build its factory here, they think the state will still win if the company decides to stay in Montreal. They say this kind of tax credit structure can be used for the next mega-industrial development project anywhere in Missouri and if local communities want to base their own business development tax-incentive packages on the state structure, they are welcome to.

So let me get this straight. Legislators DON'T want Bombardier to come here? But they put together a package under the guise of luring them here, all the while in "talks" with the company. Raise your hand if you feel played. Now, if what they wanted to do was make a sexy tax credit package, why didn't they just do that, and why aren't WE the ones taking the highest bidder?

Last concern: what happens if an excessive number of new Missouri businesses avail themselves of this tax credit? I don't see it as a likelihood, but if the cap on tax credits offered is only per business, then the real amount of tax credits could be anything. If I understand that correctly, we've just opened the doors to a flood of uncontrollable spending, with an uncontrollable affect on the budget, and turned the State into a corporate welfare office.

I guess we'll have to make new license plates for sure now.

Bombardier's Deal Stinks

Well, people are at it again with this whole Bombardier deal. I was hoping it would simply be destroyed in the Senate, but my hopes were destroyed instead.

Written by Jason Noble

Earlier versions of the bill had included stringent conflict-of-interest guidelines that would prevent current lawmakers, Department of Economic Development officials and their families from working not only for a company receiving the $240 million tax-credit package, but also any firms contracting with that company.

Among those affected were Amy Blunt, sister to Gov. Matt Blunt, and Sen. Jack Goodman, a Mt. Vernon Republican.

The version of the bill approved Thursday includes a conflict-of-interest clause, but limits it to elected officials and some Department of Economic Development officials going to work directly for Bombardier or one of its subsidiaries, meaning Lathrop & Gage is once again a safe haven for lawmakers and their kin.

This bill, which would allow millions of our dollars to be basically given to a Canadian company, is rotten as it is. Now, there seem to be breaks for 'special people'. Additionally, there has never been a lot of transparency with it either. Greg Steinoff recently told people he was sorry, but he could not release all the details. So, we don't know everything there is to know and the Governor's sister will not be affected...all on top of the millions we would lose. Can Missouri afford this...can you afford this?

All I can say about this is Stinky Stinky!

SLP-D: Don't pull the wool over our eyes!

From the St. Louis Post-Dispatch:


The Missouri Legislature seems poised to hand over $40 million a year in tax credits for eight years to Bombardier Inc., if the Montreal aircraft manufacturer agrees to build a new jetliner plant at Kansas City International Airport.

The best that can be said about this proposal is that it’s not as bad as it could have been. Bombardier originally wanted a 24-year tax credit package that could have cost the state $880 million. The second-best thing that can be said about the plan is that it probably will not be needed.

Bombardier still is negotiating with Canadian authorities to build the plant in Mirabel, Quebec, in the Montreal suburbs. Company officials say they’d prefer to build their new C-series jetliners in Canada, if only because they’d have to repay millions in subsidies if they pull out of Canada.

Bombardier says its $400 million plant might employ as many as 2,100 people at salaries averaging $63,000. If those numbers are even close to correct, it would be worth putting some taxpayer dollars on the line to secure the project.

But it’s not worth submitting to a fleecing. The Missouri House was rolled by Bombardier, agreeing to the 24-year, $880 million package.

Last week, the state Senate chopped the offer down to a more reasonable size; the Senate deal would allow Bombardier to use only $155 million in state credits at any one time. If Bombardier really does hire 2,100 people, that would amount to about $74,000 per job. That’s not an unheard-of investment to acquire the kind of good, blue-collar manufacturing jobs that once formed the backbone of the middle class.

The state would pay Bombardier through tax credits, which offset state income taxes. Every dollar in tax credits is a dollar that doesn’t go into the general revenue fund. That means less money for Missouri schools, police, health care and other state services.

World Trade Organization rules say such government help must be repaid, and the Senate is demanding 5 percent in annual interest. Bombardier would pay the state a commission on each plane it sells.

If the deal works as advertised, it would produce a net gain for the state in economic activity. But there’s a lot of “ifs” in this deal.

The state Department of Economic Development is being vague with details such as what sort of guarantees and timetables Bombardier would be required to meet. Also, Standard & Poors rates Bombardier’s debt a weak BB-plus, which is on the border of junk bond territory. The Fraser Institute, a Canadian think tank, says Bombardier has taken in $745 million (Canadian) in subsidies since 1982, and paid back only $188 million. Missouri might well kiss its money goodbye.

And then there’s the fact that the airline industry faces an era of uncertainty, with high fuel prices leading to bankruptcies and mergers. The C-series jetliners will be short-haul aircraft that compete with Boeing’s 737 and 717 jetliners. Should the state help a foreign firm undercut a U.S. firm that has a big presence across the state?

The government incentives game is like an arms race. Other states offer money to lure businesses, so Missouri and Illinois offer giveaways, too. No state is willing to disarm, for fear the competition would swipe the good jobs. Meanwhile, the incentives get bigger and bigger.

Critics say, correctly, that citizens would do better if no government offered incentives. Government then could cut taxes for all businesses, or it could spend the money providing the things all businesses need to succeed: a well-educated work force and good infrastructure. Citizens would benefit along with corporations.

Smart officials play the incentives game with restraint. Government giveaways rarely are the deciding factor in a corporate move. Every now and then, you should call a company’s bluff.

Tags: Boeing, Bombardier, C-series, Fraser Institute, Missouri legislature, tax credits

understanding investment grades

I didn't! So, I tried wikipedia, and found that it's really fairly straightforward: AAA, AA, A, BBB, BB, B, CCC, CC, C (D is for debt already in arrears), and, just like in school, you can have a plus or minus to indicate what "side" of the letter a company is leaning toward. The grade really indicates how likely an investor is to be at risk of a loss, almost exactly like a personal credit score, but less accurate. BBB- is the cut-off to be considered investment-grade (worth the risk to invest in). Below that grade is considered speculative grade, and bonds given out to companies below investment grade are often termed "junk bonds"

The S&P just recently bumped Bombardier Aerospace up to a BB+, still one increment below investment grade. So I'm more than a little concerned that Missouri still wants to give them a $230 million tax credit. That would include repayment with interest, making the structure suspiciously close to that of a bond...my favorite comment thus far has been Sen. Jeff Smith's (via the Arch City Chronicle) that he is a proxy investor for his constituents, and if he wouldn't invest his own money in Bombardier, he should be just as vigilant with the money of the folks he represents.

I've been wondering...

...if we pass this Bombardier deal, and they pass on it...and another company comes along and fits the parameters of the "tax credit", would the DED have the only and final say on giving out those tax credits to ANY company they saw fit? I feel like it's important for our ELECTED officials to be the ones deciding on where tax credits go.

Disappointing Letter Regarding Bombardier Deal

I came across two letters to the editor discussing the Bombardier tax credit plan in the Kansas City Star. I was first upset the writers do not know the impact the Bombardier tax credit deal would have on Missouri. Then I was a little more encouraged when I read one of the responses. Its good to know there are some Missourians who understand the reality behind this deal. It could be quite detrimental for the state. Of course, this is a Kansas City paper, so the support of this deal is a little expected.

Here is what the letter to the editor said:

The State of Missouri needs to send a strong message that it is “open for business” and pass the mega-project legislation needed to attract Bombardier Aerospace (4/22, Local, “House OKs bill for aircraft plant”). Not only is the legislation critical to attracting Bombardier, but it means Missouri can finally compete for other large manufacturing deals in the future.

JE Dunn has been involved in many projects across the country and has seen the impact on a city’s economy and its workforce. The opportunity presented by Bombardier alone means hundreds of construction jobs, not to mention the peripheral construction jobs required to create supplier facilities, new homes and support services for employees.

Passage of the “mega project” legislation will give Missouri a strong position to win Bombardier’s investment. Unlike economic development packages used by other states to lure such a mega project, the tax credits afforded this project get paid back by Bombardier.

This is a great opportunity to show that Missouri is “open for business.”

Terrence P. Dunn
President and CEO, JE Dunn Construction
Kansas City

US Bank finances major corporate projects all over the world, so I see the tremendous opportunity we have in front of us with Bombardier Aerospace. The residents and business community across the state of Missouri deserve the opportunity to compete for jobs and business with these large projects.

The legislation currently being debated in the Senate is a sound financial investment, offering a rare repayment on the tax credits the state would offer to Bombardier — with interest, to boot. Because of this, the state’s total fiscal benefit far exceeds the costs that will be incurred.

Mega deals that locate in other parts of the country are typically funded by grants for training, infrastructure and land in addition to tax breaks. The states don’t receive any of that money back, but fund the deals based strictly on the resulting economic impact. Missouri has the opportunity to not only recoup the tax credit investment but will benefit from a tremendous impact as well.

If the Missouri Senate approves the pending bill and we win this project, I believe we will look back on this moment in time as a watershed event for our region.

Mark R. Jorgenson
President and CEO, US Bank
Kansas City

I wonder...both letters are written by presidents and CEOs or large companies...does this make me feel like they are really looking out for the little guy? No, it does not. It seems to me they are only looking out for themselves. They offer no proof it will be a good deal for the rest of the state.

Shouldering the tax burden

The Windsor Star gives us a line of comparison on the Bombardier deal. The competing sites are Canadian, and as such would qualify for most of their incentives from the federal government. Bombardier would get exactly $0 in incentives from the U.S. government for relocating their new facility to Kansas City, so Missouri is now asking taxpayers to support a burden that should be shared and offset by federal funding.

Bombardier, which could be in line for federal funding totalling $350 million for the assembly of a fuel efficient airliner, received words of support Wednesday from federal Public Works Minister Michael Fortier. "I can't give details, but I wont that project to land in he said.

The money would come from the five year, $900-million Strategic Aerospace and Defense Initiative.

Maxing out the state credit with Bombardier

Tax credits are not always a bad thing...they can help people in need or help companies while creating jobs and growing our economy. However, the proposed plan for Bombardier would cost Missouri millions of dollars we do not have to spend. It would suck money away from other state funded services or increase our taxes.

Prime Buzz published an article...here is a snippet I found noteworthy.

But other senators said such spending was short-sighted because it would take away money needed now for major repairs on state buildings. By setting aside that money, the maintenance problems will grow worse and leaky roofs will begin to cause damage to the rest of the buildings.

Sen. Victor Callahan, an Independence Democrat, said the proposal was more corporate welfare at the expense of Missouri’s needs. He said the budget was out of control with the recent explosion of tax credits and other subsidies.

“All we’ve done in the last few years is shift entitlements away from health care for women and children and into guaranteed deals for corporations,” Callahan said.

Sen. Jeff Smith, a St. Louis Democrat, was angry about the proposal. He said Nodler had told him repeatedly that the state did not have enough money to expand early childhood education, in-home care for the elderly and other social programs. But the state could come up with $120 million for a foreign company.

This plan may create more jobs in Kansas City, but what about all of us who don't live there? We will still be paying for it in one way or another yet we will see no gains from it. I think it would be interesting to find out who is really behind this whole thing anyways. Does anyone know?

No Deal

Recently in the Prime Buzz, Kansas City Star:

House approves Bombardier legislation; bill will likely be preferred vehicle in Senate

The Missouri House gave final approval Monday to legislation enabling tax credits that could be used for the proposed Bombardier Aerospace aircraft assembly plant in Kansas City.

The bill now moves on to the Senate, where it will likely become the vehicle carrying the Bombardier project through the legislature.

If approved, the bill would allow large-scale economic development projects to receive up to $40 million in tax credits a year for 22 years. In exchange, companies would have to provide $300 million in investment, create at least 1,000 jobs and agree to a repayment plan for the tax credits.

The House passed the bill 125-16 after less than an hour of debate. It won preliminary approval last week in about two and a half hours.

That contrasts sharply with nearly identical legislation in the Senate, which has weathered three days of debate and strong opposition from lawmakers.

Sen. Majority Leader Charlie Shields, a St. Joseph Republican, said he will likely put the Senate bill aside and focus on working the House bill through the Senate.

Having passed the House, the bill needs only to win one round of voting in the Senate. The Senate version still must pass two rounds of Senate votes and then win approval in the House.

The Senate will likely return to the legislation next week, Shields said.

Greg Steinoff, from the Department of Economic Development, was appointed by Governor Blunt, therefore not an elected official. He is a huge advocate of this bill, but I wonder why! He claims it will not cost the state anything, but we all know that is not possible! Tax credits of millions of dollars will be issued to Bombardier. Why is someone who is not an elected official acting like he knows better than those elected to represent Missourians?

Tax credits will reduce the revenue stream...which affects us all at some point or another. We may get higher taxes or we may see cuts in some other services. Is anyone willing to see either one of those happen for a foreign company, who may or may not bring us jobs in Kansas City? What about the rest of the people in Missouri...who will see the negative effects of this huge tax credit program, while only Kansas City folks will ever see the possible benefits.

This bill, if passed, would be devastating for Missouri. We simply cannot afford this.

Bullying for Bombardier--with our tax dollars

David Nicklaus, business columnist at the St. Louis Post-Dipatch, offers this look at Missouri’s ill-conceived Bombardier tax credit proposal:

In the economic war between the states, some people think it's time for Missouri to bring out the heavy artillery.

That's the impetus behind a "mega-project" tax-credit bill being considered by the Legislature. The bill's backers have watched other states lure thousands of jobs by offering truly staggering amounts of incentives, and they want Missouri to be able to do the same.

The immediate carrot is a 2,100-person airplane factory that Bombardier Aerospace may, or may not, build near Kansas City International Airport. The Montreal company needs a place to assemble its new C-series airliner, and it's long been expected to build a new plant in Canada. The weak U.S. dollar, though, made the Missouri site look attractive.

Some Canadian newspaper accounts say Bombardier still wants to build in Mirabel, Quebec. It may see the Missouri tax credits as little more than a bargaining chip that will help it extract more incentives from the Canadian government.

State governments must commit megabucks to even be considered for a mega-project like this one. Alabama put up a reported $158 million in 1999 to lure a Honda plant, and offered EADS and Northrop Grumman $125 million this year to win a controversial Air Force tanker plant. Texas handed Toyota $133 million in 2003.

"Missouri rarely makes the short list when such companies are site-shopping, and that bothers some economic-development officials. "We're very much in favor of Missouri getting into the set of states around the country that has a response to mega-projects that are national or international in scope," said C.K. "Chip" Casteel, senior vice president of public policy at the St. Louis Regional Chamber & Growth Association.

If the tax-credit bill passes — it easily won first-round approval last week in the House but appears to face more opposition in the Senate — Missouri's incentives would be available to any company willing to invest more than $300 million, hire at least 1,000 workers at above-average wages and offer health insurance.

Bombardier, which would spend $375 million to build the plant, would qualify for $40 million in tax credits annually for up to 22 years. Under certain circumstances, it would be required to repay some of the credits beginning in 2013.

Joseph Haslag, a professor of economics at the University of Missouri-Columbia, calculates that Bombardier would qualify for tax breaks with a present value of $377 million. That's a huge sum — it exceeds Bombardier's investment and amounts to $178,000 per worker.

Of course, an aircraft factory would buy goods and services from Missouri suppliers, and its workers would spend money at Missouri stores. The workers, the stores and the suppliers' workers all would pay Missouri taxes.

But Haslag says that, even if you use the state's estimate for spillover benefits, the present value of all taxes from the new economic activity would be just $355 million. That means the project fails a simple cost-benefit test, with Missouri taxpayers losing to the tune of $22 million.

What's more, Haslag thinks the state's estimate of spillover benefits is exaggerated. If one considers only the 2,100 Bombardier workers, the tax shortfall rises to $110 million.

Because of the slowing economy, Missouri lawmakers are likely to face tough budget decisions in the years ahead. Handing a large tax break to one company now may force them to raise taxes or cut services for other Missourians in the future.

By Haslag's math, at least, this mega-project is a prize best left for someone else to claim.

Video discredits Bombardier deal