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.
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