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
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