The people who have been pushing for three years to turn St. Louis' underused airport into a center for Chinese cargo flights say the deal — now nearing completion — hinges on a huge package of tax breaks before Missouri lawmakers.
The $480 million Aerotropolis tax credit program is crucial, they say, both to landing a few flights and then to building a hub. But it's a lot of money, and that has some people asking where it will be spent.
The package, if approved, would lower the cost of flying goods out of Lambert-St. Louis International Airport and give tax breaks to companies engaging in foreign trade here. It also would subsidize — to the tune of $420 million over 15 years — the construction of millions of square feet of warehouse and factory space in dozens of very specific places across the region.
The legislation was written by the city of St. Louis — which owns Lambert — and sponsored by Sen. Eric Schmitt, R-Glendale. It sailed through the House earlier this month. Tuesday, a key senator said he would advance it as part of a broader tax credit package, though pitfalls still remain.
The idea of the China hub enjoys broad support from St. Louis political and business leaders, who say it is the sort of big-picture thinking the region needs if it hopes to carve a place in the global economy.
"If we don't do this, we're nuts," said Ed Monser, chief operating officer at Emerson and a member of the region's negotiating team with the Chinese.
But the bill itself is complex, and its details are bedeviling — particularly the tax breaks for building projects. That has some observers saying the package deserves more scrutiny than it has received so far.
"It's not clear to me who would be able to use this and who wouldn't," said Greg Prestemon, president of the Economic Development Council of St. Charles County. "If it's just a narrow band of developers, I'd wonder about the wisdom. I'm willing to be convinced that this could have great benefit to a wide spectrum of property owners, but I can't tell from reading the bill."
Details, similarities
The legislation would establish $60 million in tax breaks for freight forwarders, often called the "travel agents of air cargo." Manufacturers hire these firms to ship, for instance, a pallet of pricey tractor parts from a factory in Illinois to a distributor in Henan Province in China. To get forwarders to move those parts through Lambert instead of a busier airport such as Chicago O'Hare, the bill would offer a break worth 25 cents per kilogram, or 30 cents for perishable items such as food. Only exports would qualify.
"It will encourage forwarders to move freight to St. Louis to get this started," Monser said.
The rest of the money — $420 million — is designed to keep them here.
The plan would set up "gateway zones," where companies that conduct international trade could get state income and franchise tax breaks. The owners of the buildings that those companies occupy in the zones also would receive tax credits to help finance construction. To qualify, the land would have to be owned by the airport or the St. Louis Port Authority or be within a federally designated Foreign Trade Zone or on plots of least 100 acres within 50 miles of Lambert.
Within the gateway zones, people who own buildings that house a set amount of goods for foreign trade would be eligible for tax credits for construction: $300 million for building costs and $120 million to pay off interest on loans. The credits would not be awarded until after the trading begins, according to the bill, and trade levels would have to be recertified every year.
It's a lot of money, supporters acknowledge, but it's essential to draw the investment of companies — both American and Chinese — so they don't simply leave St. Louis when the initial $60 million runs out.
"We want people who have skin in the game," said Jeff Rainford, chief of staff to St. Louis Mayor Francis Slay. "They're not going to build new infrastructure and then walk away."
Still, some people are hearing echoes of another controversial tax credit: the $95 million Distressed Areas Land Assemblage program, established in 2007 to help developer Paul McKee recoup the cost of buying land for his huge NorthSide Regeneration project in north St. Louis.
McKee has collected $27.6 million worth of those credits in the past two years, yet his project has struggled to get off the ground. Its legality is still being argued in court. When Rep. Jeanette Mott Oxford read the Aerotropolis bill, with its reimbursements for attorneys fees and borrowing costs, she said it looked too familiar.
"A lot of the language reminded me of the distressed areas bill, a bill that was crafted to help one particular individual," said Oxford, a south St. Louis Democrat who was one of the few House members to vote against Aerotropolis. "It made me wonder. Does someone already have a leg up? Could it even be the same person?"
McKee is one of the prime architects of the China hub project and would probably benefit from the Aerotropolis credits. His McEagle Properties is co-developing the 550-acre NorthPark business park just east of Lambert, and it owns the 127-acre Hazelwood Commerce Center on the airport's northwest corner. Both are prime spots for hub-related business. McKee also has said that a freight hub could be a catalyst for NorthSide — parts of which would qualify as "gateway zones" under Aerotropolis.
Moreover, the bill's actual author is a lawyer with long ties to McKee: Clayton attorney Steve Stone. Stone, who also helped draw up the distressed areas legislation, has been working on the hub project for five years — first for McKee, then as a consultant to the Midwest-China Hub Commission. Stone helped come up with the idea, and his cousin is a British trade expert who officials say has opened key doors for St. Louis in Beijing.
In February, the city hired Stone's firm, Stone, Leyton and Gershman, on a $100,000 contract to help write and lobby for the bill. It was an easy choice, Rainford said. No one knows more about the hub than Stone.
"Why would we bring in someone else? He's got all this knowledge in his brain," Rainford said. "The guy's been involved in it from the start."
Rainford and Stone stressed that Stone's client in this case is not McKee but the city.
Who benefits?
The bill's supporters are sensitive to concerns about another "tax credit for one man," and they point to the program's much broader footprint. They have a list of 46 sites in St. Louis, St. Louis County and St. Charles County that could qualify, from the old Fenton Chrysler and Hazelwood Ford plants to the Carondelet Coke site in south St. Louis to farmland in Wentzville. It's more than 10,500 acres in all, and less than 10 percent is controlled by McKee.
Rodney Crim, executive director of the city-run St. Louis Development Corp., acknowledged that the first users of the program would probably be those closest to the airport. But he expected it would spread out over time.
"You have lots of individual owners who will benefit from this," he said.
And the true gains, both Crim and Rainford argued, will be felt far beyond individual landowners.
A study finished last week by the Regional Chamber and Growth Association predicts that if all the tax credits were used, they would generate 27.6 million square feet of cargo, factory and warehouse space. The companies that fill that space would probably employ about 6,600 people, and the spinoff effects could generate an additional 7,200 jobs.
Without the Aerotropolis bill, supporters say, that simply won't happen.
Chinese officials embraced the idea when it was explained to them on a negotiating trip last month, said airport director Rhonda Hamm-Niebruegge. A week later, a top executive with China Cargo Airlines sent Slay a letter saying it "would be very difficult, or even inconceivable" to open an air route without the incentives.
The city doesn't want to give away the farm to the Chinese, said Rainford, but it needs to put an offer on the table that can make the deal work, and that includes money for facilities. If St. Louis doesn't do it, someone else will, he said.
Ultimately though, this will be up to the state. The bill still needs the approval of the Missouri Senate, where a group of budget-minded Republican legislators have taken a hard line against any new tax credit programs.
The bill received good news Tuesday, when one of those legislators, Sen. Chuck Purgason, said he had agreed to accept a version of Aerotropolis in exchange for limits on other tax credits. The bill he's proposing would set expiration dates on all tax credit programs, so they could be reviewed regularly, and set caps on many, including a $75 million annual limit on the historic tax credit program that has been very popular in St. Louis.
"I believe Aerotropolis is the only new one added," Purgason said. "You're going to have to offer St. Louis some candy to get them to take the sour medicine."
If enough of Purgason's colleagues agree, the measure will go to Gov. Jay Nixon, who has sparred with hub supporters in the past over funding and taken no public stance on Aerotropolis.
The decision of the Senate and Nixon in the next two weeks will tell a lot about the fate of the hub project, said Jason Van Eaton, executive director of the Hub Commission.
"This bill," he said. "This is the game for us right now."
Virginia Young of the Post-Dispatch contributed to this report.
