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Economic legacies of 9/11 loom large in St. Louis
Economy

Economic legacies of 9/11 loom large in St. Louis

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Each day at Scott Air Force Base, 12,300 people report for duty. On a typical day, they'll control 900 airlift flights carrying people and cargo around the world, 97 airborne refueling missions, seven medical evacuation flights.

They track 35 cargo ships under way and 100 railcar shipments. The base pumps $1.6 billion into the St. Louis economy — and all that might have gone away.

Local officials were on pins and needles in 2005 as the Pentagon went through a periodic round of base closings. But the transport needs generated by two wars placed a premium on the skills at Scott, home of the U.S. Transportation Command.

And the memory of 9/11 weighed in that decision. Following the attack on the Pentagon, top brass worried about having too much of the military's command structure around Washington. The cornfields around Scott looked safer, says Jim Pennekamp, who was director of the Leadership Council of Southwestern Illinois during the civic campaign to save Scott. The air base and Metro East came out a winner, picking up the headquarters of the Army's transport command and about 1,000 jobs from bases in Virginia. "Scott is bigger and stronger than it's ever been," said Pennekamp.

The expansion of Scott represents among the most clear-cut legacies of 9/11 on St. Louis. Other major defense institutions here — Boeing and the National Geospatial-Intelligence Agency in Arnold — saw their fortunes boosted as well. But the ripples from the attack on America's financial capital continue to shape our economy in countless less direct ways, good and bad.

Many of the lingering effects, here and nationally, remain hard to pin down. For instance, did the terrorist attacks contribute to the loss of Lambert-St. Louis International Airport's status as a busy hub airport?

Four months to the day after the attacks, Ford first announced plans to close its Hazelwood assembly plant, which employed 2,600. Without the attacks — and the subsequent tumble in auto sales — might the plant have stayed off the target list?

Would the Federal Reserve have kept interest rates as low as it did for as long as it did? If not, would we have had a housing price bubble and the Great Recession? Would so many St. Louis homeowners be facing foreclosure now?

Such questions have no simple answers. The attacks set huge forces in motion, but many other factors swayed the economy over a decade.

Taken alone, the 9/11 loss of people and property was an economic speed bump. The nation was already in a mild recession when the planes struck. The shock slowed sales and frightened travelers initially, but the effect wore off over a few months.

"The impact was certainly far less than our recent Great Recession," says Jack Strauss, a St. Louis University economist who studies our region.

The lasting effect of 9/11 in St. Louis came about gradually over the following years, as the nation shifted more of its output toward war and security.

HOMELAND SECURITY

The attacks prompted immediate spending on security by all sorts of businesses and government institutions that could conceivably be targeted by terrorists. A decade later, the changes are hard to measure, and much of that spending may have faded as fears lessened in the absence of another major attack. St. Louis and St. Louis County now have 8,500 licensed security guards, 1,000 more than in 2001. That indicates growth but not a security boom.

Yet much of the beefed-up security remains as a fact of life in a more dangerous world. The barriers around the Thomas F. Eagleton U.S. Courthouse and the Gateway Arch are concrete and steel reminders of the terrorist attacks. The city turned a block of Locust Street into a pedestrian plaza so that the Federal Reserve Bank of St. Louis could build a high-security entryway far from traffic.

At Lambert airport, 444 Transportation Security Administration workers replaced low-paid gate security agents. Lambert picked up costs for construction at checkpoints, which were redone several times.

Some companies went further than others. Chemical companies hired more guards and bought surveillance equipment to comply with tighter federal rules. St. Louis-based Solutia's chemical plant in Sauget now undergoes federal security inspections.

Expanded security extends to the virtual world, particularly at financial institutions. The 9/11 hijackers had used the American banking system to move money. So, the government made bankers check their customers against lists of suspects and do more to report suspicious movements of money.

"The government made the banking industry an unpaid employee of the U.S. government," said Rick Bagy, president of First National Bank. "At one point, I had four employees doing this work. Now it's 1½, but I outsourced some of it."

The government forced banks to harden their data systems. "We spent another tremendous amount of money on disaster recovery plans and people and computer programs," said Bagy.

The changes paid off in Missouri this summer when a disastrous tornado struck. "The banks in Joplin all had backup systems," Bagy noted.

The security legacy also paid off when a tornado struck St. Louis. After 9/11, the government required a protective plastic seal on the big terminal windows at Lambert, where a tornado struck on New Years.

The glass broke into tiny pieces, rather than falling as large, knife-like shards on travelers. "It did exactly what it was supposed to do, said airport Director Rhonda Hamm-Niebruegge.

LAMBERT'S DECLINE

Commerce at the airport hasn't fared so well. The recession was already weakening air travel before 9/11. Then the attacks frightened more travelers into staying home. Air travel fell by 8 percent from 2000 to 2002.

In the summer of 2001, American Airlines had just bought TWA, following the St. Louis-based airline's third bankruptcy. American planned to preserve St. Louis as its third major hub, with hundreds of direct flights across the continent — a big boon to business travelers.

"St. Louis is going to take its rightful place as one of this country's major hubs," promised American CEO Donald McCarty before the attacks.

St. Louis was optimistic about its airport, and planning to spend $1 billion on a new runway. "We were talking about explosive growth in the airline industry, how airline travel was becoming so affordable that millions and millions would be flying," said Patrick McKeehan, a longtime economic development official in the St. Louis region.

But old-line "legacy" airlines like TWA and American faced intense competition from lower-cost upstarts such as Southwest. Then came the shock of 9/11.

"It forced American Airlines to start getting serious about its costs. It's what pushed over the edge all the legacy carriers," said Hamm-Niebruegge, airport director at Lambert and the former chief of American and TWA hub operations here.

National passenger traffic had fully recovered by 2004, but it was too late for the Lambert hub. American eliminated its St. Louis hub in 2003, cutting hundreds of flights, and imposed further cutbacks in 2006. Until then, passengers could fly directly to 101 destinations from St. Louis. Now it's only 61.

Hamm-Niebruegge believes cuts in St. Louis were inevitable, although 9/11 probably made them come quicker and with greater severity. American already had hubs in Chicago and Dallas, she noted.

It may be good that St. Louis went through the change early and got an early start on recruiting replacement flights from other airlines. Cities that lost hub airports later had a more difficult time, said Hamm-Niebruegge.

The attacks may have had a similar impact on the auto industry here, exacerbating existing problems and hastening the loss of jobs and wealth.

The 2,600 people who once worked at Ford's plant in Hazelwood already had reason to worry when the attacks came. "Ford was on shaky ground in 2001," said Patrick McKeehan, who spent years trying to save the Ford plant as the director of a state task force.

Still, Ford workers had reason for optimism — they made the Explorer, the most popular SUV in an SUV-crazed nation.

McKeehan thinks the sharp drop in auto sales after 9/11 played a role in Ford's decision to put the Hazelwood plant on its list for closing four months after the terrorist attacks.

"When you got that kind of dip in sales, everybody got real nervous," he said. "It might have sealed the fate of the New Jersey plant and the St. Louis plant."

Buoyed temporarily by state and local incentives, the plant hung on until 2006 — when rising gasoline prices shrank SUV sales for good.

THE FEAR STIMULUS

Spending and job creation in the defense industry, of course, immediately surged and has remained at high levels. In the wake of the attacks, defense spending rose 43 percent after inflation, and homeland security spending quadrupled over the last 10 years. And so the defense industry in St. Louis profited.

The war on terrorism brought demands for worldwide surveillance of our enemies — and job growth to a little-known and secretive organization in Arnold. The National Geospatial-Intelligence Agency provides mapping and imaging, and spots intelligence targets around the world. It provided images used by Navy Seals in their raid on al-Qaida leader Osama bin Laden's compound in Pakistan. The agency says its staff has grown 10 percent since 9/11. It employs 16,000 people worldwide, with about a third of them in the St. Louis region.

The attack came at a dreary time for Boeing. Just a month after 9/11, it lost out to Lockheed Martin on a $300 billion contract to build the Joint Strike Fighter.

There followed a parade of management gaffes and contracting scandals that sent Boeing's chief financial officer to jail, cost two CEOs their jobs and put the company in hot water at the Pentagon. One of those scandals, involving favors done for Boeing by a top Pentagon procurement agent, cost the company a $23 billion contract for refueling tankers in 2004. It took Boeing six years to win it back.

But the resulting wars seem to have steadied the company's defense business, despite the missteps.

The Pentagon, plus U.S. allies, wanted the planes, missiles and smart bomb kits made in St. Louis.

"There was unanimous political support for higher defense spending," said Matt Collins, defense analyst at the Edward Jones brokerage in Des Peres.

Boeing's military business, based at Lambert, pulled in $22.8 billion in 2001. Last year, it was up to $31.9 billion. Its St. Louis employment rose from 15,300 before the attacks to over 16,000 by 2006, before settling down to 14,900 this summer. More jobs and money went to Boeing's suppliers around St. Louis.

After 9/11, Boeing expanded the St. Charles plant that makes kits to turn ordinary bombs into smart bombs. The company has built 230,000 of them since 1998, mainly after 9/11. It improved the technology, adding laser guidance to complement the GPS guidance. The latest version contains wings to extend the bomb's range.

More orders arrived for St. Charles-made small bombs and cruise missiles.

Bigger defense budgets meant steady orders for St. Louis-made F/A-18 Super Hornet fighters. The Navy last year ordered another 133 of the planes, meaning steady work to 2015. The venerable F-15 line, meanwhile, is being kept active mainly by orders from America's allies.

Steady jobs in defense came in sharp contrast to the rest of the manufacturing economy. St. Louis lost a third of its factory jobs over the last 10 years.

Boeing in St. Louis may now be in for leaner times as the wars in Iraq and Afghanistan wind down and concerns over massive national budget deficits loom large.

Boeing has enough orders to keep its F-18 line running into 2015. Beyond that, Boeing may have to rely more on foreign military orders, such as Saudi Arabia's order for F-15 fighters, now being finalized.

"Our allies have plenty of money," says Collins, "and they're worried about Iran."


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