Thu May 1, 2008
Senate Passes Bombardier Tax Incentives Bill
By Steve Bell
Kansas City, MO – From the start, the attempt to get Canadian aerospace manufacturer Bombardier to build in Kansas City has been based on a new kind of tax credit from the state. And from the start, Senate Majority Leader Charlie Shields has said it's a great idea for the Kansas City-St. Joseph area and for state economic development to come.
Shields sponsored the mega-project bill. He says it offers exciting job possibilities -- 2100 at the plant and 5400 more across the state. But what's more exciting to him is it is the first time a business would have to pay back tax credits -- in the form of royalties on the planes.
He says there is lots of protection built in for Missouri: "When they start making planes is when we start issuing tax credits and when they start selling planes Is when we start getting paid back, so it's almost as If the marketplace guarantees that the deal will work because projects of this size are not done without guarantees that these planes are actually going to be sold."
Shields' original bill and the bill that passed in the House offered Bombardier up to $880 million in tax credits over 22 years, based on how many good-paying jobs with paid benefits the plant would create. But the bill was scant on details. Missouri Director of Economic Development Greg Westhoff agreed with Shields that those details could not be revealed.
Westhoff said all incentives have risks, but he couldn't talk about specifics, including how much Missouri might have to pay out before the first royalties would come in.
The bill ran into stiff opposition, including two Senators from the Kansas City area. Democrat Victor Callahan's district is east of Kansas City, Missouri -- Sugar Creek, Independence and most of Raytown. He objected to the amount of subsidy per worker and the concept of "making taxpayers joint-venture capitalists for a foreign corporation in a highly volatile industry."
Callahan also said paying out the credits could leave the state with cash flow problems if airplane sales don't meet expectations. He said with the tax credits already paid out, the state might have to cut funding for education, roads, or health care during a recession.
Lee's Summit Republican Senator Matt Bartle agreed with Callahan, adding that the Bombardier plan unfair to existing large Missouri employers; "What are we going to tell them when they say, "Hey, we're thinking about moving 1500 jobs to another state? What are we going to tell existing employers when they ask us to become investors in their business plan?"
Faced with a defeat of the bill, Senate leaders came up with an all new proposal yesterday. It scales the plan back from 22 years to 8, with a total of $240 million in credits, not 880 million. The new bill says the state can terminate the incentive if it isn't paying for itself and sets the maximum lag between credits and royalties at $155 million.
Senator Vic Callahan says that's an improvement, but he needs to give more thought to the plan and that $155 million cash-flow risk before he votes on it.
Other opponents, like Senator Bartle may vote against the bill because they have an entirely different view of what the state should do to stimulate its economy. Bartle would do away with all tax credits and offer an across-the-board income tax cut to all Missouri businesses.
When it adjourned Wednesday night, the Senate agreed to take up the new bill on Thursday morning