Had a good visit yesterday with Warren and John in the KWOS studios explaining why I’m a no vote on the $2.4 billion Boeing subsidy proposal.
Category Archives: Gov’t Oversight and Accountability
After a day spent spinning my wheels analyzing Gov. Nixon’s Boeing proposal, I went to bed thinking that I couldn’t stop this plane so I might as well stop trying. Then, I woke up at 3 a.m. (partially as a result of a strained neck that I’ve been dealing with the past few days) and I couldn’t fall back asleep. I just kept thinking that I would always regret it if I said or did nothing more.
Conceding that the bill’s passage is all but a foregone conclusion and that it might already be too late, I present the following three charts to attempt to persuade my colleagues in the General Assembly to amend the bill to further ensure that Gov. Nixon sticks with the plan he’s been selling, and does not pull a bait-and-switch after he’s been handed enhanced negotiating authority. (And to explain to constituents why I’m voting no.)
In particular, I believe the legislature should limit Gov. Nixon to the $1.7 billion offer he has publicly described and affirmatively remove his ability to offer $700 million more in incentives to Boeing through an enhanced subsidy under the BUILD program. The reason this amendment is necessary is because, while supporters argue the state will recoup the subsidies under the $1.7 billion plan, the following charts show that it will be very difficult for the state to recoup the subsidies under a $2.4 billion plan. (This also illustrates just how bizarre this situation is, it is not known whether Boeing even desires the additional 5 percent that would come from locating in a “distressed community” because those details have not been revealed and the legislature hasn’t even had 24 hours to review Gov. Nixon’s numbers before debating the bill.)
See Boeing Subsidy Chart and Explanation for a detailed explanation.
According to answers he gave in the House Republican caucus meeting yesterday, Gov. Nixon’s stated intention for the Boeing proposal is to simply remove the global caps on four existing programs: Missouri Works, Missouri BUILD, Missouri Works Training, and State TIF.
Unfortunately, the current draft of the proposal can be interpreted to do more than remove the global caps. Here’s the relevant portion of the current draft:
2. Notwithstanding any provision of law to the contrary, no benefits authorized under job creation, worker training, and infrastructure development programs for an aerospace project shall be considered in determining compliance with applicable limitations on the aggregate amount of benefits that may be awarded annually or cumulatively under such programs. No aerospace project shall be authorized for state benefits under job creation, worker training, and infrastructure development programs that exceed, in the aggregate, one hundred and fifty million dollars annually under all such programs.
The first sentence is the problem. “Aggregate amount of benefits” in this draft does not have a point of reference. Is it aggregate benefits to every company combined or is it aggregate to an individual company? For example, for an individual company, the total number of years in which a company may receive a credit may be considered an “aggregation” of benefits, with each year counting for one component part of the aggregate. Or, because MoWorks, BUILD, and TIF are based on withholdings, it could be argued that the total amount of the annual credit is the aggregate of individual credits for each individual new hire.
Under existing law, Mo Works benefits are limited to nine percent of withholdings, BUILD to ten percent, and TIF to (for this project) approximately 2.85 percent (half of estimated withholdings for jobs paying an average of $75,000 per year). Limitations on MoWorks Training incentives are a bit more complicated (see §620.806.2) but are subject to appropriations, mitigating some concern. Ignoring MoWorks Training incentives, existing law permits Gov. Nixon to offer Boeing incentives up to approximately 21.85 percent of new payroll.
If the General Assembly passes the Boeing incentive bill with the above draft language in place, it will permit Gov. Nixon to interpret the statute so that the per-company limitations are no longer in effect. In this scenario, Gov. Nixon could offer incentives to Boeing far in excess of 21.85 percent of new payroll.
I believe the following amendment would ensure that the actual language of the legislation matches the stated intent:
2. Notwithstanding any provision of law to the contrary, no benefits authorized under job creation, worker training, and infrastructure development programs for an aerospace project shall be considered in determining compliance with [applicable ] limitations on the aggregate amount of benefits that may be awarded annually or cumulatively under such programs in sections 620.020.7, 100.850.5, and 99.845.10(3), respectively. All other limitations and taxpayer protections on such benefits shall remain in full force and effect. No aerospace project shall be authorized for state benefits under job creation, worker training, and infrastructure development programs that exceed, in the aggregate, one hundred and fifty million dollars annually under all such programs.
Gov. Nixon met with the House Republican caucus this afternoon for about an hour. The meeting was cordial and I thought it went well for everyone involved. Gov. Nixon was asked, and answered tough questions. Here are the answers to the previous questions raised:
- The intent is to only exempt this deal from the global caps, not the “per company” caps. Similarly, Gov. Nixon does not intend to remove the end-dates on subsidies under the relevant programs. Instead, he intends the existing end-dates of the programs to remain applicable. Gov. Nixon would be amenable to setting an end-date on the enhanced negotiating authority that would be provided if a bill passed. Based on these answers, I believe the draft legislation I’ve seen so far needs to be changed to remove any ambiguity so that the actual legislation matches the rhetoric. Details matter. As we learned in the running debate over the tax cut bill, even a misplaced comma can make a huge difference.
- For a couple of reasons, the gap between available benefits with the per company cap and $150 million is smaller than I speculated earlier, and, in fact, the governor’s office estimates one year there would be potential credits authorized of $154 million (under the draft legislation, $4 million would then not be spent).
- In 2018, there will be approximately $28 million in cap space under Missouri Works.
- I did not get the chance to ask the question directly, but it seems no copy of the RFP will be provided. Gov. Nixon alluded several times to a non-disclosure agreement states made with Boeing about details of the proposed project. I find this troubling for citizens of every state involved, but can’t find much fault with Gov. Nixon for playing by the same rules as every other governor involved in this process.
- I also did not get the opportunity to ask about Gov. Nixon’s exact offer, but it seemed clear from the answers to my questions about the potential gap and the continuing applicability of the “cap” on individual companies receiving subsides: Gov. Nixon intends to offer Boeing the maximum benefit in each of the four referenced programs: MoWorks, MoBUILD, MoWorks Training, and State TIF.
On Black Friday, Gov. Nixon called the legislature in for an historic December special session to consider whether the grant him negotiating authority to offer economic subsidies of up to $150 million per year to entice Boeing to create an estimated 8,600 high-paying jobs in suburban St. Louis. Gov. Nixon also asks that we exempt the $150 million in Boeing funds being funneled through these existing programs from existing caps on the programs.
Math and Explanations of Statutes
Boeing anticipates adding 8,600 jobs to manufacture the 777x airplane. At Boeing’s average wage in Missouri of around $75,000 per job, total potential new payroll equals $645 million.
Gov. Nixon has asked for authority to make a $150 million per year annual offer under the four existing economic development programs. Assuming the full $150 million is offered and accepted and all the jobs are created, Missouri taxpayers will subsidize Boeing in the amount of $17,441 per job per year – or, to put it another way, the subsidies will pay for nearly 25 percent of the wages for each new Boeing employee in Missouri.
Using the Missouri Department of Revenue’s handy tool, a new Boeing employee making $75,000 per year would generate $4,275 in new income tax revenue for the state. Thus, the proposed subsidies would be $13,166 per year per job more than new income taxes received by the state. In total, this amounts to approximately $113 million of annual spending above the new income taxes received by the state.
The programs under which Gov. Nixon wants to offer the incentives are: Missouri Works, Missouri Works Jobs Training, Missouri BUILD, and the TIF statute.
- Missouri Works – This program is the spawn of the Quality Jobs and Enhanced Enterprise Zone incentives and provides tax credits based on total new payroll. The current global cap for Missouri Works is $106 million, but will be $116 million by 2016. In addition to the global cap, there is a per company cap equal to nine percent of new or “retained” payroll. Assuming a full nine percent credit for 8,600 jobs at $75,000 a year, Missouri Works would authorize $58 million in annual subsides to Boeing.
- Missouri Works Job Training – This program was created by HB 196 in 2013. It assists companies starting, expanding, or keeping operations in Missouri with employee training through Missouri community colleges and technical schools. To my knowledge, it has no cap, and is funded through appropriations to the Missouri Job Development Fund.
- Missouri BUILD – This program provides financing assistance for capital investments (think infrastructure surrounding massive industrial projects) to companies that create at least 100 new jobs and invest $15 million in a three year period. This program has a global cap of $25 million, and a per company cap of 5 percent of new payroll for most projects or 10 percent for projects located in a “distressed community.” Gov. Nixon has not indicated whether Boeing intends to build a potential new facility in a “distressed community.” If the cap applied is 5 percent, and we assume full creation of 8,600 jobs at $75,000 per year, with a removed cap, Missouri BUILD would authorize approximately $32 million per year in annual subsidies to Boeing. If the cap is 10 percent and we assume a removed cap, the annual subsidy would by $64 million per year.
- Missouri TIF – This program is primarily used by local government to offset infrastructure costs similar and/or identical to those targeted by Missouri BUILD. There’s also a state TIF statute which provides subsidies to the new business which are capped at 50 percent of new state revenues estimated to be created as a result of the project. The municipality in which the project is located can choose whether the TIF applies to new state revenues for either (a) the general revenue portion of state sales tax revenues, or (b) new state income tax withholdings. To my knowledge, there is no global cap on state TIFs. An interesting and important question to which I do not know the answer is, how can a state TIF be applied to new state income tax withholdings if the company benefiting from the subsidy already receives a tax credit equal to or greater than the amount of new state income tax withholdings? Doesn’t one theoretically (or, in reality) cancel out the other?
Unfortunately, Gov. Nixon has not provided the legislature with any details of the offer he intends to make to Boeing. Instead, all we have received is a vague press release, call for special session, and a leaked draft of a potential bill which has one important paragraph stating:
Provisions of the law to the contrary notwithstanding, no benefits authorized and used under (the programs listed above) for an aerospace project shall be considered in determining compliance with applicable limitations on the aggregate amount of benefits that may be awarded annually or cumulatively under such programs. No aerospace project shall be authorized for benefits under job creation, worker training, or infrastructure development programs that exceed, in the aggregate, one hundred and fifty million dollars annually under all such programs.
When Gov. Nixon speaks publicly about making an exception to current program caps, I believe most people think he’s talking about each program’s global “cap.” But, to my knowledge, only two of the four programs mentioned by Gov. Nixon has such a global cap (Missouri Works and BUILD). And under the best case scenario for Missouri Works, Boeing would only be eligible $58 million per year in subsides. Further, it’s possible that there’s close to that much cap space available under the global cap. Under Missouri BUILD, Boeing would obviously quickly surpass the cap.
So what explains the gap between subsidies available under a best-case scenario for the programs with an existing global cap and the amount requested by Gov. Nixon?
One possible answer is that the language of the proposed legislation does more than provide an exemption to the global cap under the Missouri Works and Missouri BUILD. One could interpret the first sentence of the draft bill to also eliminate the per company “caps” of nine percent of new payroll in Missouri Works and five or ten percent of new payroll under Missouri BUILD. In that scenario, it would also untie the connection between the amount of the subsidy and total new payroll. Instead, Gov. Nixon would be free to make an offer of a subsidy un-tethered to the job requirement. On the other hand, I could be misinterpreting the first sentence of the draft bill. Or Gov. Nixon could be asking for a little padding in case 8,600 turns into 10,000 or more by December 11. Or, it could simply be bad drafting. Or maybe $150 million just sounded right to Gov. Nixon?
Regardless, the key question is: does Gov. Nixon want to remove the global cap or does he want to remove the global cap and the per company caps?
If he only wants to remove the global cap, there needs to be a less ambiguous draft. If he wants to remove both caps, there’s a more complicated policy discussion to be had. (I’m a likely no at that point.) It is disappointing that these questions exist at this point – with the legislature being called into an eight-day special session to make a decision impacting billions of dollars.)
Why isn’t there an end-date on how long Boeing is eligible for the $150 million annual subsidy?
If the answer to the above question about caps is that Gov. Nixon intends also to remove caps on individual projects, then there’s also no cap on the length of time under which Boeing could receive subsidies. Is this a five year proposal? Ten? Twenty? (I believe BUILD is available for 15 years and Works is available for six under current law.)
If this is a one-shot deal, why isn’t there an end-date on the new authority?
The legislation also does not include any end-date for Gov. Nixon’s new authority to negotiate outside the existing caps for aerospace projects. My guess is that this is likely just an oversight, and that no one is going to object to putting a firm end-date on any potential new negotiating authority. I would propose June 15, 2013.
How much of the existing cap space of the Missouri Works program has been allocated?
Gov. Nixon must present the legislature with a detailed accounting of current allocations so that we can make an independent determination of whether DED’s number is accurate. For example, when the House Committee on Government Oversight and Accountability reviewed the Quality Jobs Act more than a year after the Mamtek debacle, we learned that DED still considered the Mamtek fiasco an “open” project because it’s window for claiming credits had not expired. Is the Department still counting Mamtek against the cap? Given that the Quality Jobs Act had a pitiful success rate, how many other abysmally failed projects are being counted against the cap? I requested a detailed accounting of the current projects taking up cap space from the Governor’s office on Friday and hope to receive an answer Monday.
Can the legislature see a copy of Boeing’s RFP?
It has been publicly reported that Boeing sent out an RFP detailing their requirements. The legislature and the public should be able to review that RFP.
If we pass a bill, what exactly does Gov. Nixon intend to offer?
Gov. Nixon should provide the legislature with his ideal offer sheet that he wishes to provide to Boeing. It might be easier to craft acceptable legislation to match his offer, than it is to pass an ambiguous potential blank check.
How will I vote?
As currently drafted, I am a no and won’t be a yes until at least receiving answers to the questions listed above. I’m also confident that other legislators will have questions that I simply haven’t thought of yet. The difficult part of this special session is the warp-speed time frame. The executive branch sometimes strings out getting the right answers to questions asked by the legislature in an attempt to run out the clock of regular session. Gov. Nixon is scheduled to meet with the House Republican caucus Monday afternoon. I will ask my questions at that meeting, and will keep an open mind. But this being the Show-Me State, Gov. Nixon bears the burden of proof that this will be a good deal for Missouri taxpayers.
 This includes 2,600 jobs for wing assembly and 6,000 jobs for fuselage assembly. Missouri and other states are competing to win one or both of these expansions.
 In my opinion, Missouri BUILD is a better program than Missouri Works because it subsidizes infrastructure which, once built, makes it very difficult for a company to leave Missouri because companies don’t walk away from hundreds of millions of dollars in infrastructure investments very often.
The education establishment that puts adults ahead of children and blocks every education effort imaginable, and, in some cases, even agrees to stand-down on reform legislation and then turns around less than 24 hours later and changes their position, is atwitter over the fact that Commissioner Chris Nicastro met with, conferred, and maybe even advised a group seeking to place an education-related initiative on the Missouri ballot.
A few quick thoughts:
1. The Commissioner of the Department of Elementary and Secondary Education is, per §161.020, is appointed by the State Board of Education. It seems there’s fairly widespread confusion on this. It’s not the typical way a director of state department is appointed.
2. We have a past history in Missouri of technical problems with ballot initiatives. For example, the minimum wage initiative inadvertently undid decades of overtime practices for firefighters and nurses – to the detriment of both labor and management – and the legislature had to come back later to fix it. A second example comes from the renewable energy mandate – which is a little bit different – but where proponents sold their measure as only costing one percent of current energy costs and then later completed the bait-and-switch by convincing the PSC to hold that one percent really means 11 percent. Because of these examples (and I’m sure there are more), I think directors of state departments impacted by ballot initiatives which could plausibly make it to the ballot ought to consult and advise proponents of those initiatives to help avoid unintended consequences.
This morning I sent the following letter to Director John Huff at the Department of Insurance requesting the Department to reverse course and allow Missouri consumers the freedom to renew their existing health plans free from Obamacare mandates:
Dear Director Huff:
In the past few weeks, millions of Americans have suffered cancellation of their existing health insurance policies as a result of the Affordable Care Act. In many states, the impact of these new regulations was mitigated by state departments of insurance which allowed health insurance consumers to renew their policies early – thus giving those policies “grandfather” status for approximately another year and avoiding cancellations. Unfortunately, Missourians did not have that option. In fact, according to the New York Times, Missouri was one of just seven states that refused to allow early renewals to avoid the blunt impact of Affordable Care Act mandates.
This was the result of Bulletin 13-01, a directive of the Department which warned health insurers that the Department would interpret three statutes to prohibit early renewals – even at the consumer’s option. To my knowledge, these statutes had never been interpreted in such a manner. While the Department’s position is a colorable interpretation, it is at least equally reasonable for the Department to conclude that renewals at a consumer’s option are legal. In addition, when interpreting ambiguous statutes, I believe the best policy position for the Department is to choose the path which permits the greatest amount of consumer freedom.
I write today in light of the spate of recent cancellations around the country and ask you to reconsider, rescind, and replace Bulletin 13-01 with a new Bulletin reversing the Department’s interpretation of the relevant statutes. Doing so quickly would give as many Missourians as possible the opportunity to renew their policies before their cancellation at the end of the year – mitigating some of the negative impacts of the Affordable Care Act. I will also be pre-filing legislation to (1) clarify the meaning of “renewal” in these statutes, and (2) require the Department to allow consumers to renew existing plans. I look forward to hearing your response regarding the request to immediately rescind Bulletin 13-01.
Rep. Jay Barnes
c.c. The Honorable Jay Nixon
 The other states were Massachusetts, New York, Rhode Island, Washington, Oregon, and California. States That Had Already Been Allowing Policyholders to Renew Their Plans Before President Obama Made His Announcement, NY Times, published November 20, 2013 at http://www.nytimes.com/interactive/2013/11/20/us/which-states-will-allow-old-health-policies-to-be-renewed.html?ref=us.
I also sent the following press release to the Associated Press and a few other outlets.
Rep. Jay Barnes Requests Dept. of Insurance Reverse Decision Prohibiting Missouri Consumers from Renewing Health Plans Early to Avoid ACA Insurance Cancellations
Jefferson City – State Representative Jay Barnes (R-Jefferson City) has requested that the Missouri Department of Insurance reverse an earlier decision which made it impossible for Missourians to avoid Affordable Care Act insurance cancellations. Barnes specifically asks for the replacement of Bulletin 13-01, a directive sent by the Department in early June warning insurance companies that they could not renew policies early, even at the option of the consumer, to avoid ACA-mandated cancellations.
“We have a duty to protect Missourians the best we can from the ill effects of Obamacare,” said Barnes. “Rescinding Bulletin 13-01 quickly would give as many Missourians as possible the freedom to renew their existing insurance policies. Reversing course is the right thing – and the smart thing – for Governor Nixon and the Department of Insurance to do.”
Important Source Documents:
By the time I returned to my office I learned that Gov. Nixon announced, via press release, that insurance companies would be allowed to continue cancelled plans. My thoughts: as stated in my press release above, this is the right thing, and the smart thing to do for Missouri consumers suffering policy cancellations due to ACA-mandates. I’m pleased with the quick turnaround – and I still believe Bulletin 13-01 should be withdrawn in its entirety.
Nixon Announces Plan for Cease-Fire with Kansas – Mum on Details and Credit for Legislators Who’ve Been Working on the Issue for Years
Barb Shelley of the KC Star recaps Gov. Nixon’s proposed cease-fire with Kansas to stop the mutually idiotic poaching of businesses from one side of the metro area to the other that results in no new net jobs to the region as a whole.
This isn’t a new idea. Several legislators have worked on it for years – without much, if any, help from Gov. Nixon. For example, Rep. TJ Berry sponsored HB 921 in 2013 to give the governor the discretion to effectively end the Quality Jobs Act in Kansas border counties – so that the governor could negotiate a cease-fire with Gov. Brownback. Sen. Ryan Silvey, who Shelley quotes, has also been involved.
Overall, I think Gov. Nixon’s on the right track here. (I think we’d be better off simply getting rid of the Quality Jobs Act-style incentives that favor big businesses who know how to work the bureaucracy – and replacing them with broad-based tax relief.) But the devil’s in the details – and it would be helpful if legislators who worked on these issues were given a heads-up before announcements like this.