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.
 The only way to justify this kind of spending on corporate subsides above new payroll taxes is to assume a robust multiplier effect using REMI scoring. On the other hand, see footnote 3.
 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.