Missouri uses fairy-tale to justify Boeing subsidy

  • By David Nicklaus St. Louis Post-Dispatch
  • Saturday, December 7, 2013 1:22pm
  • OpinionCommentary

Somebody in Missouri’s capital must believe in fairy tales. If it’s realistic to expect a 171 percent return on a gigantic corporate subsidy, then surely it’s not much of a stretch to expect a frog to become a prince.

The economic version of frog-kissing is a concept called “net fiscal benefit,” and it’s often used to justify public subsidies for stadiums, convention centers and corporate expansions.

The benefits of these subsidies almost always turn out to be overstated, but they’re a lot easier to sell if you can throw out some big, positive numbers.

In the case of Boeing’s proposed 777X plant, Missouri Gov. Jay Nixon wants to give the company up to $1.7 billion in tax breaks. In return, Boeing would build its new airliner in the St. Louis area and create as many as 8,500 jobs here.

Essentially, the state would bribe Boeing to create jobs. Nixon, though, wants to make it sound more like an investment than a bribe. His office released an analysis showing that, over the 23 years that the incentives would last, the state would collect $2.9 billion in new taxes because of the 777X project.

The report didn’t show where that number came from, but state officials almost certainly are using a large multiplier to account for indirect jobs that would be created. Those jobs would be at Boeing suppliers and at other local businesses where Boeing workers would spend money.

That’s fine, as far as it goes, but such analysis ignores opportunity costs. The $1.7 billion in subsidies wouldn’t be conjured out of thin air; it represents real resources that the state could have used for other things. It could spend more money on education, or it could cut taxes – and either of those actions would also have a multiplier effect as it rippled through the local economy.

Kenneth Thomas, a professor of political economy at the University of Missouri-St. Louis, has studied economic competition between the states, and he says he’s always skeptical of net-benefit claims like this one.

“It’s a real mess when it comes to these supposed cost-benefit analyses,” he said. “They all get a bit squishy when you look into them.”

Missouri has been criticized before for overstating the impact of its jobs subsidies. In a 2012 audit of the Missouri Quality Jobs program, state Auditor Thomas Schweich noted that the state had given tax credits to companies that were supposed to create 45,646 jobs, but could count only 7,176.

Arguments can be made for giving Boeing some help. State and local governments subsidize far less worthy projects, such as shopping centers, and a commercial aircraft plant would at least make Missouri competitive in a high-skilled, globally important industry.

The cost, however, is high. The subsidy proposal amounts to more than $200,000 per job, and it’s far more than Missouri has offered to employers in the past.

We should worry about what kind of precedent this will set. Even if Boeing doesn’t decide to build the 777X in Missouri, have we ratcheted up the bribe that other employers will seek for creating jobs?

Most importantly, Missourians shouldn’t be swayed by precise-sounding estimates that attempt to minimize the cost. As a taxpayer, when you see the phrase “net fiscal benefit,” you should look around and see if there’s a frog waiting to be kissed.

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