IN WALKER'S WISCONSIN: Federal money for high-speed rail bad, federal money for executive aircraft good | Wis.Community

IN WALKER'S WISCONSIN: Federal money for high-speed rail bad, federal money for executive aircraft good

[img_assist|nid=46026|title=Fly by night|desc=|link=none|align=left|width=187|height=125]If you have been looking for a slam-dunk example of why Gov. Scott Walker's economic development policies are sadly if not recklessly misguided, look no farther than Kestrel Aircraft Corporation.

On the surface, everything seemed rosy concerning news this week of the state's success in getting the fledgling firm to locate a new aircraft manufacturing operation in Superior, resulting in a planned 600 new jobs over the next four years. If it all comes to pass, that's great news for jobs-depressed northwestern Wisconsin and in particular the City of Superior, which poured millions of dollars of of its own money into the joint effort to lure Kestrel from a planned location in Maine.

But there are cavaets about this deal that the mainstream news media -- at least in Wisconsin -- so far have ignored.

For one thing, for its own part the State of Wisconsin has pledged $112 million to Kestrel in order to lock down the deal. That's a lot of scratch. Indeed, Republicans who love to criticize President Obama for spending a lot of economic recovery dollars to create new jobs seem unfazed by the fact that Walker and company are spending nearly $187,000 per each new Kestrel job.

But worse, the Walker administration is hypocritically handing over a huge bag of federal dollars. Here's the list in the case of the Kestrel deal:

• Wisconsin Housing and Economic Development Authority (WHEDA)-- $30 million in Federal New Market Tax Credits (NMTC) in 2012-- $60 million in future NMTC allocations -- $2 million loan through the US Treasury’s State Small Business Credit  Initiative Program• Wisconsin Economic Development Corporation (former state Commerce Dept.)-- $18 million in Enterprise Zone Tax Credits-- $2 million economic development loan

Of course, this dependence on federal dollars to fund a job-creating transportation development in Wisconsin is completely at odds with Walker's decision a year ago to kill the $810 million federal grant to build a high-speed passenger rail line linking the state's two largest cities. Walker's reason for refusing those federal dollars? The project wouldn't create enough jobs, the train wasn't needed and the federal government is running deficits  and so, like Wisconsin, is "broke."

But notice the difference in attitude. The high-speed passenger line would have ferried many workers, tourists, students and others back and forth between Madison and Milwaukee, and eventually points further east and west. Kestrel, on the other hand, is planning to build a light, single-engine luxury commuter plane, seating  five, that will appeal mostly to a relatively small number of business executives.

So: High-speed rail transit for the masses? Wasteful! But expensive aircraft for fatcat CEOs and their staffs and guests? Essential!

But what about all those aircraft production jobs? Well, that's great, on paper. But two things. First, the high-speed rail link was the first phase in a much larger effort linking the entire midwest. Phase One would have created thousands of  temporary construction jobs, dozens of permanent rail jobs and hundreds of millions of dollars in expected economic development spinoffs, including rail cars that would be built and serviced by a Spanish firm in Milwaukee.

And by the way, regarding those 600 jobs: Kestrel says it still plans to locate 100 new jobs in Brunswick, Maine. Thus, for zero the cost of Wisconsin's nine-figure investment, Maine will get one-sixth of the promised workforce. Not a bad deal for Maine, at all.

Second, as some Maine news outlets already have noted, the entire contest to win Kestrel's nod is an expensive and perhaps dubious effort. For one thing, the light aircraft industry has been in the doldrums and represents a risky business model, especially in this economy. While the Kestrel aircraft's design is novel and probably attractive to a narrow market, there are absolutely no assurances that the firm will make a go of it.

Indeed, Kestrel is a relatively new company without much of a track record and told state officials that it would need around $100 million in start-up capital just to get under way. Whatever happened to private venture capitalists? Wouldn't they be eager to get in on the ground floor of such an enormously attractive and potentially profitable new business? Apparently not.

Republicans seem perfectly happy to imagine that all will go well with Kestrel, not worrying about the other possibility. That is not at all how they reacted when the Obama administration lent a similar magnitude of recovery money to the eventually failed Solyndra solar cell firm. Nope, Obama's willingness to take a risk on a world-class new technology was simply branded as reckless. This Kestrel deal, however, is, for Republicans, quite prudent -- politically, anyway.

Main's Lewiston Sun Journal newspaper editorialized in disbelief that conservative GOP governors in Maine and Wisconsin had battled over Kestrel,  offering huge public subsidies in the process:

The philosopher and novelist Ayn Rand has gained new currency among  conservatives, libertarians and tea party believers for her unshakable belief  in laissez-faire capitalism.

"Government 'help' to business," she wrote, "is just as disastrous as  government persecution. The only way a government can be of service to  national prosperity is by keeping its hands off."

Rand, who died in 1982, would have been slapping her forehead in disbelief  last week as two of the most tea party-like governors in the country threw  taxpayer-funded incentives at a private business.Maine Gov. Paul LePage and Wisconsin Gov. Scott Walker conducted an expensive  bidding war for the Kestrel Aircraft Corp.

The American kestrel, by the way, is a small falcon known for its ability to  hover 30 to 60 feet off the ground before swooping down on its prey.

After spending months hovering over Maine, Kestrel Aircraft wrapped its  talons around a more generous package of taxpayer-financed incentives in the  distant state of Wisconsin ... .

The newspaper's editorial continued:

While the promise of new jobs is nearly irresistible in this economic  climate, development officials also have a responsibility to adequately understand the risks and rewards of any project.

After all, the taxpayers of Maine were about to become investors in a highly  speculative start-up business in a down economy.

Any commitment of taxpayer money or tax credits must be balanced not only  against the likelihood of success, but the potential for long-term job  creation.

While these deals often look good on the surface, they don't always fulfill  the original promise.

Witness the contentious relationship between Oxford Aviation and local  officials over the years. The company has repeatedly received public grants and loans, but its track record for fulfilling its hiring obligations has frequently been questioned.

One reader added this postscript:

As I posted previously when the news first broke that Kestrel was headed to Wisconsin, this isn't the first time a developer with a big idea and no money waves the promise of a few hundred good paying jobs around to see which town or state is willing to pull their pants down the lowest to get in on the "deal". It's an old game, but it works often enough to be worth playing. A risky business venture is what this boils down to, period. If Kestrel's  business plan were really solid enough to support a $100 million investment, there would be bankers and investors courting them and they would not have to be playing this game.

So, should government be in the business of sending tax dollars to risky start-up ventures that private lenders wouldn't touch? It'd be simple to simply say no, not ever. But in troubled economic climes, government sometimes has to kick-start markets. And in pursuing the Kestrel deal, Scott Walker effectively has agreed with Barack Obama on that role -- and he's done it using federal government tax dollars.

Published

January 22, 2012 - 12:17pm

Author

randomness