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Virginia Boldly Goes Where NASA Dreams, Taxpayers Get What? by Kyler Hood
In Virginia, dollar signs cloud the future of starry-eyed vagabonds.
As a federal contract thrusts private industry into filling the vacuum government once did, Virginia is doling out incentives to aerospace companies. Those tax breaks, according to some experts, are lowering competition in the marketplace and provide an uncertain outcome for taxpayers.
“I don’t like government trying to pick winners or losers in anything,” said Edward Hudgins, senior scholar at Atlas Society, a conservative center for scholarly research. For the space industry, however, he accepts tax exemptions for the space industry because a gradual move towards free markets works better than a demand for a sudden overhaul, he said.
The 2008 law known as the Zero Gravity, Zero Tax Act, provides income tax exemptions for companies who launch or provide resupply services for the International Space Station from Virginia.
A director at a chamber of commerce in Virginia, Suzanne Taylor, sees benefits from the commercial space industry.
“We’re all pretty excited about things that are coming,” she said. Chincoteague Island, where she works, is located 10 miles south of the Mid-Atlantic Regional Spaceport known as MARS on Wallops Island. The launchpad blasts satellites and rockets from the commonwealth.
To kick off launches to the International Space Station, NASA paid $1.9 billion in 2008 to Orbital Sciences Corp., a small- and medium-class rocket manufacturer based in Dulles Virginia.
The local company grows the economy in Chincoteague Island, according to Taylor.
“It has brought in more industry with Orbital Sciences. The hotels have definitely seen a difference with people coming and going,” she said.
Concerning how taxes affect state space companies, Joseph Henchman, vice president of state projects at the Tax Foundation, a nonpartisan tax policy group, said, “Virginia’s decision not to tax decisions in space is good because they are not taxing space beyond borders,” so the law applies only, as it should, to its governed area.
But that doesn’t mean Henchman totally condones the concept.
“It is problematic because it raises constitutional issues,” Henchman said. The spirit of the founding document is violated because when Virginia-based launches receive tax breaks, he added, they gain an advantage over out of state launches.
Complete freedom from regulations like tax exemptions creates a larger market for consumers, increases convenience, and brings down prices according to Hudgins.
The early history of the aviation industry favors his conclusion.
“Between 1978 and 2000, flights by Americans increased from 275 million to 650 million,” he said.
Removing tax exemptions in the space industry may have comparably positive results, but few statistics exist on the topic, so turning to similar legislation provides insight.
Del. Terry Kilgore, sponsor of a failed bill during the last legislative session for an $8,000 tax exemption on cremated remains launched into space, did not return phone calls or respond to emails.
With an incomplete picture, tax payers must wait and see what they get from tax incentives for commercial space companies in Virginia.
In the meantime, the numbers tell their own story.
The space industry will create $7.6 billion in economic output, and will support 28,110 jobs in Virginia, according to a 2011 study by Virginia Commonwealth University.
The 2012 Space Flight Authority Act signed into law by Gov. Bob McDonnell created the foundation for commercial industry.
The law puts $47.5 million over five years into the newly created Commonwealth Space Flight Fund for capital needs, maintenance, and costs of facilities and supports space-related education known as STEM.
How the money gets distributed in the fund and the logistics of a tax on sales of commercial launches will be decided in December when a commercial space promotion group created in 1995, the Virginia Commercial Space Flight Authority, presents a plan.
The Highway Maintenance and Operating Fund, a fund used to operate Virginia agencies and finance repair work for roads and bridges, provides $25.6 million for the MARS launch pad and facility improvements thanks to a September agreement signed between Gov. Bob McDonnell and Orbital Sciences Corp.
The company creates jobs in Virginia.
“Orbital employs 2,000 people from Virginia out of 4,000 company wide employees,” said Barron Benski, vice president of public relations at Orbital Sciences Corp., and adds, “In Wallop Island, they employee 100 people in the first contract to launch low altitude rockets.”
Orbital Sciences Corp. placed the Antares rocket destined for the ISS on the launchpad in October.
And the company operates a manufacturing venture.
Orbital Sciences Corp. has the largest science manufacturing facility in the United States East of the Mississippi River, according to its own Virginia fact sheet.
Former Gov. Tim Kaine originally brought space companies and Virginia politics together, and the union continued after his term.
Orbital Sciences Corp. gave campaign contributions to Gov. Bob McDonnell, and two officials on science committees, Del. Joe May and Sen. Mark Herring.
So the whole debate about tax exemptions for commercial space companies in places like Virginia gets stuck on two problems: private companies are not required to release information crucial to determining the cost of tax incentives and the industry is young, according to Alex Saltman, Executive Director of the Commercial Space Flight Federation.
“There does seem to be some incentive,” he says, “but there are a lot of barriers to seeing the whole picture.”