Billion-Dollar Tax Break Poised to Fuel Spaceport Development
Days before a SpaceX mission lit up the night sky with the record 94th launch this year from Cape Canaveral, Rob Long sat in a nearby office talking about doubling or even tripling that rate.
Long’s an aerospace engineer and retired Space Force colonel who runs Space Florida, the authority tasked by Florida lawmakers to support the country’s busiest spaceport. The reason for his optimism: a long-sought but little discussed tax break tucked into Congress’ massive tax-and-spending law that could unlock billions in new funding.
The provision means spaceports can use tax-exempt bond proceeds to finance key infrastructure projects, much like municipal authorities do to build airports and highways. One analysis predicted at least $20 billion in new investment over the next decade.
For Space Florida, it creates a potential path to building roads and bridges, improving fuel delivery, increasing wastewater treatment capacity and expanding the oceanfront wharf to collect the remnants of their launches or return vehicles.
“Hopefully, in about six months, we’ll have maybe a really good idea of a project that’ll kind of check all the boxes,” Long said in the interview this month.
Decades in the making, the bond tax break passed thanks in large part to the Republicans’ sweep of the House, Senate and White House. It represents the latest move by Congress to help companies that are owned by the world’s wealthiest men—a point critics emphasize—but that also are seen as critical cogs in the bid to out-muscle Russia and China in the space race.
Still, the benefits could be broader, boosting a spaceflight industry seeing a surge in private satellites, lucrative defense contracts, and a nascent space tourism boom, not to mention the manufacturing and hospitality businesses that have sprouted to support the 20 spaceports across the US.
“It’s going to help all of them, especially in Florida,” which will likely top 100 launches a year, said Todd Harrison, a senior fellow at the American Enterprise Institute who specializes in space security. “We are clearly the leaders in the world when it comes to commercial space, but you know, China is trying to catch up.”
Space Florida’s board just last week signed off an initial deal that would leverage tax-exempt bonds in order to build multiple hardware facilities on Florida’s spaceport, according to board disclosures. Total debt financing, both taxable and not, could reach $235 million. The endeavor, code-named “Project Jaguar,” is the first such deal to leverage the new instrument, according to a Space Florida spokesperson.
Space Age ‘Traffic Jam’
Investors for a century have been able to write off the interest earned on municipal bonds, making them attractive and relatively stable investments and turning the public finance market into a $4 trillion Wall Street behemoth.
Airports offer a stark example. Their municipal debt has been surging to record highs to keep up with post-pandemic travel and construction costs.
Space industry advocates long sought the same tax benefits. As far back as 1991, Florida’s lawmakers in Congress pitched the bond exemption. Back then, Space Florida’s predecessors enlisted law firm Holland & Knight to make their case for cheaper financing, according to federal lobbying disclosures.
In the ensuing years, the number of spaceports grew, now dotting 10 states. Some are owned by local municipalities or state authorities. Jeff Bezos’s
Demand for satellites that support online connectivity has helped supercharge the growth. Launches from Vandenberg in the past three years doubled or quadrupled the annual total from any year in the prior decade. The Wallops Island launch site also hit new levels.
But the US is headed toward “the first traffic jam of the Space Age” without investment in those spaceports’ infrastructure, according to the Space Foundation, a tax-exempt group that advocates for the space community.
Florida’s Space Coast still includes a runway and assembly buildings dating to the Cold War race to the moon or the scuttled shuttle program. Space Florida’s staff repeatedly trekked to Capitol Hill during the Biden administration to meet with Congress— including leadership—to press their priorities, according to public disclosures of their travel expenses. And they turned to Florida’s lawmakers for support.
One champion was Secretary of State Marco Rubio, who as senator tag-teamed with Sen. Ben Ray Luján (D-N.M.) to
The Rubio-Luján bill never moved on its own. But the Republican trifecta in Washington unlocked the budget reconciliation process and allowed GOP leaders to shift trillions of dollars in fiscal policy without Democrats.
The tax law “really presented a target of opportunity,” said John Neal, executive director for space policy at the US Chamber of Commerce.
In the end, Luján, like other Democrats, didn’t vote for the larger bill that included the provision he helped write. Still, he acknowledged the potential impact for his state, which hosts a spaceport in the small city of Truth or Consequences.
“Virgin Galactic’s been clear that they hope to expand in New Mexico,” said Luján. “I certainly hope that when they’re given a more positive economic opportunity that we’ll see them grow even more.”
Representatives for most spaceflight companies and spaceports didn’t return Bloomberg Tax’s requests for comment. Spokespeople for aircraft manufacturer Boeing and Melbourne, Fla.-based L3Harris declined to comment, as did the Pentagon.
Think Big, Move Fast
Republicans during drafting of the mammoth law at one point considered axing municipal bonds’ tax benefits altogether to shave a quarter-trillion dollars off the cost of individual and business tax rates for the next decade.
GOP angst about the scope of the spaceport exemption gave some tax writers pause in the House, according to Neal. Lawmakers were also attempting to constrain the cost of the overall package and even embraced new populist tax hikes on billionaires in other industries.
“We have some really hard-ass, anti-tax-break-type people on the Republican side,” said Rep. Neal Dunn (R-Fla.), who sponsored the bond exemption in the House.
But bipartisan support for privately funded infrastructure across the country ultimately saved the tax breaks. Instead tax-exempt bonds were expanded in a bid to counter China’s dominance in space.
The new exemption “means that we will continue to think big and move fast and give our spaceports the resources they need to truly compete,” Sen. Ashley Moody (R-Fla.), who reintroduced her predecessor Rubio’s bill, said at an event at Space Florida’s offices days after the bill’s signing. “It’s incredibly important that we as Floridians continue to fight, not just for our nation’s sake, that we do not let China or Russia overtake us.”
The new statute, Sec. 70309 of Public Law 119-21, treats spaceport property on federal land under exempt facility bond rules—“like airports,” the law says. That unlocks the ability to exempt the interest they earn from the federal income tax.
Eligible facilities on or near spaceport grounds can engage in a wide variety of work. Manufacturers of spacecraft, flight control, launch services, and moving passengers all count, as does the making or moving of satellites, scientific experiments, and other payloads.
Lawmakers also offered more flexibility to spaceport projects than those of other transportation authorities, eliminating the requirement that the infrastructure needs to be available to the public. That provision opens the door to projects designed to support spaceflight that is so far reserved for cargo, astronauts, or the wealthiest Americans.
“This pretty much gives people everything they wanted,” said Edward Rojas, an attorney at Holland & Knight’s who specializes in tax-advantaged project financing.
Democrats broadly derided the Republican-led tax law that included the new bond exemption, in part because its breaks for business skew benefits to the wealthy. That law boosted the spaceflight industry not just with the bond exemption but more spending toward President Donald Trump’s “Golden Dome” missile defense system, Boeing’s classified “x-37B” spaceplane, and SpaceX’s work to retire the International Space Station.
“It seems kind of bananas to give out further tax breaks to Bezos and Musk,” said Elizabeth Pancotti, managing director of policy and advocacy at Groundwork Collaborative, a tax-exempt think tank opposed to concentrated corporate power.
The change in the tax code will cost the taxpayers more than $1 billion in uncollected revenue over the next decade, according to nonpartisan staff at Congress’ Joint Committee on Taxation.
But the bond market and subsequent spaceport funding created by that could exceed $20 billion by 2034, according to global financial services provider Barclays.
“We actually need to see the first deal” before weighing their attractiveness, said Mikhail Foux, Barclays’s head of municipal strategy. Until then, he said, it’s “a theoretical discussion.”
Financiers and attorneys orbiting the space industry in the months since the law’s enactment have pondered how or whether their clients could benefit.
In a hotel basement less than a mile from the Treasury Department, a conference of the National Association of Bond Lawyers this fall pondered whether satellite manufacturing, astronaut training or even a hotel close to the launch site would qualify for the new benefit.
For now, staff cuts at the IRS mean those lawyers are proceeding without broad guidance on their questions.
“You would hope that this would get some attention,” Edwin Oswald, a partner at the law firm Orrick who specializes in municipal finance, told attendees at the workshop. “But as we all know in this room, there’s a lot of areas that need attention.”
Lifting More Boats
Florida’s Space Coast, a 72-mile stretch along the Atlantic, had been transforming long before the tax break. Kennedy Space Center hosts private manufacturing facilities for SpaceX and Blue Origin, as well as sites where Boeing works on its Starliner and secretive spaceplane. Amazon built a new facility for its satellite broadband network rebranded as Leo, and an office park hosting defense contractors and space-themed hotel rooftop bars punctuate the causeway heading to the ocean.
The local economy only stands to grow in a world where bond-financed infrastructure allows more launches for manufacturers to fill and tourists to watch from the beaches, said Melbourne Regional Chamber of Commerce President and CEO Anne Conroy-Baiter.
But, she cautioned, business advocates need to make sure “mom-and-pop motels on the ocean” don’t get swamped by luxury space tourism, and that smaller payload companies get a piece of the action.
“It can’t just be the engineers and the billionaires” who benefit, Conroy-Baiter said. “How do we make sure as a community that all boats are rising with this tide?”
Space Florida is already talking with potential partners on the authority’s first tax-exempt bond, which Long hopes can be used as a model for future issuances in Florida and across the country.
Looking at a map of Cape Canaveral, Long pondered how a ramp-up in spaceflight companies’ activity on those islands managed by NASA and the Space Force could transform the usable green space nestled in the protected wetlands.
“The good news is there’s a lot of land area out there,” Long said.
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