Lockheed aid will pay off, study predicts
$16.3M profit in 25 years, says report for lawmakers
If the Arkansas Legislature approves an $87.1 million aid package for a defense contractor with a facility in Camden, the state will recoup the money — plus an additional $16.3 million in revenue over the next 25 years, according to a cost-benefit analysis released late Friday afternoon.
In a report submitted by consultants to lawmakers Friday afternoon, the analysts projected that the cost to the state to help pay for upgrades for Lockheed Martin’s Camden facilities will be eclipsed by increased tax revenue from increased economic activity.
Gov. Asa Hutchinson, who has called the special session to consider the project, has said it would create hundreds of jobs and could boost related business development in the area if the company wins its bid for a Department of Defense contract.
Amendment 82 of the Arkansas Constitution authorizes the state to issue bonds for superprojects to help pay for land, training and infrastructure improvements.
By 2040, the company’s Camden facility would produce about 55,000 Joint Light Tactical Vehicles, which are meant to replace the U.S. military standard Humvee. The contract would help keep 556 existing jobs at the Camden facility and create another 589 jobs by 2025, the reports says.
The report also indicates that the aid package wouldn’t increase state revenue in the short term.
In a 20-year analysis, the state would stand to lose about $1.6 million from its
bonding investment, the report said, but that during the final five years, incremental tax revenue would reach its peak and the bond debt service would be paid off.
The report said the estimate is conservative and didn’t account for increased revenue from taxes and fees beyond state income, sales and corporate taxes.
It also stated that returns to the state would increase if the expansion of the Camden plant were to bring suppliers and ancillary businesses to the area, creating more jobs and more tax revenue.
One of the consultants involved, Phil Hopkins of ECR Consulting in Philadelphia, agreed that the benefits to Arkansas could be higher than $16.3 million.
“The key factor that will determine whether this makes sense for taxpayers is over time, how much of the supplier activity locates in the state over time,” Hopkins said. “That’s a very tricky thing to forecast.”
Hopkins said that even though it’s unlikely that companies will build engine or transmission factories near the Camden facility, a number of smaller parts providers or vendor-related businesses could pop up.
Lockheed Martin has a policy that key component suppliers be located “within 125 miles” of a production or assembly facility, the report states.
“State governments should take an informed risk and prudent risk,” Hopkins said. “The contract is big enough and long enough over time that we’re reasonably confident that the supplier linkages will fill in over time to generate enough total economic activity in the state to make this a good deal.”
Reached by phone early Friday night, Speaker of the House Jeremy Gillam, R-Judsonia, said he hadn’t had an opportunity to read the full report. Gillam has indicated that there is much support in the House for the project.
Senate President Pro Tempore Jonathan Dismang, R-Searcy, said he’d seen a preliminary version of the report and the numbers looked good.
Dismang said that beyond the conservative estimates, he expected the project could give a shot in the arm to the local economy.
Dismang said that the supporting businesses that grow around the Camden facility will be the same kind of businesses that will lure other companies, especially automakers, to consider investing in Arkansas.
“I think it’s absolutely realistic,” Dismang said of future investments. “When you have that type of industry here and people locate here, that’s a big plus when you’re trying to lure an auto manufacturer to the state.”
The report estimates that the capital investments needed for the Camden facility will total $147.3 million, with $98.3 million being spent in expansion, renovation and new equipment in the first two years.
The additional $49 million will be spent on further construction and additional equipment.
Of the $87.1 million in proposed state aid, $83 million is dedicated to helping the defense contractor with building and infrastructure improvements.
Another $2.5 million would go to covering the issuance costs of the bonds as well as debt-service. Another $1.6 million would be used for building and equipping a training facility at Southern Arkansas University Tech for future workers.
Dismang said lawmakers seem excited about the proposal, but that they’ll want to review the report before making any decisions.
“I think it’ll be read and members are going to take that information and make a determination on the project,” Dismang said. “I think it will be [popular] but we’ll leave that decision up to members.”