Proposal would boost local perks to land jobs
Local economic development organizations have grown in size and prominence in Arkansas, spending millions of dollars raised through sales taxes to influence where new jobs land.
State officials highlighted the role of the Economic Development Corp. of Clark County on Tuesday. It will spend $10 million to offset infrastructure cost of a Shandong Sun Paper mill and grant the company $92 million in the form of a 65 percent county property-tax discount over 20 years.
The value of the county’s contribution far exceeds what the state offered — more than $22 million. The county has an annual budget of a little more than $13 million, County Judge Ron Daniell said. The incentive packages from state and local government total at least $496,000 for each job expected to be created at the mill.
“Clark County really stepped up to the plate on this project,” Scott Hardin, spokesman for the Arkansas Economic Development Commission, said in an email. “Sun Paper’s decision to locate in Clark County would not have been possible without the commitment
of local leadership.”
At least four Arkansas counties — Clark, Jefferson, Independence and Mississippi — and numerous municipali- ties use sales taxes to fund incentives for local companies to expand or new companies to move in. More local governments could become involved in economic development if a constitutional amendment is approved by voters in November, Sen. Jon Woods, R-Springdale, said.
Senate Joint Resolution 16 by Woods would remove the cap on the amount of bonds the state could issue. Supporters say that change would help Arkansas compete for more large projects that could bring hundreds of new jobs to the state.
The amendment also clarifies what local governments can do.
SJR16 would allow cities to issue bonds for economic development projects and allow cities with populations of 500 or more, incorporated towns, school districts and counties to form compacts for economic development.
Woods’ proposal also would allow cities to appropriate money to organizations such as chambers of commerce to provide economic development services. The provision was a response to a circuit court ruling in January that such arrangements “clearly and totally” violate the Arkansas Constitution. The judge ordered payments halted by Little Rock and North Little Rock.
“A lot of municipalities are sitting on money that they want to use right now, today, to incentivize companies to bring jobs to their communities,” Woods said. “I think when this passes, you’ll see a lot of communities step up and say we really want this to happen. They’ll feel a lot more at ease when the constitutional amendment become law.”
Not all lawmakers think expanding the use of economic development incentives is a good idea. Rep. Nate Bell, I-Mena, said high taxes and burdensome regulation are major impediments to job creation in Arkansas.
“When we’re asking government to take dollars from one business and use those dollars to benefit another business — to me that’s no different than welfare,” he said. “It’s literally a form of income redistribution.”
Bell said it makes sense for local governments to market themselves, but providing money in exchange for jobs crosses a line.
“My philosophy has always
been government needs to get out of the way of job creation,” he said. “Generally, it’s not a good use of public funds to try to put Band-Aids on the longterm problems.”
Local economic developers say the law needs to be clarified so they know what is legal.
Jon Chadwell, director of the Newport Economic Development Commission, was a minister before he became an economic developer. Praying is important in both professions, he said in a recent interview.
Newport uses a 0.5 percent sales tax to fund job-creation incentives. The tax, approved by voters in 2001, generates about $750,000 per year. Chadwell said the law that governs how the city uses the money is a mess.
“Right now, there’s constitutional law that says you can’t give public money to a private company unless you get some service or good from them,” he said. “Now, define service or good or benefit. You’re in a nebulous area there.”
That creates a situation where a company might build a facility, have the city buy it back, and lease it at a nominal rate to provide an economic incentive, he said.
“All that does is make the city the owner of something they never really wanted to own anyway,” he said. “It’s all an effort to compete with the folks around us and fit within the constitutional requirements of the state.”
Woods’ constitutional amendment defines what local governments can do to offer incentives to companies, Chadwell said. “It’s wonderful,” he said. Clif Chitwood, executive director of the Great River Economic Development Foundation, said the amendment would regularize what many municipalities are already doing.
“Right now Arkansas economic development law — as it pertains to counties and cities — is metal here and wood there and bubble gum holding it all together,” he said. “It’s a combination of statutes, and more importantly legal decisions, some of which are now 100 years old.”
Mississippi County voters in 2003 approved a 0.5 percent sales tax to fund economic development. The county spent $14.5 million — in addition to the state’s $125 million bond issue — to land Big River Steel.
Chitwood said he doesn’t believe clarifying what’s legal will lead to a rash of local incentives.
“Some people see that there will be a rush toward imprudent investment in imprudent projects. That will be up to communities to decide,” he said. “If you live in a quiet small town, chances are you like it there and you wouldn’t want it to change.”
The additional taxes are generally popular.
Chadwell said that in a 2011 vote to reauthorize the sales tax, 76 percent of voters approved it.
Bell, the lawmaker, voted against issuing a $125 million bond to Big River Steel, but for a bond issue of $87.1 million for Lockheed Martin in East Camden.
Though he’s against the incentives philosophically, he said the voters sent a clear message by passing Amendment 82, which allows the state to issue bonds for major projects to pay for infrastructure, land acquisition, site preparation and employee training.
Lockheed Martin’s proposal was reasonable and fit within voters’ parameters, Bell said.
But expanding economic development incentives is not without risk.
A January Arkansas Democrat-Gazette analysis of state incentive programs found that new jobs sometimes cost more to create than they pay in a year and that companies don’t always fulfill their job promises or stick around after they take taxpayer funds.
For the period 2012-14, the Arkansas Economic Development Commission said in reports to the Legislature that its incentives to companies created 13,800 jobs for Arkansans — though it did not require that many jobs to be created.
The state has authorized more than $380 million to create jobs over the same period, according to records obtained under the Arkansas Freedom of Information Act.
Of the 25 companies that received more than $3 million each from the state from 201214, only a handful announced major job openings during that time period, a review of news reports shows.
Six of those companies — Hewlett-Packard, Domtar, Superior Industries, Windstream, Saint-Gobain and ConAgra — collectively shed at least 1,400 positions over the same period.
University economists said it’s nearly impossible to say whether the money was well spent because it’s impossible to know what companies would do without receiving incentives.
But there are enormous risks to doing nothing, Chitwood said.
The Arkansas Economic Development Commission, the primary spender of industry incentives, was created in 1955 to bring new industries into the state; expand existing industry; and bring labor, industry and agriculture together to upgrade Arkansans’ standard of living.
Winthrop Rockefeller served as chairman before winning the race for governor.
“He used his influence, his name, his family and he brought literally hundreds of plants to Arkansas, but all he had to offer … is cheap labor, of which there was a lot in Arkansas,” Chitwood said. “After we got all those plants, everything went really well for a long time.”
That was important in the Delta as farming machinery advanced and fewer people were needed to produce crops. Chitwood, the son of a farm-equipment dealer, saw the change firsthand.
“From two-row equipment to four-row to eight-row to 16row,” he said “Every time that there would be an improvement in efficiency, a few more people would leave the farm.”
Around 2000, alternatives to farming dried up in Mississippi County, Chitwood said. A textile factory failed for the second time. Eaker Air Force Base at Blytheville closed.
“There were lots of middle-management people, and those people made up the backbone of the community — Kiwanis, Rotary Club and the churches, the Little League baseball coaches — and they just all vanished. I mean, it was like there was a virus that just took all of the middle managers,” he said. “I don’t know where those people went. I don’t know what their children are doing. They’re not here anymore, and with them went a sizable chunk of the middle class.”
It was around that time the county voted in favor of the 0.5 percent sales tax. It passed by a margin of just 63 votes.
“If we just go with the flow, we’re going to go over the waterfall,” Chitwood said. “There is a tipping point at which your fate is sealed and your game is over.”