Gov. Mike Beebe and his director of economic development, Grant Tennille, have both discussed publicly the state’s candidacy for a business investment superproject.
Beebe calls the business prospect “one of the biggest projects the state has ever seen.” Tennille describes the project as “an advanced manufacturing project with an investment value north of $1 billion,” which would certainly make it the biggest economic development project in Arkansas history.
Both men claim the project will qualify for Amendment 82, the state’s superproject amendment.
Amendment 82 allows the state to issue bonds to pay for infrastructure improvements on projects that exceed $500 million in investment and create at least 500 jobs.
THE LAW SAYS
Assuming Arkansas closes the deal, how would Amendment 82 work if the threshold and triggers are met? Here is what the law describes.
Amendment 82 allows for general obligation bonds of the state to be issued to “finance infrastructure or other needs to attract large economic development projects.”
The bonds may be issued for up to 5% of state general revenues and the payback stream for the bonds comes from gross general revenues, meaning it is skimmed off the top of the monthly collections before discretionary distribution can take place. The legislature could, however, designate a special revenue stream for the bond payback, according to the law. There is no mention as to the duration of the bond issue – 10, 15, 20 years or something different.
The law clearly states that other incentive programs – state and local – may also be used, if desired.
The bonds can be used for land acquisition, site preparation, road and highway improvements, rail spur construction, water service and wastewater treatment, and environmental mitigation. They can also be used for employee training and research facilities, which may include equipment.
Should the superproject threshold be invoked, here’s a sketch of the process that it will trigger.
First, the Arkansas Economic Development Commission, the Arkansas Development Finance Authority, and the Chief Fiscal Officer of the state will undertake a review of all proposed projects.
The Governor will have to refer the project to the General Assembly to review through this three-headed authority, which will oversee an economic impact and cost-benefit analysis “to evaluate the capability of a sponsor and the feasibility of a proposed project and to determine if the proposed project has the potential to be a qualified Amendment 82 project.”
If approved by the authority, AEDC and the business entity that would benefit sign a letter of commitment. All of that paperwork is sent to the Governor for review. It is also sent to the Office of Economic and Tax Policy of the Bureau of Legislative Research on behalf of the President Pro Temp of the Senate and the Speaker of the House.
Those two legislative leaders – Senate President Michael Lamoureux (R) and House Speaker Davy Carter (R) – shall arrange for an independent confirmation of the economic impact and cost-benefit analysis performed, and it must be completed within 20 working days.
Interestingly, the working papers are exempt from the Freedom of Information Act (FOIA) law.
The Governor has the power to recommend to the state legislature that it pursue Amendment 82 provisions in either a regular, fiscal or special session. The General Assembly must approve the issuance of the bonds.
While not stated in the statute, sources familiar with the mechanics of the law say that the state may not be on the hook for the full amount of the bonds.
For instance, if a $125 million bond issue were presented, the state of Arkansas could commit to fund $75 million, while the company choosing to locate in Arkansas may pick up the rest of the revenue stream for $50 million of the bond issue. Nonetheless, if the business fails, the state is obligated to pick up the difference and pay the full amount.
This could leave the state with greater exposure and that’s a risk lawmakers will have to weigh, if the project comes to fruition. Several legislators have spoken off the record on the subject. They see the proposal as not necessarily a slam dunk for them. They want to see the numbers before committing to the financial obligation.
One lawmaker, State Sen. Jake Files (R-Fort Smith), chairman of the Senate Revenue and Tax committee, captured the general sentiment of the legislature.
In today’s Talk Business Arkansas update, Files said, “I think there’s a lot of excitement and enthusiasm going in. Not many of us have seen a lot of details on it, so the verdict remains to be seen,” said Files. “The fine line here is: what are we willing to vote to obligate the state for and what do we get in return?”