A recycling tax credit that could save the Big River Steel plant $260 million over 14 years is leading to questions by lawmakers about its cost and scope. The director of the Arkansas Economic Development Commission says the only way the company could use the credit is if it’s making a profit and creating jobs.
The credit allows companies like Big River Steel, the manufacturer that announced plans earlier this year to build a $1.1 billion plant in Osceola, to save 30 percent on the purchase price of recycling equipment. The credit lasts three years for most industries. However, according to Grant Tennille, AEDC executive director, the 14-year exception was created for steel industries a number of years ago at the request of Nucor, which was considering building a rail mill in Arkansas that was never constructed.
The 14 years gives recipients more time to make enough profits to fully take advantage of the credit.
Concerns about the credit were expressed in reports prepared for the Legislature by consultants. Moreover, some lawmakers have wondered if companies with equity in the Big River Steel project could abuse the credit. For example, the largest investor, Koch Industries, also owns the Georgia Pacific facility in Crossett.
Rep. Charlie Collins (R-Fayetteville) wondered if credits could be sold or transferred to other businesses owned by the same investors.
“I’m not predicting that, but I just want to make sure there’s no opportunity for something like to happen because I don’t think that’s the intent” of what the state is trying to do, he said.
Tennille said that won’t happen because the credit is available only to companies that have a direct tax liability.
“It would be next to impossible to suck the credits all the way up into one holding company and then push them back down into a bunch of different holding companies… The worst-case scenario that they’re putting out there has been studied and rejected by people who know and understand,” he said.
Tennille said that the credit, though large, can only be used if it is achieving its ends. He said it is expected that Big River Steel during its start-up years would not make much of a profit, and therefore wouldn’t take advantage of much of the credit. When it did, that would mean the credit was fulfilling its purpose.
“If what we’re afraid of is that they’re going to use them, it doesn’t make any sense because they can only use them if they’re successful,” he said. “That’s the way the thing was designed.”
In addition to the credit, lawmakers are being asked to approve a $125 million bond issue that will allow for lower financing rates for a $50 million loan and $75 million in grants and incentives to begin the infrastructure for the superproject.
The bond issue is contained in House Bill 1870 by Rep. Monte Hodges (D-Blytheville) and Senate Bill 820 by Sen. David Burnett (D-Osceola). As enabling legislation, either of those bills will require a simple majority to become law.
However, the appropriation to designate the revenue stream to pay for the bonds will require the support of three-fourths of lawmakers in order to pass.
Collins said he is seeking more information and is not opposed. “The reason it’s not just an easy, ‘just say yes and forget about it,’ is because we set a precedent,” he said. “And I already know if we go ahead with this, every business in Arkansas, when they meet me, is going to start off by telling me how much they’ve invested in Arkansas, and what they did not get that others have gotten.”
A previous change was made to the bills after George Hopkins, executive director of the Arkansas Teacher Retirement System, objected to a provision stating that credits must flow to equity holders in proportion to their holdings. Because the system pays no corporate income tax in Arkansas, it would not have received the credits, so Hopkins asked for the ability to sell what would have been the system’s. Instead of doing that, ADED specifically inserted into the bills a provision stating that if one of the investors is a state retirement system, then the credits can flow disproportionately to investors.
Tennille said changes to the bills were being made on Wednesday (March 27) afternoon, with the cooperation of Big River Steel. The company must employ a specified number of people and pay them a certain wage and must recertify it is doing so every year. For every year it fails the test, the 14-year recycling tax credit provision will be reduced one year.
“We’re trying to make sure that they do what the whole project was designed to do, which is hire people and pay them,” he said.