President Harry Truman once said he wanted a one-handed economist because all his economists would say, “On the one hand, on the other.”
A full committee room of legislators heard an earful of caveats from four economists whose companies produced reports for the legislature on the $1.1 billion Big River Steel superproject.
State lawmakers are considering a $125 million bond issue to fund a loan and incentives for the advanced manufacturing factory led by steel magnate John Correnti and his investor group.
On Monday (March 25), the Joint Agriculture/Economic Development committee heard from representatives of IHS Global and Regional Econometric Modeling Inc. (REMI). Economists who prepared the reports said the assumptions for the deal analyzed by the Arkansas Economic Development Commission were “generally conservative.”
They also repeated assertions in their reports that indicated the risks associated with the project were dependent on a number of economic variables. When asked to score how secure the state could be about its potential investment, one consultant expressed certainty and another one hedged.
“Even if the worst case scenario comes out of this, there is a net positive effect for the state,” said Scott Nystrom, economist with REMI. His group contends that even if the deal did not become an optimal success, it would still make contributions to jobs, state GDP, and tax revenues.
Phil Hopkins, a director with IHS, said he couldn’t be so certain.
“I hate to lead with a lot of ‘if’ statements. If the plant operates at the levels proposed, if you keep the recycling plant credit where it’s at, it’s no slam dunk and no guarantee,” Hopkins said. “It could be a little positive, it could be a little negative.”
During the first hour of a five-hour hearing IHS disclosed that Nucor Steel, which opposes the Correnti-led steel mill, was a client of the consulting firm. IHS representatives indicated they had no contact with Nucor during the review process and performed their work on behalf of the state of Arkansas.
State Sen. Joyce Elliott (D-Little Rock) said despite the disclosure, it caused her to view the firm’s results in a different light. “This gives me pause for concern,” Elliott said.
Lawmakers also heard from state economic and finance officials who defended the combination of tax credits and incentives that comprise the package for Big River Steel.
Grant Tennille, director of AEDC, said the only costs coming out of the state’s pocket – and therefore at risk for loss – is the $125 million bond issue investment. The rest of the credits and incentives are performance-based and would only be a liability of the state if the company was doing well and paying corporate income taxes.
BIG RIVER EXECS SPEAK
John Correnti and locals from Mississippi County spoke to lawmakers later in the day. Correnti said that he had no reservations on the steel markets, labor force or cost factors impacting the project.
“We’ll be running at 120% capacity – 24, 7, 365,” Correnti said. “If you’re the low cost producer of steel, you will satisfy the market… I don’t care if we have a recession or a double recession or stay where we are today.”
Correnti said there are 5,000 employees tied to the steel industry in Mississippi County today thanks to two Nucor facilities that Correnti helped start. He said when he opened a plant in the state of Mississippi in his last endeavor there were 10,000 applications for 450 jobs.
“Will that happen in Osceola?” Correnti asked. “There aren’t any guarantees, but do I think it’s going to happen? Yeah.”
Upon questioning, Sen. David Burnett (D-Osceola) said he’s received 4,000 letters from locals asking him to vote against the Big River Steel project. He asked Correnti if the two companies could live in harmony in Mississippi County.
Correnti said Nucor produced over 27 million tons of steel last year, while Big River is only anticipating producing 1.7 million tons.
“That’s the elephant worrying about the flea,” Correnti said. “I can live with them, but I don’t know if they can live with me.”
NUCOR STEEL COUNTERS
Sam Commella, president of Nucor Steel Arkansas operations, told the committee that the economics of the steel industry are difficult and Big River Steel’s entry in the market would be unfair.
“It’s tough out there,” Commella said. He corrected Correnti by saying that Nucor only produced 20 million tons of steel in 2012, not 27 million tons previously referenced.
He said that one of Nucor’s facilities was capable of making many of the products Big River has claimed it will produce. Commella also said his firm isn’t against Big River’s competition, but he warned that global forces are straining the steel market.
“We are not against competition nor are we afraid of it,” Commella said. “Unfortunately we’re competing against Chinese steel companies, and quite frankly we’re not interested in competing against the state of Arkansas.”
Commella said Nucor did not lay off any of its 1,600 workers during the recession, but he said if Big River is built it could squeeze the labor force in Mississippi County. That, in turn, could force Nucor to look at moving jobs to other states.
“This is not at all intended to be a threat, it’s just a statement of the circumstances,” he said. He also said that a $138 million investment Nucor planned for one of its Mississippi County facilities in 2014 was on hold due to the uncertainty of the Big River factory.
Commella added that while Nucor has benefitted from $168 million in income and sales tax credits from Arkansas, Big River should not receive $125 million in bonds and hundreds of millions more in additional tax breaks based on performance.
“There’s a fundamental difference between the state giving money to a start-up company when an industry already exists in state,” he said.