Editor’s note: This is the second of three stories about economic development policy plans for the upcoming 2017 Arkansas Legislative Session. Link here for the first story.
It is likely that Gov. Asa Hutchinson will push for increased funding for the Quick Action Closing Fund, an incentive program used by the Arkansas Economic Development Commission (AEDC) to recruit and retain jobs. But the fund has its detractors.
Although neither Hutchinson nor AEDC Director Mike Preston have said how much they would like to see appropriated to the fund in the upcoming 2017 Arkansas Legislative Session, it is clear they believe the amounts appropriated during the past three regular sessions fall well short of the state’s needs.
In a July letter to Sen. Bill Sample, R-Hot Springs, and Rep. David Branscum, R-Marshall, earlier this summer, Preston makes that case. Under Act 510 passed by legislature in 2007, lawmakers first gave former Gov. Mike Beebe access to the $50 million discretionary fund to close deals with Hewlett Packard, American Taekwondo, Nordex, Welspun Pipes, Ben E. Keith and Bad Boy Mowers.
Under Hutchinson’s tenure, the discretionary account has been used for deals with the Arkansas Venture Center, Dassault Falcon Jet, FMH Conveyors, Sun Paper, the Big River Steel superproject and the most recent announcement with Envoy to invest in an aviation maintenance facility in Little Rock.
“The Quick Action Closing Fund is a vital tool for our state,” Preston wrote to ALC chairs Sample and Branscum, as mandated by Act 510 of 2007. “Continuing to fund this appropriation on an annual basis, as well as increasing its amount, will allow for greater success in bringing quality companies with quality jobs that will help increase Arkansans’ per capita personal income and broaden our tax base.”
OPPONENTS LABEL FUND AS ‘CORPORATE WELFARE’
In each of the past legislative sessions since the 2007 General Assembly, most of the debate has centered around the amount of the governor’s discretionary fund – not its renewal. Opposition to the AEDC fund has come from an increasing number of policy and economic groups in Arkansas, but not enough to spur a robust debate at the committee level to halt renewal legislation since the initial 2007 passage.
In the state’s recruitment of the largest superproject ever in Arkansas, the state chapter of Americans for Prosperity opposed the $87 million, incentive-laden, debt-financed package that the state offered to help defense giant Lockheed Martin’s industrial site in Camden win the Pentagon’s $30 billion Joint Light Tactical Vehicle contract.
“Americans for Prosperity Arkansas opposes this misguided corporate handout, and encourages lawmakers to vote ‘NO’ on this risky and expensive legislation,” AFP said in a statement. “Under the terms of this proposal, each job created by the Lockheed Martin project financed by the bill would cost taxpayers approximately $145,000 – hardly a bargain for Arkansas families.”
The U.S. Department of Defense eventually gave that award to Oshkosh (Wisc.) Defense.
The Arkansas Conduit for Commerce (CFC), a network of nonprofit conservative groups, opposed the renewal of the $20 million discretionary fund for Gov. Hutchinson in the previous regular session.
“This slush fund presents corporate welfare at its worst,” CFC said after lawmakers renewed the fund in 2015. “Rather than having a free market to decide which companies thrive and survive, the government, and in fact the governor himself, is hand picking who gets taxpayer money to pay their bills and entice the best employees from Arkansas’ limited work force.”
More recently, the Arkansas Center for Research Economics (ACRE) at the University of Central Arkansas has taken up the debate against the Quick Action fund and other incentive programs in AEDC’s growing toolbox. In a recent report called “Tax Breaks & Subsidies: Challenging the Arkansas Status Quo,” ACRE’s policy analyst Jacob Bundrick argued that tax breaks and subsidies to incentivize companies to create and invest in new projects are only evaluated by gross impacts, such as total number of jobs, local investment and tax revenue collected.
The UCA policy analyst also said clawbacks for poor performance don’t mitigate taxpayers’ risk. He noted the case of Hewlett-Packard (HP) in Conway, which received a $10 million grant from the Quick Action Closing Fund in return for its promise to create 1,000 permanent, full-time jobs by the end of 2013. However, the Silicon Valley-based tech giant failed to create nearly 40% of the promised jobs.
“Yet, Arkansas’s government asked HP to pay back only 4.59% of the grant it received and negotiated an agreement that would encourage the company to continue hiring people,” Bundrick’s report argued. “But HP continued to underperform, as evidenced by a second clawback of $356,000 in early 2015.”
According to the AEDC’s 2015 annual report, Arkansas’ clawback provision had only recouped $5.9 million of the $156.2 million allotted to the fund since 2007. The lion’s share of those refunds for poor performance came from HP and First Orion in Conway, Nice-Pak of Jonesboro and Caterpillar in North Little Rock, which recent laid off 100 workers.