Editor’s note: This is the final of three stories about economic development policy plans for the upcoming 2017 Arkansas Legislative Session. Link here for the first story, and link here for the second story.
The upcoming 91st General Assembly will be Mike Preston’s first full legislative session as the state’s economic development chief under Gov. Asa Hutchinson.
Preston landed in Little Rock as executive director of the Arkansas Economic Development Commission (AEDC) in late March 2015 and hit the ground running with Calhoun County bidding for the largest superproject in the state’s history, the Department of Defense’s $30 billion contract for the U.S. military’s next-generation Joint Light Tactical Vehicle (JLTV) project.
Less than two months on the job, Preston appeared with Hutchinson at a State Capitol press conference where the governor’s outlined an $87 million, 25-year bond issue he presented to lawmakers at a special session. Under the state’s superproject tool, Amendment 82, the legislature overwhelmingly approved the bond package offering defense giant Lockheed Martin a bevy of financing incentives to put the shine on the defense’s giant industrial site in Camden in the effort to win the highly-sought after Pentagon award.
IMPROVING THE ‘BUCKET OF INCENTIVES’
Although Lockheed Martin and Arkansas eventually lost to Oshkosh Defense and the state of Wisconsin, Preston told Talk Business & Politics in a recent interview by the time next year’s regular session starts, he would like a more enhanced Amendment 82 tool in his arsenal that will tip the scales in the state’s next superproject bid. That first step in shoring up the state’s “bucket of incentives” is Issue 3 on the Nov. 8 ballot, he said.
“With the things we have at our disposal to use, we are in a good situation, but I think we have to wait to see what happens in November on Issue 3 that will be on the ballot – that is pressing foremost right now for our local communities because they want to see if that passes,” Preston said.
Of the seven measures certified to appear on Arkansas’ Nov. 8 ballot, Issue 3 would revise sections of Amendment 82 of the Arkansas Constitution to allow bond issues for private development to exceed $250 million.
In 2004, not long after Arkansas lost out on a $800 million Toyota Tundra superproject that went to Texas, voters approved Amendment 82 to allow the General Assembly to approve the issuance of general obligation bonds for any economic development project that plans to invest more than $500 million in capital expenditures and to hire more than 500 new employees. That measure also set a bond financing cap at $250 million, which a “yes” in November would remove. If it passes, Preston said, AEDC would have great momentum going into the 2017 regular session.
“If it does or doesn’t, we are going to have to decide what issues we are going to pursue in the session,” he said. “We hope to go in with big hopes on doing a good economic development package. I will say, compared to other states, we are in a really good situation, especially when it comes to our incentives.”
Besides Issue 3 and renewing the governor’s Quick Action Closing Fund, Preston and the rest of the agency’s economic development team are in the early stages of planning for the session. They are working with local chambers and other economic development officials around the state, soliciting ideas and feedback on their needs.
“What we’ve started to do is work with our local economic development partners around the state … asking them what are some of the impediments they are seeing in their communities and issues that the legislature could tackle, whether they be regulatory issues, tax structure or workforce related,” Preston said. “We are kind of coming up with a generic list of possible things people are talking to us about and we are having our team vet those issues and see if there is something the legislature could do.”
ECONOMIC DEVELOPMENT ‘WISH LIST’
Preston said lawmakers have already reached out to AEDC, offering their assistance in helping to boost the state’s economy through the agency’s job recruiting efforts.
“We are researching a lot of items right now, and we hope to have a good comprehensive package going into the legislative session, and the good thing here is I have had a lot of members already reach out and say we want to be helpful, we want to be supportive of economic development – tell us what it is that you need and what are the tools we can help you get,” the AEDC chief said. “We keep a close eye on a lot of other states that are not seeing that help from the legislature.”
Preston said he also understands the legislature will be under tight budget restraints going into the session, so AEDC may not get everything it wants. Also, Gov. Hutchinson said in late June there should be no new transfers from general revenue funds without any offsets. Still, Preston said he hopes the legislature will look at eliminating the sales and use tax on manufacturing equipment and machinery.
“That’s one that kind of puts us at a competitive disadvantage,” he said. “I know that the business community would like to see us tackle that.”
Beyond incentives, Preston is also supportive of Gov. Hutchinson’s plan to restructure the state’s tax code, both from a corporate and individual standpoint.
“Obviously, one of the things we get dinged on when you look at rankings from business journals and site selection consultants – is our tax structure,” he said. “We stack up well when we compete with the northeast or the West Coast, but when you look at us compared to the SEC (Southeastern Conference) states we are kind of at the bottom in terms of our tax structure, corporate income tax rate, franchise tax and all these things compared to our competitors.”
Preston said lowering individual income taxes will also be a big win for the state’s economic development efforts. Gov. Hutchinson has said the state’s top income tax rate should ultimately be lowered to about 5%. In his first major act in office in February 2015, the governor signed into law a major tax cut for the state’s lowest wage earners by 1%. The bill also set the state’s capital gains tax rate at 40%.
“What the governor and legislature were able to do in the 2015 session was huge to lower that rate to help the workers that we are trying to get into state so they can pay a lower tax rate,” Preston said. “As you can see, we have a $100 million tax cut and this year we end up with a $177 million surplus, so the governor and legislature are moving in the right direction.”