Issue 3 initiative could have significant economic impact in Arkansas

Arkansas may never land a major industrial manufacturer such as an automaker plant if ballot Issue 3 isn’t approved by voters in the upcoming November general election, according to its supporters. Opponents of the measure say it opens a pathway for public money to flow into private coffers, and without a cap, the Arkansas General Assembly would have the ability to possibly hamstring the state’s finances with one “super project” deal.

The amendment would remove the state required 5% state general revenue cap on general obligation bonds tied to industrial projects. Issue 3 is one of three Arkansas Legislature initiated amendments on the ballot this year. It would also allow local governments to incentivize private corporations with taxpayer money, and it would allow local governments to use taxes to pay chamber organizations to spur economic development.

Arkansas State Chamber of Commerce President Randy Zook told Talk Business & Politics the state cannot compete with other states for these potential industrial clients unless the restriction is lifted, and the other elements of the amendment become state law.

“We’re fully supportive of it … we will be constrained if this fails,” he said.

In 2004, Amendment 82 – referred to as the state’s “super project” amendment – was passed allowing the state to issue general obligation bonds to aid industrial prospects, develop super projects in the state, or be used to fund infrastructure projects. The amendment has a ceiling clause and only allows for bonds to be issued for up to 5% of the state’s net general revenue. This year the state’s net general revenue is about $5.3 billion, meaning $260 million in bonds can be issued.

Arkansas approved $125 million in bonds for the Big River Steel plant in Osceola. The law stipulates the state can only be in debt for up to that 5% figure, meaning there is only $135 million left in potential bond allocations, Zook said.

Big River Steel is reportedly the only project to have ever exercised this provision. The company received $70 million for infrastructure improvements; a $50 million loan; and $5 million for costs associated with the bonds issuance, according to University of Arkansas Cooperative Extension Office. Lockheed Martin tentatively hoped to use $124 million in general obligation bonds in 2015 to build a plant in East Camden, but the company opted to locate the plant elsewhere.

Zook balked at potential problems raised if the cap were removed and local governments gained the ability to funnel taxpayer dollars towards private corporations, organizations, or individuals. The Arkansas Legislature would have to approve any super project proposal, meaning it would almost certainly be thoroughly and publicly vetted. Many states operate with these types of laws, and it has a proven track record when it comes to propelling economic development, he said.

The proposed amendment will allow cities and counties to use their own revenues or even borrow money to develop economic projects or provide economic development services. It would amend Article 12 in the Arkansas constitution. Cities and counties have supplemented local chambers for decades, making annual payments in return for economic development services. In 2013, a Pulaski County judge ruled these payments violate Article 12.

Zook said these chambers of commerce provide critical tools to attract businesses and job creators throughout the state. Opponents state this provision opens a doorway allowing sales tax dollars to supplement chamber executives’ paychecks.

Other sections of the amendment modify confusing and undefined terms in Amendment 62, which deals with local capital improvement bonds, by defining the term “industry” when cities or counties seek local bonds to fund economic development projects. State law allows this but the language in the law is murky. The last part of the amendment allows counties and cities to use other tax monies to pay for bond issues.

There hasn’t been any significant, public opposition to the ballot initiative, but Zook admits it still going to take a lot of work to get this passed. If approved, it will greatly enhance the state’s ability to attract and land a major industrial prospect, and with that will come a slew of high paying jobs.

“We really need this,” he said.

Just released Talk Business & Politics-Hendrix College polling shows support, opposition and undecided voters are nearly evenly split on the issue. Among 463 likely Arkansas voters, 35% said they supported the amendment, while 30% said they opposed it. Roughly 35% said they were undecided on the proposal.