Riff Raff: 3 concerns with Issue 3

As a former chamber of commerce employee, Issue 3 is appealing. As an Arkansan interested in good public policy, the appeal wanes.

Issue 3 would amend Arkansas’ Constitution “to encourage job creation, job expansion, and economic development,” notes the legislative language creating the ballot item. As we’ve noted in previous Talk Business & Politics coverage, Issue 3 would remove the cap of 5% on general obligation bonds for economic projects. It would also allow local governments to obtain or provide money for other entities – primarily chambers of commerce – to support economic development projects or services. (Link here for a PDF of Senate Joint Resolution 16 approved by the Arkansas Legislature to place Issue 3 on the ballot. Also, link here for a PDF from the University of Arkansas Cooperative Extension Service that provides more detail on Issue 3.)

A recent poll by Talk Business & Politics-Hendrix College suggests many Arkansans are undecided on the issue. In polling conducted Oct. 21, 35% of respondents were for the issue, 30% against, and 35% did not know.

Please know my concerns aren’t necessarily deal killers for Issue 3. The amendment would improve the ability of the state and cities and counties to compete for jobs. The amendment could provide more support for job training that could improve skills training, thereby potentially raising average wages in Arkansas. It could improve the ability of cities and counties to collaborate on economic development.

Following are three things to consider before voting on Issue 3.
• Transparency
There appears to be no way to track how local tax dollars are spent if Issue 3 is approved. If your city gives $1,000 or $100,000 or $1 million a year to your local chamber to manage or promote economic development, it may not be possible to track how that money is spent. Is it possible a good chunk of those tax dollars are used to promote property owned by a financial supporter of your mayor/county judge/legislator? Who knows? It also is unclear if citizens would be able to successfully file Freedom of Information Act requests for information – correspondence, financial details, contracts, etc. – related to how the tax dollars are spent.

• Potential debt
Rep. Doug House, R-North Little Rock, has in recent months sought to raise awareness about the state’s real debt picture. While Arkansas does have a balanced budget amendment that helps avoid deficit situations like those with the federal government, the state does owe an estimated $16.75 billion in general obligation bonds, debt owed by universities and public schools, and liabilities related to employee benefits and pension plans. The $16.75 billion is about $5,600 per Arkansan. House has challenged legislative leaders and Gov. Asa Hutchinson to develop plans to reduce that debt within 10 years and take other measures to avoid debt rising to such levels.

The state can now issue bonds for economic development projects but is limited to bond sales that are “five percent (5%) of state general revenues collected during the most recent fiscal year.” Issue 3 removes the 5% cap. This theoretically opens the door to debt obligations well beyond $16 billion.

• Cities and counties don’t need Issue 3 to promote job creation
One may think there is now no outlet for cities and counties to engage in economic development. Not true. For example, the city of Fort Smith has a 1% sales tax devoted to streets, drainage and associated improvements. The tax, which requires voter renewal every 10 years, has allowed the city to support numerous job creation projects by providing road and other infrastructure support. The city’s program creates fixed infrastructure that remains if a company leaves, and does not result in public debt.

If Issue 3 is approved citizens and journalists will need to be more vigilant about financial and other interactions between state and local governments, chambers of commerce and businesses receiving benefits via taxpayer dollars. If Issue 3 fails, my hope is the Arkansas Legislature addresses the issue of transparency, reconsiders raising instead of removing the 5% cap, and tries again for voter approval.

To be sure, the balance between economic development and good government is not easy.  Issue 3 will test the balance at which voters are comfortable.