Collection of economic incentives aims to help Arkansas

A plethora of bills aimed at improving Arkansas’ economic development incentives is in the process of being filed and debated at the state Capitol. The Arkansas Economic Development Commission (AEDC) is supporting the package, which has allies ranging from the state chamber to local business leaders.

As many as nine bills may be filed to address industrial authorities, data centers, innovative startups, the burgeoning lithium industry, job retention, and child care.

“While we don’t want to comment on legislation before it is introduced, we have worked closely with the governor, our statewide economic development partners, and the legislature on strategies to help pave the way forward for Arkansas and our ability to compete for economic development projects,” said Hugh McDonald, secretary of the Arkansas Department of Commerce, which oversees AEDC, when asked to comment on the forthcoming package.

If all measures are enacted, it will be one of the most sweeping changes to economic development incentives in years.

BROADENING, MODERNIZING
Arkansas law currently allows for port authorities, created by municipalities and counties, to have broad control over land acquisition and improvements, as well as operations at harbors, rail terminals, barge terminals, and industrial parks.

Lawmakers and economic officials want to update the 1961 law to give similar license to “industrial development authorities” (IDAs) that might not be near a navigable waterway. The new legislation would replace “port authorities” with the broader “industrial development authorities,” which would be defined as not-for-profit public benefit corporations created for fostering economic development.

In Northwest Arkansas, for instance, where there aren’t major transportation waterways like the Arkansas River or Ouachita River, an IDA could be formed with the traditional powers of a port authority at XNA. Nelson Peacock, president and CEO of the Northwest Arkansas Council, says this adjustment would open doors for new larger-scale economic development activity.

“Expanding the ability to establish industrial development authorities across the state will put Arkansas in a stronger position to compete for major economic projects,” said Peacock. “In Northwest Arkansas, these authorities will help attract new industries, create jobs, and support sustained growth. Neighboring states have modernized their economic development strategies in recent years, and this change will ensure Arkansas remains competitive and drives long-term prosperity statewide.”

Another big push centers around modernizing and automating incentives for existing companies in Arkansas. Qualifying companies would have to be in operation in-state for at least two years, hold a sales and use tax permit, and invest $25 million or more into a project to modernize or automate its plant. If they meet the proper criteria, a company could receive sales tax credits up to 5% of eligible project costs. There are qualifications and clawback provisions to protect the state from overextending.

This legislation seeks to give a new tool for retaining and expanding current employers and workforces, such as a paper mill that needs to modernize or a manufacturing facility that needs help to justify upgrades. Randy Zook, president and CEO of the Arkansas State Chamber of Commerce and Associated Industries of Arkansas, said the recently closed Tokusen tire factory in Conway could have benefited from this.

“We’ve got a lot of our cornerstone companies around the state that have been operating for years, and new technologies have become available,” said Zook. “We recently lost the Tokusen plant in Conway, for instance. It’s a great example of where this could have been helpful. They needed to retool their business, they needed to update their technology, and we need incentives to make us competitive because the option is a greenfield site or a new site in some other location.”

DATA CENTERS, TECH STARTUPS
Arkansas’ current law to offer sales tax exemptions for qualified data centers that invest a half billion dollars or more within the state is also in need of an update.

New legislation hopes to allow for multi-location projects connected by fiber, if a project exceeds $2 billion over 10 years in investment and achieves a $3 million payroll. Sometimes data centers are broken up by land tracts that cross easements or roads, and the incentive is restrictive with current limitations. The proposal also seeks to expand the definition of data center equipment and include maintenance as an eligible cost toward the incentives.

Another incentive looks to help small- to mid-sized companies, particularly innovative startups that have participated in federal Small Business Innovation Research (SBIR) and Small Business Technology Transfer (SBTT) programs. Many states, including Arkansas, offer matching grants to companies that win federal funding for their innovation projects. Arkansas’ matching grants don’t include SBTT grants, and recipients are limited to three awards over their lifetime.

The proposed incentive seeks to give more flexibility to these grants with higher discretion for matching dollars and by removing the lifetime cap of three awards.

LITHIUM
Arkansas’ emerging lithium industry is ripe for a review of how incentives may help recruit more businesses to the state for this effort. The biggest push in this legislation creates a sales tax exemption for businesses that spend $100 million or more in investment within five years of construction and have a payroll of $2 million or more.

The sales tax exemption applies to the sale, purchase or development of a number of lithium-specific infrastructure, products, services and electricity. It also offers a five-year severance tax exemption for lithium extracted from brine, which is in abundance in south Arkansas.

“Electricity bills for these companies are pretty breathtaking. To pump stuff up from 7,000 or 8,000 feet below ground is pretty costly,” said Zook. “This would mitigate that cost for them and give them the kind of business input relief that we’ve given to all of our other manufacturers around the state already.”

CHILD CARE
A major issue for employers and employees involves child care in Arkansas. Studies show child care can range from $5,500 to $13,750 annually for workers. The challenge has hindered workforce participation for younger employees and led to higher turnover rates. The COVID-19 pandemic also caused many child care locations to close as they were unable to hold on, which has exacerbated the problem and led to child care deserts around the state.

Arkansas’ modest child care tax incentive program has only resulted in one application in the past 30 years. The program provides a 3.9% income tax credit of the annual salary of employees for companies that exclusively provide child care.

A draft bill would provide a tax incentive for businesses that provide child care options to their employees. Licensed child care facilities would receive annual credits to build or expand centers. Businesses that construct or expand a child care facility could also qualify for credits, and nonprofits that operate licensed child care facilities could transfer or sell credits obtained under the program.

There are caps on the aggregate amount that could be spent on these programs to keep the state’s budget balanced with a portion of incentives reserved for rural areas of Arkansas.

Legislation being considered will also include speculative development incentives — a sales tax exemption for a spec building, for example — and a matching grant program to help rural communities. Current law for the Rural Community Grant Program requires a property donation “in-kind,” and the new proposal would allow in-kind donations of skilled labor. Several unused or rarely used incentives will be cleaned up and removed from the books as part of the AEDC package.

There are other bills outside of the AEDC supported ones that will find their way into the legislative debate. One such measure proposes to help major retail outlets, like Bass Pro Shop, capitalize on existing incentives for traditional development projects.