Senate panel setting for debate on benefit of economic development incentives

Arkansas Economic Development Commission Director Mike Preston told a Senate subcommittee Tuesday (Feb. 20) that state incentives level the playing field in areas where Arkansas has a competitive disadvantage in competing for jobs in a global marketplace.

Preston made his comments before members of the Senate Constitutional Issues Subcommittee, which is considering a proposed constitutional amendment to sunset surplus state monies set aside for the Governor’s Quick Action Closing Fund (QACF), a discretionary fund that allows the state’s chief executive to close deals with key job prospects.

“If you scrap this program, you really put Arkansas at a huge competitive disadvantage – not just with competitors around the region but on a global scale,” Preston warned the Senate panel chaired by Sen. Bryan King, R-Green Forest.

Preston told members of the Senate subcommittee, part of the Senate State Agencies and Governmental Affairs Committee, that money from the fund established by the legislature in 2007 has been used for everything from workforce training and infrastructure investments for roads and railroad spurs to covering costs for project site preparation and relocation to Arkansas.

“It makes a difference to companies that realize we are not going to turn around and raise taxes on them, and they can come to our state and pretty much know what they are going to get,” Preston said of the incentive fund that lawmakers’ appropriated $30 million for at the end of the 2017 legislative session.

King said when the fund was created in 2007 under former Gov. Mike Beebe, the state had nearly a $1 billion surplus that allowed the General Assembly to be more cavalier with taxpayer dollars.

“We don’t have that now. We are not like the federal government that we can keep looting from future generations,” said the Northwest Arkansas lawmaker.

King has drafted a proposed constitutional initiative that would prohibit the state from establishing or maintaining such an economic development fund. Arkansas is one of 18 states where residents can propose an amendment to the state constitution. Legislators have the authority to refer up to three amendments to voters.

King said he was concerned the Hutchinson administration was overspending and not being fiscally responsible, which he said put the state in a tight budget position during the current fiscal session. He told the Senate panel later he would like to close the governor’s Quick Action Fund and use it for highways or other state needs.

After King’s opening remarks, however, Preston countered that the AEDC’s Quick Action Fund was not material to the governor’s $5.6 billion budget. He also warned King against abolishing the program or transferring its funds to the State Highway Department, adding that it is responsible for more than 20,000 new jobs, wages averaging more than $20 an hour, and a total economic investment of more than $3 billion.

“Our little bit of money that goes into the closing fund would be a rounding error in the (Highway Department’s) budget and could get you a half-a-mile of road built,” Preston told the four senators attending the late afternoon hearing.

However, Jacob Bundrick, a policy analyst at the University of Central Arkansas’ Center for Research Economics (ACRE), told the panel the QACF and other incentive programs in AEDC’s growing toolbox were largely ineffective, and, in some cases, hurt the state’s competitiveness.

“The vast majority of research shows that these incentives are not effective, not just in Arkansas but in also in other states,” Bundrick said. “You are not going to get your bang for the buck.”

Bundrick noted a recent working paper by ACRE and the Mercatus Center at George Mason University in Arlington, Va., entitled, “Do Business Subsidies Lead to Increased Economic Activity? Evidence from Arkansas’s Quick Action Closing Fund.”

Bundrick told the senators the research paper analyzes the relationship between deal-closing funds and county-level private employment and private establishments using gathered from AEDC. Like past reports by ACRE and other libertarian and conservative think tanks that tab incentives as corporate welfare, Bundrick said there is little evidence to show that the $156.2 million the legislature has appropriated to the fund in the past decade has led to any real job growth.

“The results of our investigation have important policy implications, not just for Arkansas but also for other states that use similar deal-closing funds,” the 40-page study noted. “The evidence presented in this analysis provides reason to be skeptical of Arkansas’s QACF as a job creator, at least at the county level.”

But Sens. David Wallace of Leachville and Jim Hendren of Gravette, both Republicans, questioned the study’s findings, noting examples of company’s that have landed in Arkansas with substantially higher-paying jobs after receiving strong incentive packages from AEDC and local economic developers.

When Hendren asked Bundrick if Arkansas should be the only state in the region without economic incentives, the UCA policy analyst replied his research shows handing out corporate enticements provide no actual “clear benefits” to the state’s broader economy.

“I understand that’s not a political reality and that’s not going to happen …, but I think it would be better if we use our money on more proven policies – perhaps to pay for comprehensive tax reform or (improve) infrastructure. I think that would be more prudent,” Bundrick said.

Wallace, who lives in Mississippi County, told Bundrick the ACRE’s research on state incentives did not square with recent projects now in the Arkansas Delta such as Big River Steel and Denso Manufacturing in Osceola, Risever in Jonesboro and Shandong Ruyi Technology in Forrest City.

“How are we going to get those types of job without incentives?” Wallace asked Bundrick. “We are experiencing growth in the Delta that we have not seen because of what we are doing now.”

It is unlikely King’s proposed ballot initiative will get through committee during the fiscal session or the upcoming special session planned for March or April, according to Senate and House leaders. For non-appropriation legislation to be introduced in the fiscal session, a concurrent resolution substantially describing the bill must be approved by a two-thirds vote in both chambers.