State incentive policy frustrates Phoenix Village developer

The economic impact of 600 jobs coming to Fort Smith when Sykes opens an inbound call at the former Phoenix Village Mall could result in another 106 jobs created that adds another $10.617 million in value to the regional economy.

Tampa, Fla.-based Sykes announced Jan. 19 its plans to locate at the former Phoenix Village Mall. Sykes, a global business process outsourcing company that employs more than 50,000, is expected to begin hiring in March.

Lance Beaty, a partner in FSM Redevelopment, said FSM is investing about $2 million in interior improvement costs to the 40,000 square feet that once housed Home World. FSM Redevelopment purchased the more than 35-acre mall property in January 2009 and has made extensive improvements to what was once a blighted commercial area.

The impact of the 600 jobs could produce just short of $600,000 in tax revenue from sales, property and production, according to information provided by Senior Research Economist Gregory Hamilton at the University of Arkansas at Little Rock.

According to Hamilton’s report, the 106 jobs created from the Sykes expansion in Fort Smith would pay an average of $27,888 annually, including benefits. The “value added” to the regional economy of the 106 jobs is $10.617 million, with an estimated “indirect business tax” of $598,865.

That impact is on top of the boost from the $12 million annual payroll expected from the 600 jobs.

However, the 600 jobs and the resulting favorable economic impact were not enough to capture state incentive dollars for the project.

Why not?

Arkansas’ primary incentive plan requires an average pay of $10.13 an hour, and the Sykes average is expected to be around $9.50 an hour. The incentive provides the employer a state income tax credit based on the pay of new full time employees. It can be a significant cost reduction to help entice a company to bring jobs to or expand in Arkansas.

“It’s a pretty firm number,” Scott Hardin, a spokesman with the Arkansas Economic Development Commission, when asked about the $10.13 threshold.

Wanting to confirm understanding, The City Wire sent Hardin the following scenario as a question:
“If a company was to employ 200 at $10.15 an hour, they might qualify for incentives; which would generate roughly a $4.22 million direct payroll impact for the community.
 
“If a company was to employ 300 at $10 an hour, they would not qualify although the direct payroll impact would be $6.24 million for the community.
 
“Is my understanding correct?”

“That’s correct. To qualify the average hourly wage would have to be at least $10.13 or greater,” replied AEDC spokesman Joe Holmes.

If Sykes would have qualified, the tax credit could have been around $120,000 a year for five years.

In the early 2000s, Arkansas’ political leadership began an effort to increase the state’s average income, which often ranked near the bottom among all U.S. states.

Per capita incomes in the Fort Smith metro area during 2009 fell 2.1% to $30,053 compared to $30,714 in 2008. The 2009 income, however, was a gain over the $29,929 in 2007. The Northwest Arkansas area saw per capita income fall 2.9% to $31,562 in 2009 compared to $32,537 in 2008. The region’s 2007 per capita income was $32,363.

Fort Smith ranked 316 out of 366 U.S. metro areas. The Northwest Arkansas region ranked 276, and Little Rock ranked 88.

Part of the effort to boost income included restricting incentive dollars for jobs not meeting a certain hourly rate.

That explanation doesn’t sit well with Beaty.

“I think that any policy should be interpreted in the context of current economic circumstances. and in this case that was not done,” Beaty said.

The “circumstances” to which Beaty referred is the high unemployment rate in the Fort Smith area.

The Fort Smith metro area jobless rate reached 8.6%% in December, up considerably from the 7.9% in November and also higher than the 8.2% in December 2010. The Fort Smith metro jobless rate hit 8.1% in February 2009. Prior to that, it was February 1993 the last time the jobless rate was at or above 8% in the Fort Smith area.

The estimated number of unemployed in the Fort Smith metro area was 11,387 in December, up 9.16% compared to November 2010 and up 4% compared to December 2009. January 2009 marked the beginning of a high number of unemployed in the Fort Smith metro area that peaked with 11,937 in January 2010.

“I’m just a little bit concerned with a state agency that blindly adheres to a policy and doesn’t appear aware of what’s happening around them,” Beaty added. “Policy is just guidance, or at least it should be. But unfortunately, the way that (incentive law) is written, their (AEDC) hands are tied.”

During his time as director of the Center for Business and Economic at the University of Arkansas, economist Jeff Collins was part of the call for state officials to structure incentives to create a higher income average in Arkansas.

However, he said in a recent interview the policy appears to be another example of “a pendulum swing too far the other way.” He suggested a “more reasonable” policy would give an AEDC director the flexibility to consider other factors and the economic environment.

“It makes sense to factor in that (unemployment) rate. It makes sense to look at the entirety of the impact they (jobs) would have. … It’s problematic for that (per hour wage rate) to be the qualifying factor. They may want to take another look at the model,” Collins explained.

Paul Harvel, president of the Fort Smith Regional Chamber of Commerce and an AEDC commissioner, confirmed that the chamber tried to secure incentives for Sykes.

“We tried to get AEDC to work on this,” Harvel said. “It was a policy decision.”

Harvel was quick to note that the chamber has worked to support Sykes. The chamber is paying the rent on office space for up to three months to allow Sykes to work in the area until the Phoenix Village property is ready. The chamber is also providing furniture for the space.

“We have spent a lot of time with them,” Harvel said of Sykes’ initial management team.

In a follow up e-mail, Harvel noted: “You might also need to know that we had a Luncheon with the company to introduce them to our leadership Mayor etc. At that time we announced what we would be doing for them regarding the office space. They said that this was a pleasant surprise that they were not expecting. They were all pleased with their welcome.”

Beaty stressed that the overall experience has been positive, and his frustrations are directed at policies and not people.

“Sure, it’s noble that they are pushing for better incomes, but it’s frustrating to a private developer like me that such pursuits block any other considerations,” he said.