Bill seeks sales tax option for job recruitment

Rep. Keith Ingram, D-West Memphis, and Sen. Jake Files, R-Fort Smith, are pushing legislation that would give voters in cities and counties the ability to tax themselves to recruit at least 50 new high-paying jobs.

HB 1898, titled the “Local Sales and Use Tax Economic Development Project Funding Act,” allows a vote on no more than a temporary 1% sales tax to buy land, equipment or develop the infrastructure necessary to land new jobs. The tax proceeds may also be used to issue bonds.

Language in the bill specifies that tax proceeds may be used for “infrastructure, land, buildings, and other improvements on the land and all other machinery, apparatus, equipment, office facilities, and furnishings that are necessary, suitable, or useful by a sponsor” — with the sponsor being the company recruited.

The law, if passed, would require the economic development project to meet at least three of the following criteria:
• The sponsor makes an investment of at least $10 million in the project;

• The economic development project creates at least 50 new jobs;

• The sponsor pays wages to new full-time permanent employees in excess of 110% of the lesser of the state average wage or county average wage for the preceding calendar year;

• The economic development project is related to a targeted industry as identified in a local, regional, or state strategic plan for economic development;

• The economic development project has a benefit-to-cost ratio greater than 2 as determined by the Arkansas Economic Development Commission;

• The economic development project receives at least a three-fourths vote of support from the city council or quorum court; and,

• The sponsor signs a financial incentive agreement with the Arkansas Economic Development Commission.

Sales tax proceeds may also be used to help a company buy an existing business if the purchase “will result in the retention of jobs that would have been lost due to closure.”

The proposed legislation, which has been endorsed by the Arkansas State Chamber of Commerce, is also supported by Fort Smith City Administrator Ray Gosack.

“It could stimulate economic development,” Gosack said, adding later in an interview that passage of the bill could “make us more competitive with nearby states that offer similar incentives.”

Because it would require the time involved to present the plan to a governing body, place on the ballot and certify election results, the proposed legislation would remove much of the privacy and immediacy often required in economic development work.

Gosack does not see that as a barrier, noting that “for a significant enough incentive, they (the company being recruited) may be willing to wait.”

Also, several projects may be supported by a tax, but the combined amount of the tax may not exceed 1%. For example, voters may approve a 0.25% sales tax increase on one project, and a 0.75% tax increase for a second project. Until one of the taxes expire, no other taxes under this category within a taxing entity may be approved.

Any surplus funds remaining after the tax expires will be directed to the general fund of the city or county responsible for the tax.

Before the economic development sales tax can be applied, the governing body seeking the tax must produce a plan that includes the following:
• A description of the economic development project to be financed by the revenues from the local sales and use tax;
• A description of the economic impact and the cost- benefit analysis of the proposed economic development project;
• An estimate of the amount of revenue from the local sales and use tax necessary to defray costs for the economic development project and a budget of the costs; and,
• A certification by the mayor or county judge of the levying entity that each economic development project to benefit from the expenditure of the revenues from the local sales and use tax consists of an investment in the region that satisfies at least three of the previously noted criteria.

Files said he has heard from many economic development officials and elected officials who say the sales tax option “gives them many more tools” to use in recruiting new jobs. Files likes it because it gives the people of a city or a county more say in how their tax dollars may be used in economic development. He’s also heard from officials who like it “because it has some guarantees before you pull the trigger” — unlike some state incentives programs that are hard to measure.

“We have to do anything we can that makes us more competitive but doesn’t give away the farm,” Files explained.

The bill, now in the House Agriculture, Forestry and Economic Development Committee, could pass muster in both chambers within the next 10 days, Files said.