What Might Have Been (Jeff Hankins Publisher's Note)

by Jeff Hankins  on Monday, Mar. 8, 2004 12:00 am  

Scott Ford, the chief executive officer of Alltel Corp., shares a disturbing story about an economic development opportunity that recently slipped through Arkansas' hands.

Fidelity National Financial Corp., which acquired most of Alltel Information Services for $1.05 billion last year, was ready to relocate its corporate headquarters from Irvine, Calif. Exorbitant taxes and a stifling regulatory environment had prompted the move.

Three locations were being considered: Little Rock; Austin, Texas; and Jacksonville, Fla.

Ford, as a new member of the board of directors for Fidelity and as a Little Rock leader, orchestrated efforts for Little Rock's recruitment. He and economic developers had put together an attractive package. Then suddenly, late in negotiations, the leadership for Fidelity literally closed their portfolios and said game over.

What happened?

They learned that Arkansas has a 7 percent state personal income tax and that capital gains are taxed as ordinary income. No provision in state law exists to allow exemptions or phase-ins related to income taxes in the recruitment of industry.

Texas and Florida have no state income tax. Jacksonville is the new home of Fidelity Management.

Those 300 jobs in California are moving to Jacksonville instead of Little Rock. Furthermore, Fidelity has moved about 300 jobs from the former AIS operation in Little Rock to Jacksonville, and more are almost certain to go. These are high-paying technology jobs.

Ford poses the following question to local business leaders: Has a company relocated its headquarters to Arkansas anytime in the past 40 years? The answer he receives is typically no — though it occurs to me that a case could be made that the Alltel headquarters was relocated from Ohio after Allied Telephone Co. of Little Rock merged with the larger Mid-Continent Telephone Co., albeit through unique circumstances and no small effort by former Alltel CEO Joe Ford.

But fundamentally, the answer is no.

Our tax policy is an incredible hurdle to overcome to be competitive. So is our shortage of an educated work force. We will be hard-pressed to overcome these obstacles.

We're fortunate to have a solid base of homegrown companies like Wal-Mart Stores Inc., Tyson Foods Inc., Dillard's Inc., Acxiom Corp. and others. In the new economy, however, we don't see companies of that magnitude on the horizon.

When state leaders suggest tax incentives for recruitment, it lands with a thud — particularly among liberals. We can take the idealistic high road and say no to so-called corporate welfare that is commonplace across the country, but we also have to square off with the reality that companies will never give us serious consideration for top corporate operations.

Interestingly, it was suggested to me recently that Arkansas really has no long-term taxation strategy or philosophy. We continue to increase the sales tax because it's the easiest for the Arkansas General Assembly to raise, but we never step back to review the overall taxation picture.

We're stuck in a horrible situation: Our tax rates are becoming increasingly less competitive, yet we have critical funding shortages that hamper efforts to improve our education system and local infrastructures.

This is why we have to be smarter and more efficient with limited tax revenue. Unfortunately, the General Assembly showed recently that it has no interest in pursuing efficiencies.

How long will we continue to watch opportunity pass us by because we're unwilling to make the tough decisions?

(Jeff Hankins can be reached via e-mail at jhankins@abpg.com.)



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