Small Business Bill Promises Millions of Investment; AEDC Sees 'Risk'

LITTLE ROCK - An Arkansas House committee advanced a proposal Wednesday to establish a new economic development program aimed at driving private investment to small businesses in low-income areas.

The House Economic Development Committee unanimously gave its approval to a bill that would allow the state to allocate up to $166 million in tax credits to groups of investors who agree to provide financing to qualified small businesses in low-income communities.

The groups of investors - called Community Development Entities - would raise the money they need to invest in small businesses by selling the tax credits and seeking out other private sources of capital. The Community Development Entities would then be required to invest their money in or make loans to certain small businesses in low-income areas that agree to retain or create jobs paying wages above the poverty level.

The Arkansas Economic Development Commission would have to sign off on those investments in small businesses to determine that they would have a positive impact on the community. The measure is aimed at helping existing small businesses expand rather than providing capital to launch new ventures, according to the bill's sponsor, Rep. Darrin Williams, D-Little Rock.

Williams said the state's $166 million in tax credits would lead to up to $250 million in private investment flowing to small businesses in Arkansas over seven years, which would save or create thousands of jobs. The New Market Tax Credit program has worked successfully in a handful of neighboring states and is also modeled after a federal equivalent program, he said.

The Department of Finance and Administration says it's unknown how the tax credits would impact state revenue.

Arkansas Economic Development Director Grant Tennille told lawmakers that the program would present "significant risk" to the state because of how the tax credits are structured.

He said because the tax credits would be passed through the Community Development Entities to other companies not involved in making the investment to the small businesses, it would be difficult for the state to recoup the money if an investment were to fail.

Williams countered that the mechanisms built into the bill for recapturing the tax credits are "the strongest in the country."

The legislation was unanimously approved by the committee and now moves to the full House for a vote.

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