Issue 3: A Job-Luring Amendment, or Corporate Welfare?

Issue 3: A Job-Luring Amendment, or Corporate Welfare?
Clockwise from top left: State Rep. Nate Bell; Steve Clark, president and CEO of the Fayetteville Chamber of Commerce; State Sen. Jon Woods; and Jim Lynch.

If Arkansas voters approve an amendment to the state Constitution in November, supporters say it will help bring more companies and jobs to the state.

Opponents of the economic development amendment — Issue 3 on the Nov. 8 General Election ballot — say it’s corporate welfare, and even supporters acknowledge the potential for unintended consequences that could put the state or local communities in a financial bind.

Issue 3 is one of three constitutional amendments that the General Assembly referred out for voter approval. The amendment contemplates:

  • Removing the cap of state-issued bonds for economic super projects, which is currently 5 percent of the state’s revenue;
  • Allowing communities to borrow money for economic development through voter-approved bonds; and
  • Allowing cities to pay chambers of commerce for economic development services.

Supporters say the provisions will give economic developers the tools they need to attract or retain businesses in Arkansas. But state Rep. Nate Bell, an independent who represents Polk County and part of Montgomery County, says that by removing the limit on bonds, Arkansas could find itself holding some bad debt.

“Arkansas has been very conservative in its fiscal policies since the default back in the early 1900s, and stepping away from that is generally a bad policy,” Bell said.

On the other hand, rejecting the amendment will leave Arkansas communities at a disadvantage in trying to recruit businesses to the state, Mike Preston, director of the Arkansas Economic Development Commission, said in an email response to questions from Arkansas Business.

“When a local community has no defined ability to spend funds for economic development purposes, it is at an immediate disadvantage versus communities that have this ability,” Preston said.

Bell doubts that communities would be the beneficiaries.

“I don’t like cronyism,” Bell said. “When we’re looking at a situation where taxpayer monies are being furthered entrenched to be steered by the so-called powers to their friends. It doesn’t further the interest of the ordinary average Arkansan.”

Bell said that government’s role in economic development should be to create an environment where businesses can thrive, not award with economic incentive packages.

“I just don’t believe the role of government is to promote crony deals,” he said.

Steve Clark, president and CEO of the Fayetteville Chamber of Commerce, said he doesn’t think awarding money to companies to attract them to a state is corporate welfare if citizens end up with a good paying job.

“And I don’t think that person [who got the job] thinks it’s corporate welfare,” Clark said.

State Sen. Jon Woods-R, Springdale, who was a sponsor of the amendment, said he’s not for giving the economic packages to billion-dollar companies. But each decision would have to be made on a case-by-case basis.

And he said once a company receives the incentives, it has to produce the jobs or be forced to return the money.

Gov. Asa Hutchinson, in an email response to Arkansas Business, said he supports the amendment because, historically, local governments have had the flexibility to support economic development projects.

But that changed in early 2015, when Pulaski County Circuit Judge Mackie Pierce ruled that the cities of Little Rock and North Little Rock had to stop paying their chambers of commerce and related private entities for economic development programs. Pierce’s reading of Article 12, Section 5 of the state Constitution, which deals with appropriating money to private corporations, sent shock waves through the state.

The cities have appealed that ruling, and it’s pending before the Arkansas Supreme Court.

“Recent court decisions have raised questions about the constitutionality of this practice,” Hutchinson wrote. “This amendment will provide clarity that such investments are proper.” Still, he said the final decisions remain with the local governments.

Amendment 82

Amendment 82 was approved by voters in 2004 in response to Toyota’s decision to bypass Arkansas and locate a $750 million truck assembly plant in San Antonio. The amendment allows the state to issue general revenue for bonds to pay for “super economic development projects,” but it limits such bond issues to 5 percent of state revenue.

The amendment was first used in 2013 when the Arkansas Legislature approved a multimillion-dollar package of incentives for the $1.3 billion Big River Steel plant near Osceola.

But Woods, the state senator, said that if bonds are issued for one super project and another one comes along, “we can’t pull the trigger because our hands are tied.”

By removing the cap, more bonds could be issued.

Having the cap hasn’t hurt Arkansas’ economic development efforts yet, he acknowledged, but lifting the borrowing limit would be a good option to have.

Some are concerned that removing the cap could backfire.

“It’s more corporate welfare,” said Jim Lynch of Little Rock, a plaintiff in the civil lawsuit that successfully challenged the constitutionality of giving city funds to chambers of commerce. “Now we’ve taken the limits off debt.”

Hutchinson said that a number of safeguards remain in place under Amendment 82 to make sure that the “use of state bonds is minimal as compared to the size of the state budget.”

He said the legislature and governor would still have to approve a project before bonds could be issued. “Therefore, two branches of government must concur that the project is financially sound and safe for the state,” Hutchinson said.

AEDC’s Preston agreed that safeguards are in place to prevent issuing too many bonds.

“The legislature will perform due diligence on each issue and neither the governor or our legislature is going to jeopardize the state’s fiscal condition for any company,” he wrote in an email.

Hutchinson said the amendment would also clarify that local tax dollars can be used to support economic development projects and economic development investments.

Bonds for Communities

Another provision in Issue 3 would allow communities to raise and award money through voter-approved bonds for economic development related projects. Clark, of Fayetteville, said allowing cities to issue bonds will be “very beneficial to us in attracting business.”

He said state law currently forbids cities from spending public money on for private purposes. Communities are also prevented from using tax money raised in one jurisdiction in another part of the state for economic development purposes.

He said the Fayetteville Chamber of Commerce has adopted a resolution in support of the amendment. The amendment “puts us in the 21st century,” Clark said.

The safety measure is that the voters will also be the ones deciding if they want to approve the bonds. The bonds could be repaid with sales tax revenue.

Don Zimmerman, the executive director of the Arkansas Municipal League, said he hadn’t heard much demand from the cities to have that authority. But, he said, it would be an additional tool if they needed it.

The Municipal League has proposed that the legislature next year put in a number of safeguards that could protect communities from getting burned on projects.

For example, the proposed legislation would require a community to do an economic cost-benefit analysis of the project before bonds are issued.

“The cities have never had this great latitude,” Zimmerman said. “So that’s why our group was asking the proponents to join with us to provide some protections so we could avoid any kind of future municipal bankruptcies.”

Chambers of Commerce

The amendment also would allow cities to pay their chambers for economic development services.

Chamber directors hope that if amendment passes on Nov. 8, the appeal at the State Supreme Court will become moot, said Randy Zook, president & CEO of the Arkansas State Chamber of Commerce/Associated Industries of Arkansas.

“We badly need this to pass, so communities can make decisions that will allow them to control their future,” he said.

In the meantime, the chambers and cities are in limbo because of Judge Pierce’s ruling.

“It needs to be resolved,” Zook said.