Municipal Bonds Fueling Economic Development

Municipal Bonds Fueling Economic Development
(iStock via Mitchell Williams Selig Gates & Woodyard PLLC)

Prior to the COVID-19 pandemic, Arkansas was known as a “business-friendly” state. During the pandemic, elected officials proclaimed that Arkansas was “open for business.” Since March 2020, almost every region in the state has seen economic development project investments that result in the retention of jobs or the creation of new or improved job opportunities. New investments have been announced at the Little Rock Port and the Jonesboro Industrial Park along with Ash Flat, Osceola, Arkadelphia, Searcy and Camden to name a few.

Business CEOs are choosing to expand their current Arkansas operations or relocate their North American or global operations to Arkansas, investing millions of dollars in the State – during a global pandemic. But, why? Here are the economic development investment strategies communities throughout Arkansas are using to create opportunities:

Municipal bonds can used by governmental entities to finance public purposes. The Arkansas General Assembly’s adoption of legislation and the Wayland v. Snapp case in 1960 together affirmed that economic development is a proper public purpose. As a result, cities and counties can use municipal bonds to facilitate the best economic development tool in their toolbox – ad valorem tax abatement. These bonds are commonly referred to as Act 9 Bonds. The General Assembly’s adoption of Act 9 in 1960 put in place the statutory framework that we still rely on today.

Cities and counties are agreeing to accept less ad valorem taxes in exchange for a company’s investment. Arkansas cities and counties are willing to accept less ad valorem taxes because they expect other benefits including an overall increase in tax revenue or prevention of a loss in the existing tax base. Additional employment opportunities likely mean new citizens will live in their communities and spend their money in those same communities. Communities anticipate a net gain in the short term which will result in long-term economic benefits and stability to the community.

Municipal bonds may be used to construct expansions of public utilities. An industrial facility expects to pay for water and wastewater services, but at the end of the day, it needs to know that the public utilities have the capacity to provide those services at the level needed by that industry. Most water and sewer operators are looking ahead to make sure that they have the necessary capacity for population growth. An economic development project may require utility expansion to serve not only more citizens, but also an industrial user.

Cities and counties have the specific authority to levy a sales tax, with citizen approval, that is dedicated to economic development. Economic development sales tax revenues may be pledged to secure bonds that finance economic development facilities and infrastructure such as land acquisition, site preparation, road and highway improvements, railroad infrastructure, water service and wastewater treatment. With or without the issuance of bonds, these tax revenues are frequently used to purchase and prepare a site for future development. A shovel ready site may be the difference between a business choosing to develop its project in a local community rather than another state.

Economic development and investment results from a team effort. Arkansas is fortunate to have a variety of state-level economic incentives to entice businesses to expand existing or develop new projects in Arkansas. Arkansas municipalities and counties have significant economic development and investment tools in municipal bonds. Working together, the state and local communities can generate economic development opportunities.

Municipal bonds have provided the nuts and bolts necessary to finance public projects throughout the state. These bonds are responsible for facilitating the construction of the roads on which we drive and the schools our children attend. But they are more than that. Whether they are used by one of our largest or one of our smallest communities, they are one of the reasons that Arkansas is a business-friendly state – even during a global pandemic.

Michele Allgood is a municipal and public finance attorney and member at Mitchell Williams Selig Gates & Woodyard PLLC. She counsels Arkansas state agencies, municipalities, counties, facility boards and commissions in matters of capital improvement and economic development projects.