Proposal Gives State Unlimited Authority To Fund Economic Development Projects

Oct 26, 2016

File photo of construction inside the Big River Steel Mill in Mississippi County. The plant benefited from $125 million general improvement bonds approved by the Arkansas Legislature in 2013. Issue 3 would remove the dollar limit on bonds for similar projects.
Credit bigriversteel.com

In addition to a citizen-driven ballot question on Medical Marijuana, Arkansas voters are getting to decide on three legislature-sponsored constitutional amendments in this election. One of those, Issue 3, would primarily allow the Arkansas Legislature to approve an unlimited amount of bond money to support new large-scale economic development projects. 

Projects could include the expansion of new manufacturing facilities, corporate headquarters, call centers, job training centers or research and development facilities.

Supporters argue the measure would untie the hands of the state, making it a more attractive location for companies looking to expand. Joe Bailey, treasurer of the committee Jobs for Arkansas, which supports the amendment, says it would allow the state to better compete with its neighbors.

He lists of several states that regularly compete with Arkansas to attract new or expanding companies: “Texas, Louisiana, Mississippi... Alabama, Georgia, sometimes Missouri, a lot of times Tennessee,” he says. “Those states by and large have the ability to issue bonds to borrow funding without any limits in order to put an incentive package on the table.”    

Amendment 82 of the Arkansas Constitution, approved by voters in 2004, currently limits economic development bonds the state can issue to five percent of general revenue. The proposed amendment would do away with that cap.

In 2013, the Arkansas Legislature used Amendment 82 to approve $125 million in general obligation bonds for the $1.3 billion Big River Steel Mill in Osceola. In 2015, the legislature voted to approve $124 million in bonds for a proposal by Lockheed Martin to build the Joint Light Tactical Vehicle (JLTV) for the U.S. military at a plant near Camden. Lockheed Martin ultimately lost its bid and the bonds were never issued. Last fiscal year, the state collected $5.37 billion in net general revenue, according to the Department of Finance and Administration.

The proposed amendment would also allow local governments like cities and counties to appropriate funds to private entities that promote job creation, like regional chambers of commerce. Again, Bailey says this provision is about competition.

“Nine times out of ten, the local community in other states is able to put more on the table than our communities are. I can’t speak to every community in all of those states as to what they do and do not have in terms of incentives, but I know that historically we just have not been competitive locally.”

Last year, a Pulaski County Circuit Judge ordered the cities of North Little Rock and Little Rock to stop making payments to local chambers of commerce because the practice violated the state constitution. Jim Lynch, the lead plaintiff in that lawsuit, considers the once-annual payments to have been “corporate welfare.” He says taxpayer money used in the name of economic development could be more effective going to fund workforce training or technical programs at public schools.

“But what we’re talking about now is just giving away money—giving away cash, public cash to help finance a business that may or may not be well managed, that may or may not make good on its ability to pay back bonds,” he says.

Passage of Issue 3 by voters would render the decision in Lynch’s lawsuit moot. Lynch says other provisions of the proposed amendment are also concerning because of the potential for state and local governments to divert more revenue toward companies or individuals and away from traditional services.

“Of course they’re selling jobs, jobs, jobs. Of course that’s important to the public, but it shouldn’t be competing with teacher salaries, salaries for firemen and so forth,” he says.                           

But Joe Bailey of the group Jobs For Arkansas says the proposed amendment is about “striking a balance with public funding” and right now he says state and local governments don’t have that balance.

“My opinion is that there is not a better investment in your community or state than putting money towards infrastructure that will create higher paying and better jobs move into a better job,” he says.         

Other provisions of Issue 3 would:

-Allow legislators to devote general tax revenue to pay off municipal bond debt.

-Remove a requirement that municipal bonds can only be sold at public sale.

-Allow municipalities and/or other local governing bodies hoping to attract economic development projects to their shared area of jurisdiction to enter into a “compact” to set terms of the projects.

-Define “economic development projects.” They would pertain to the retention, expansion or development of manufacturing facilities, research or technology facilities, recycling facilities, call centers, warehouses, job training facilities, and corporate or regional headquarters.                

Issue 3 has garnered relatively little organized opposition. A ballot question committee called Arkansas For Free Enterprise, consisting of members from the conservative non-profit advocacy group Conduit for Action, recently formed to oppose Issue 3 (as well as issues 1,4,5,6 and 7). The group has yet to file any financial disclosure documents. But filings with the state Ethics Commission show that Bailey’s committee, Jobs For Arkansas, has so far spent about $250,000 dollars on an ad campaign using contributions from chambers of commerce around the state, private businesses and the Arkansas Economic Development Foundation to support the proposal.

This post was updated on 10/27/16.