Several legislators said Tuesday that they generally support using state-backed bonds to help build a steel mill in Osceola but they want more details on how much it is going to cost.
To construct the $1.1 billion steel mill near Osceola that was announced Tuesday by Gov. Mike Beebe and Big River Steel LLC, Arkansas would trigger Amendment 82. It allows the Legislature to authorize general obligation bonds to finance infrastructure or other needs to attract large economic development projects. The amendment to the state constitution went into effect Jan. 1, 2005.
General obligation bonds are backed by the full faith and credit of the state and may be financed with tax revenue usually devoted only to paying for the operation of state government. Bonds may be issued for up to 5 percent of general revenue collected during the most recent fiscal year.
Beebe would ask the Legislature to authorize $125 million worth of bonds. Of that, $50 million would be a loan to the company. On the basis of current interest rates of about 3.7 percent, the $125 million in bonds would cost the state $9.1 million per year in generalrevenue for 20 years, Arkansas Economic Development Commission Executive Director Grant Tennille said. Big River Steel would pay about $4 million per year on its loan after constructing the mill, he said.
Tennille said the governor has recommended paying Big River’s share from general improvement funds for the two years of construction.
That amount could change on the basis of what the interest rate is when the bonds are sold. Tennille said the governor will ask legislators to consider the bill in the coming weeks.
House Speaker Davy Carter, R-Cabot, said that once the project is referred to the Legislature, lawmakers have 20 days to conduct an economicimpact study. It would then be filed as a bill and would go through the normal legislative process for approval.
“Everybody’s excited about the news and the opportunity for significant investment in our state, so at least my starting point is I’m bullish on the idea and the company, but we’ve got a long ways to go on doing our own homework and our own due diligence,” Carter said. “It is a lot of money, and I can promise you we will take it very, very seriously.”
Senate President Pro Tempore Michael Lamoureux, RRussellville, said the announcement was exciting.
“Now our part kicks in. We have to do our due diligence and make sure that it is a good value for the state, so we will begin that process very soon. But I think a lot of people are hoping to be able to support it,” Lamoureux said. “We are essentially using the state to loan money to a private entity, so you just have to make sure there is a good value there.”
He said he expects lawmakers to hire an outside consultant to review the deal.
Rep. Marshall Wright, DForrest City, called the mill a “game changer” for eastern Arkansas and said he hopes the Legislature will come together and approve the bonds.
“I’m sure as things progress, we’ll have some people that are not happy with it, but coming from a region of the state where we’ve had a lot of jobs lost, this is a big, big deal,” he said.
State government collects revenue from several sources, including individual and corporate income taxes, tobacco taxes, sales taxes and severance taxes. Those collections, called gross revenue, are forecast to be $6.2 billion in fiscal 2014 and $6.4 billion in fiscal 2015. Bills that the state is obligated to pay, such as the potential Amendment 82 bonds, are skimmed off the top, leaving the “net” amount available forthe state to spend.
The governor has recommended $4.9 billion in spending for fiscal 2014, which starts July 1, 2013, and $5.1 billion in spending for fiscal 2015, which begins July 1, 2014.
House Revenue and Taxation Committee Chairman Rep. Charlie Collins, R- Fayetteville, said the announcement came early enough in the session that decisions about tax cuts or spending increases haven’t been made.
Michael Wickline of the Arkansas Democrat-Gazette contributed to this report.
Front Section, Pages 7 on 01/30/2013