The state of Arkansas has a number of incentives for recruitment and retention of businesses that are spelled out by law.
There is one, however, that has only a single guiding principle, the governor’s discretion.
The Governor’s Quick Action Closing Fund is often the deal closer, said Grant Tennille, executive director of the Arkansas Economic Development Commission.
“LM Wind Power, Cooper Tire, [Hewlett-Packard],Mars, Caterpillar, Welspun and many other announcements you have heard about would not have happened without the abilityto use the fund to close the deal,” Tennille told the Legislature in an annual report filed Sept. 20.
Since it was started in 2007 at the behest of Gov. Mike Beebe, the Legislature has authorized $115.7 million for the fund. Of that amount, $70,408,476 was spent as of June 30, 2013, according to Tennille’s report to the Legislature.
The first funding was $50 million, all of which but $7,223,191 was actually spent, although virtually all of it has been obligated, according to Joe Holmes, the commission’s director of marketing and communications. If it is not used within the time limits of the agreement, it is carried forward to the next funding period.
Roughly 15,000 jobs have been created or retained because of the Quick Action Closing Fund since its inception in 2007, Holmes said. That means that the average cost per job would be about $5,000 although Holmes cautioned that the number is a moving target and it is impossible to hit exactly - especially with so-called clawbacks in contracts.
Clawbacks are provisions included in contracts that require repayment of grants, or portions of them, if certain benchmarks are not met by the company
The state has received $2.6 million in clawback money on five Quick Action deals in which the recipients did not fulfill the terms of the agreements. An additional $610,000is being paid back in installments from Nice-Pak Products in Jonesboro.
Beebe has not decided how much to ask for in the next legislative session, Holmes said.
Tennille said that the agency uses the IMPLAN model (impact analysis for planning), an economic-impact analysis software tool developed by the Minnesota Implan Group that says that a dollar spent should yield two dollars. To have a return of less than a dollar would be a loss, he said. That has never happened, he added.
Stimulus efforts - whether at the state or national level (such as the Federal Reserve’s “quantitative easing” or the Obama administration’s recovery spending) - are only as good as their results, said Greg Kaza, executive director of the Arkansas Policy Foundation, which is a nonpartisan, nonprofit organization that analyzes the effect of public policy on Arkansas and makes recommendations.
Stimulus funds are used across the political spectrum, whether by Democrats or Republicans, Kaza said.
Kaza said that federal Bureau of Labor Statistics data show that the Quick Action program has not enabled the state to maintain pace in terms of jobs with the nation and most surrounding states.
Between June 2009, when the national recession officially ended, and August 2013, the state’s nonfarm payrolls have grown by 2.15 percent, compared with the nation’s 4.25 percent and the following states: Texas, 8.81 percent; Tennessee, 5.45 percent; Louisiana, 3.27 percent; Mississippi, 3.27 percent; and Missouri, 0.89 percent.
Despite the emphasis on the Quick Action fund in jobs creation and retention “the program is not working,” Kaza said.
Michael Pakko, chief economist at the Institute for Economic Advancement at the University of Arkansas at Little Rock, said that the fund was begun in the wake of Arkansas losing out to other states on auto plants and steel mills.
Pakko said that the $5 million from the fund probably wasn’t a major part of landing the $1.1 billion Big River Steel plant to be built near Osceola.
Whereas the Quick Action fund may be the “closer” in many deals, there are a number of programs in the economic development quiver, Pakko noted. “I think there are some real problems with the whole idea of having to basically bribe an employer to come to the state. It creates a fiscal gap. … It leaves the other businesses [existing and startups] with a larger relative tax burden.”
Yet “the reality of the situation is that everybody else is doing it.”
Holmes conceded that economic development officials across the country don’t like incentives, “but it’s kind of like nuclear disarmament. Who’s going to do it first?”
There are statutory incentives for which companies can qualify by simply meeting Arkansas Economic Development Commission benchmarks, such as Tax Back, which is a refund of sales tax on building materials and certain machinery and equipment.
Other incentive programs are at the discretion of the commission’s executive director, such as Create Rebate, which offers cash payments based on the size of the payroll, and ArkPlus, which offers 10 percent tax credits on investment and payroll in “highly competitive situations.”
The governor does not have to approve all deals, whether they include statutory and the other discretionary incentives, although the commission keeps him apprised.
But the Quick Action Closing Fund is the governor’s baby alone, Tennille said.
Forty-eight firms have benefited from the Quick Action fund.
The largest amount disbursed was $10 million for Hewlett-Packard to establish a customer-support center in Conway.
The Quick Action contract calls for Hewlett-Packard, a maker of computers and printers, to employ at least 1,000 by the end of the first five years of the agreement.
The deadline is Dec. 18,and Hewlett-Packard no longer has the minimum number of workers at the Conway operation. It had 1,400 until it cut 500 jobs in July, leaving it with only 900.
That means the state can use the clawback provision in its 14-page contract with Hewlett-Packard. The contract, a redacted copy of which was provided for this article, also has formulas for minimum requirements on average salary and total payroll. Those figures were redacted.
The Quick Action money was part of a $36.5 million incentives package for Hewlett-Packard. The city of Conway contributed $5,107,773 for infrastructure, the Conway Development Corp. chipped in $1.25 million for land, and Hewlett-Packard backs $20 million in industrial revenue bonds issued by the city.
Sometimes, the agency plays the Quick Action fund finesse card to close a deal.
It gave Orbea USA $100,000 to help it move its headquarters from North Little Rock to Little Rock, about 40 percent of the $250,000 cost of moving, and it will enable the bicycle company to create a showroom for the first time and reshape its business model.
Orbea now plans to sell its high-end bikes in the United States by creating a hub rather than sending its salesmen across the country.
Besides, Orbea, which will move to 119 Main St., carries what Tennille called a “certain cachet” and fits with the upgrading of the street, which is the historical center of the capital’s business district.
And the owners wanted Orbea USA to look outside Arkansas, specifically in Austin, Texas and Denver, Tennille said.
Business, Pages 77 on 09/29/2013