Officials say Fayetteville bond issue to serve as tool for economic growth

NWA Democrat-Gazette/DAVID GOTTSCHALK The new location of OurPharma at 2512 S. City Lake Road OurPharma is a pharmaceutical company specializing in sterile-to-sterile compounding of injectables and intravenous fluids hospitals need and broke ground in November 2017. The $30-plus million facility will be built in phases over the next few years. The city's bond referendum April 9 includes $3 million for economic development.
NWA Democrat-Gazette/DAVID GOTTSCHALK The new location of OurPharma at 2512 S. City Lake Road OurPharma is a pharmaceutical company specializing in sterile-to-sterile compounding of injectables and intravenous fluids hospitals need and broke ground in November 2017. The $30-plus million facility will be built in phases over the next few years. The city's bond referendum April 9 includes $3 million for economic development.

FAYETTEVILLE -- The city hopes to use a $3 million bond issue to attract institutions specializing in job-skill training and workforce expansion in areas Northwest Arkansas lacks.

The move would entice businesses to set up shop here and improve the economy, officials say.


Economic development project under state law means the land, buildings, furnishings, equipment, facilities, infrastructure, and improvements that are required or suitable for the development, retention or expansion of:

• Manufacturing, production and industrial facilities

• Research, technology and development facilities

• Recycling facilities

• Distribution centers

• Call centers

• Warehouse facilities

• Job training facilities

• Regional or national corporate headquarters facilities

Source: Act 685 of 2017

Voters will go to the polls April 9 to decide whether they want to continue the city's 1-cent sales tax in order to pay for about $226 million in projects. Each type of project will have its own ballot question, and the one for economic development covers public investment in private enterprises.

The city would have at least $3 million to put toward economic development if the bond issue passes. An extra $170,000 is included in the ballot language to cover whatever the maximum interest rates may be at the time the bonds are issued.

Devin Howland, the city's economic vitality director, said economic development is about creating opportunities in the job market. The city's workforce development plan, still in the works, will help residents find a career through job training and employer recruitment.

The tactics go hand-in-hand, Howland said. Creating a talent pool attracts businesses, and the more businesses, the more jobs are available.

"Subsequently, quality jobs that actually pay a living wage are what benefit our residents the most," he said.

The plan

The city is targeting corporate services, entrepreneurs and innovators, legacy manufacturers, retail and specialized technologies, according to its website. Howland also said the city wants to assess what job-training options are available regionally and fill in the gaps.

An audit included as part of the workforce development plan will identify what job skills the region needs.

Howland used registered apprenticeship programs in information technology or health care as possible examples. Those kinds of programs offer pay-as-you-learn models with high job-placement rates well above minimum wage, he said.

Howland said the city would use the $3 million wisely. However, there's no way to know what opportunities might be out there until they appear. Having flexibility in spending would serve as another tool in the incentive toolkit, he said.

"It's on a case-by-case basis, as those potential projects come to be," he said. "We don't know the future. It's having the flexibility to be prepared for what the future may have in store."

The bond money could help programs training workers by paying some of the cost to build a facility. Money could be spent for land acquisition or site development such as water and sewer pipeline construction, roads or entryways, for example.

The money would foster public-private partnerships, Howland said. It wouldn't be used to build a city-owned job-training facility.

The Chamber of Commerce would recruit businesses and screen for those it thinks are a good fit, said Steve Clark, chamber president.

The law

A change in state law in 2017 made putting economic development on the list of bond issues possible. Bond referendums typically cover capital projects, meaning one-time expenses for infrastructure such as roads, trails, water and sewer pipes.

Voters in 2016 approved an amendment to the Arkansas Constitution that, among other things, allows municipalities to put money toward or issue bonds for economic development projects. The state law outlines several parameters for how the money can be spent.

For instance, money can be used for land acquisition, anything to do with a facility or equipment or road construction for a variety of types of businesses, including manufacturing companies, call centers, corporate headquarters, job-training sites and distribution centers. The law, just like the bond issue, is intentionally flexible, Howland said.

Municipalities must hire an independent economic forecasting firm or university to prepare a cost-benefit analysis for every proposal involving more than $100,000 of bond money, which the city council would review before deciding to appropriate.

The city has to set milestones for each project to achieve. If the milestones aren't met, a clawback provision would kick in, and whoever received the bond money would have to give it back.

Other places

Jim Fram, an economic developer of more than 30 years who has worked in Arkansas, Texas, Oklahoma, Missouri and Nebraska, said Texas in particular is years ahead of Arkansas. Texas has allowed cities to use sales-tax revenue for economic development since the 1980s, he said. The Arkansas law was largely influenced by the Texas law.

"You have little towns in Texas, that you and I probably have never heard of, that have multimillion-dollar budgets for economic development," Fram said.

Fram said he dislikes incentives but knows cities and states have to be able to compete. He said offering infrastructure improvements, as Fayetteville is proposing, is a better option than money on the table. That way, if a company fails, there's at least a building left behind for someone else to use.

Economic development isn't an exact science, he said. But states and cities doing their due diligence and calculating the likely return on the investment find the most success, he said.

Other cities and states have learned the hard way about economic incentives. Tennessee, for example, stands to lose $100 million in grants it paid to Swedish appliance maker Electrolux after the company announced it would close within two years, according to The Associated Press. The company promised to create 1,240 jobs in Memphis but employs about 530.

No refund provision was included in the deal with Electrolux. Gov. Bill Lee has since stressed the importance of having such a measure included in an incentive package.

Opportunities vs. risk

Fayetteville's bond money wouldn't go into the city's general budget or to the Chamber of Commerce. The city already has contracts with the chamber and consulting firm Startup Junkie for economic development.

"We would not see even 99 cents coming over here for anything," Clark said. "We won't see it to send us to a trip or to go to a trade conference. We'll see it literally spent to enhance the recruitment of a business, as it's directly related to that business," he said.

He said the city has missed opportunities to bring in large-scale operations because of limited funding options. The option to use bond money as a financial incentive could make the difference, he said.

Giving bond money to private entities doesn't come without risks, City Attorney Kit Williams said.

"The way the law was worded before was to protect taxpayer money so municipal officials wouldn't get tricked into get-rich-quick schemes," Williams said. "I guarantee you cities see get-rich-quick schemes all the time."

Howland said the first question his department would consider is whether a proposal would result in net new jobs, and if those jobs would give employees a living wage.

The idea is to bring clusters of related businesses -- ones making Widget B for another company's Widget A, for example -- that can grow and feed off one another, he said.

The direct and indirect impact would create a ripple effect throughout the city's economy, Howland said. More employees means more spending power being pumped back into the economy, and like-minded companies that see similar business ventures setting up shop in the city might do the same.

"We look at all of those things," Howland said. "What is the ask on the table -- that's probably the next biggest question. Then we weigh everything against it."

NW News on 03/03/2019

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