Arkansas Economic Development Commission Uses Incentives to Encourage Industrial Growth

BY STATE SENATOR LARRY TEAGUE –

June 20, 2014

LITTLE ROCK – When the board of the state Teacher Retirement System voted last week to increase its investment in a northeast Arkansas steel mill, it renewed questions about the role of government in private enterprise.

For several generations elected officials at all levels of government have emphasized their support for policies that create jobs and promote economic development.  Especially during tough economic periods, promises to create jobs are a staple of campaign rhetoric from candidates all the way across the spectrum from left to right.

The Arkansas Economic Development Commission has a wide variety of incentives it uses to recruit new industries to the state, and to encourage existing industries to expand. Those incentives include tax credits, financing and government funding for job training and construction of roads, rail lines, water projects and drainage systems.

In every legislative session, lawmakers consider bills to expand and improve the AEDC’s industrial recruitment strategies. Those bills usually pass with little or no opposition, after routine discussion.

Another example of the widespread support for government’s role in job creation occurred in a statewide election in 2004, when voters approved Amendment 82 to the Arkansas Constitution.  It authorizes the state to issue bonds to finance “super projects” that create jobs and generates economic investments in Arkansas.

Amendment 82 was referred to voters by the legislature in the 2003 regular session, and it passed by a vote of 432,000 to 261,000.

Legislators were careful after they got what they wished for. Last year, when legislators had their first opportunity to implement Amendment 82, they did so only after lengthy consideration and vigorous debate.

The controversy centered around the impact on an existing steel mill in northeast Arkansas, which has not been operating at full capacity because of current market demands.  The new steel mill will receive government financial help while in direct competition with the existing mill, which has said it may have to lay off workers if demand for its steel continues to decline.

The existing steel mill has filed objections before regulatory agencies to the issuing of environmental permits to the new mill, so far without success.  However, the permits are being appealed in the courts.

All the lingering questions came up again last week when the state Teacher Retirement System’s board voted to invest an additional $60 million in the proposed new steel mill, bringing the retirement system’s total stake in the steel mill to $125 million.

The retirement system will own 20 percent of the mill when it is fully financed and operational.  The head of the steel mill said he hoped to complete financing and begin construction in July.

Officials at the teacher retirement system believe the investment is sound, and that it complies with their fiduciary obligations to protect the system’s assets and thus protect the future pension benefits of retired teachers.

State employee and teacher retirement systems across the country have long been making direct investments in private enterprise, both in the United States and abroad.  The Arkansas teacher retirement system has a stock portfolio and also invests in timberland and real estate.

 

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