LITTLE ROCK — When Gov. Mike Beebe proposed the Quick Action Closing Fund as a tool for economic development during his 2006 campaign, his opponent called it a “slush fund.”
Some in Texas have claimed that a similar fund controlled by Gov. Rick Perry has become just that, with allegations of taxpayer money being handed out to campaign contributors and companies in which the governor has a financial stake. A spokesman for Perry told the Houston Chronicle that a nonprofit organization’s report to that effect “draws false and unsupportable conclusions.”
But after four years, the Arkansas Quick Action Closing Fund has few critics.
At a time when many companies are wary of spending their money - the Federal Reserve reported last month that companies are sitting on more than $2 trillion in cash and liquid assets - the state fund has been used as bait to lure or keep 31 companies in Arkansas, with promised payouts to the companies ranging from hundreds of thousands of dollars to $10 million.
“It has helped us close deals. It has helped us keep or attract business and industry. It has created jobs,” Beebe said.
Those companies have promised to create 7,652 jobs when all is said and done. The number of jobs retained by companies persuaded to expand or remain in Arkansas is 3,418, according to the Arkansas Economic Development Commission, whose members are appointed by the governor.
A little more than half of the projects that received money were new to the state, such as a Hewlett-Packard office in Conway that received $10 million from the fund.
Others were expansions of existing facilities, such as Dassault Falcon Jet’s 1,800-employee facility in Little Rock.
The fund started with $50 million when it was authorized by the Legislature in 2007. In 2009, lawmakers gave the governor another $50 million to use with businesses. Last spring, $15 million was put into the fund.
Of the $50 million in 2007, $49.9 million was promised for 20 projects. From 2009 funding, $18.87 million has been committed, and another $11 million has been proposed as part of incentive packages to companies that might still be shopping around or haven’t finalized their plans.
Less money than that has actually been paid out. Joe Holmes, a spokesman for the commission, said the checks aren’t written the day a project is announced. Rather, money is paid as companies complete the work they needed the funds for, such as expanding facilities.
Fourteen companies still have money that is supposed to head their way from the fund. Three companies have not yet drawn any of the money that has been committed to them.
In a report written before her death in September, then-director of the Arkansas Economic Development Commission Maria Haley, who was appointed by Beebe, told lawmakers that for every dollar the state invests, it receives $2.90 in return.
Beebe said he has been proved correct about the fund and that it has been a valuable tool for the state.
“I think time and evidence and objectivity [have] proven it has been a wonderful tool. It’s helped us withstand some of the downturns the recession has caused not just for us, but for the whole country,” he said.
FUNDED PROJECTS
The Legislature intentionally set few rules governing the fund, so it can “be used in a very flexible manner to do what is needed to assure that Arkansas is able to recruit and retain jobs,” according to guidelines published by the commission in 2009.
Beebe said proposals are analyzed before he commits any taxpayer money.
The use of the fund has to be associated with a location, expansion or retention project, not just to providegeneral funds for a company, according to the Arkansas Economic Development Commission guidelines.
Other general rules outlined in that document are that funds should not be used for startup companies, that no single project should receive more than $10 million, and that companies that pay more than the state average wage are more likely to receive funding.
But the governor has the ultimate say as to where the money goes and can override the Economic Development Commission’s guidelines if he believes that using the fund is necessary to create jobs or keep them from leaving the state, according to the document.
Some of the companies that received money later laid workers off, such as LM Glasfiber (now LM Wind Power), which has so far received $6.8 million and announced two rounds of layoffs in 2009.
The company originally promised to employ 1,000 workers by 2014. It currently has 320.
Holmes said the vast majority of fund projects, including that one, have “clawback provisions” that require a portion of the money to be given back if employment targets aren’t met.
Neil Kurtz, chief executive of Golden Living Inc., which provides health-care services for the elderly, said the $2 million it was promised from the fund was an important part of the company’s decision to consolidate its business operations in Fort Smith.
It is using the money to help train and identify candidates to relocate or hire in Arkansas and to reconfigure office space to accommodate the 200 new employees.
The company had an administrative office in Fort Smith, but its billing offices were in five other states. Kurtz said the company considered consolidating operations in each of those states.
But fueled in part by the governor’s office and its ability to offer funds quickly, Arkansas emerged as the clear front-runner early on, Kurtz said.
“Overall Arkansas moved very quickly, aggressively, and they made it known that this was going to be important to them. It was really a pretty easy decision for us,” he said. “Once they knew that this was an opportunity and we wanted to talk to them, they really captured the moment.”
Earlier this year, Firestone had to choose between consolidating operations at one of two plants that manufactured a certain type of rubber. The larger plant was in Prescott, and the other was in Kingstree, S.C.
The company received offers from both states. Arkansas’ included $1.25 million from the fund.
“That [decision to stay in Arkansas] was made based on a number of factors. I will tell you that key among those factors was the highly competitive proposal given to us by the state of Arkansas and that the governor’s quick action fund was a critical component of that proposal,” Firestone spokesman Marni Lemons said.
Plant capabilities, the size of the two plants, and othereconomic variables played into that decision, Lemons said.
But the fund is not always a deciding factor, or even a necessary one.
L.D. Hardas, owner of a California-based manufacturer of laundry detergent, fabric softener and household bleach, said that when he wanted to expand his West Memphis facility, the state economic development office approached him with an offer, including $450,000 from the fund.
Hardas said he appreciated the gesture, but he has no plans to spend the money.
“They were shocked. They say ‘You’re crazy,’” Hardas said.
Awesome Products Inc. went through with its plans, but the company spent its own money.
He did take advantage of other incentives but said it would not be appropriate to take “free money.”
“Right now, the company is doing well. If it wasn’t, we would take the money and use it for something. But these are government funds. They should be taken when you really need it, right?” Hardas said.
In 2010, there were two projects that were offered incentives from the fund but ultimately didn’t locate in Arkansas, according to another Arkansas Economic Development Commission report.
DOUBLE-EDGED SWORD
Holmes said the fund allowed Arkansas to become “much more competitive” with other states.
“It gives the governor the ability to add that one little last ingredient that will swing the decision this way,” he said.
But Mark Robyn, an economist with the Tax Foundation in Washington, D.C., called targeted economic incentives for individual companies a “double-edged sword” that can pay off in the shortterm but can create problems down the line.
“As soon as you get in the game of trying to more or less bribe businesses to locate in your state, you’re signaling that you’re willing to give away money. As soon as it gets out the governor’s got a pot of money the governor can dole out to companies, they’re going to demand it,” Robyn said.
He said companies can hold states hostage, threatening to leave or put more resources elsewhere, unless they’re satisfied with incentives packages.
“States shouldn’t be trying to play tug of war over individual businesses. They should be trying to provide a tax and spending and regulatory climate that’s good for all businesses,” he said.
House Minority Leader Rep. John Burris, R-Harrison, agreed. He said he thought that the fund had been wellutilized by the governor but that ultimately bigger changes should be made to encourage businesses.
“Overall, my preference would be to see us have a tax structure that doesn’t have to offer people incentives to come here, our tax structure is just so great they want to come here,” Burris said.
POLITICAL RESPONSE
Lawmakers allocated money to the fund in this year’s legislative session with little debate, said Sen. Gilbert Baker, R-Conway. Baker is a cochairman of the Legislature’s Budget Committee.
“I sure can’t remember much disagreement. Those funds need to be used by the executive. As you’re trying to talk to companies locating in the state, it’s not something all 135 legislators can weigh in on. That’s what the executive is for,” Baker said.
He said he believes that the governor has used the fund effectively.
“It’s been a good source for economic development. I know HP wouldn’t be in Conway without using the Quick Action Closing Fund, so I think it’s a good use of onetime monies,” Baker said.
Asa Hutchinson, Beebe’s one-time opponent for governor and an early critic of the fund, said he was still not completely convinced that it’s necessary, though he had not heard of any money from the fund being spent unwisely.
“What I was articulating and still believe is that the better process is for the Legislature to control those funds and be specific on how they’re to be used. It provides more accountability,” he said.
Money for the fund comes from the General Improvement Fund, which is largely made up of state surplus cash and is usually divided up by the governor and the state House and Senate.
In the 2005 session, before the fund was created, lawmakers gave the governor $129 million of the General Improvement Fund legislation, including $7.5 million for economic development. Legislators set aside $52 million for their projects, many of which had no direct connection to economic development.
This year the governor spent $20 million of his $40 million in General Improvement Fund money on economic development, including the $15 million for the Quick Action Closing Fund.
TEXAS CONTROVERSY
The report released earlier this month by Texans for Political Justice alleged that 43 companies that received money from the Texas Enterprise Fund have contributed almost $7 million to Perry’s campaigns and to the Republican Governors Association, which Perry used to head.
Those companies have together received $333 million from the Texas fund, out of $440 million in total awards.
It also alleged that Perry owned shares in three companies that received $12.2 million from the fund - Hewlett-Packard, General Electric and ADP.
Texans for Political Justice describes itself as a nonpartisan nonprofit that tracks the influence of money on Texas state politics.
But a spokesman for Perry described the group as “liberal” and said companies received money from the fund because they could create jobs.
Beebe’s financial-disclosure forms do not indicate that he has a direct ownership stake in any of the companies that received money from the fund.
Beebe has received campaign contributions from some companies that received incentives from the fund, including the chief executives of Dillard’s Inc., Allied Wireless and Windstream Communications.
Welspun Tubular LLC, Hewlett-Packard, Verizon Wireless and Windstream Communications are all among recipients of quickaction fund money that have also made donations to Beebe’s campaign or to the state Democratic Party.
Matt DeCample, a spokesman for Beebe, said many businesses support the governor and that contributions and incentives are “entirely unrelated.”
Front Section, Pages 1 on 10/23/2011