Back mill with bonds, Beebe tells state senators

LITTLE ROCK — The Arkansas Legislature should authorize the issuance of $125 million in bonds for a proposed $1.1 billion steel mill near Osceola because it’s an investment worth the risk, Gov. Mike Beebe and other state officials told senators on Monday.

Earlier in the day, the trustees for the Arkansas Teacher Retirement System authorized the system to invest $60 million in the project.

More than half of the Senate’s 35 members peppered Beebe administration officials with a wide range of questions about the proposed project and bond issue during a session that lasted more than two hours.

A few senators told state officials they hope the plan for the steel mill becomes a reality, and a few others were skeptical about it, but none of them publicly signaled opposition to the proposed bond issue.

“I hope this all works out,” said state Sen. Bruce Holland, R-Greenwood. “I pray it will.”

Afterward, Senate President Pro Tempore Michael Lamoureux, R-Russellville, explained that senators “are really trying to get their arms around this.”

“The lack of a negative attitude I considered a positive,” he said, adding, “It doesn’t mean every person is necessarily going to vote for it.”

Monday’s meeting was a necessary and productive first step in answering questions about the proposed bond issue before the Legislature hires a consultant to review it, Lamoureux said. State officials are scheduled to appear on the state House of Representatives floor on Wednesday to answer representatives’ questions.

A week ago, Beebe announced that Big River Steel LLC, a company led by steel magnate John Correnti of Blytheville, plans to build a $1.1 billion steel mill near Osceola that will employ 525 people. For workers, the average annual salary and bonus will be more than $75,000, according to Correnti, a former chief executive officer for steelmaker Nucor Corp. of Charlotte, N.C.

System records show the project previously has been referred to as “Rebel Steel LLC” and “Project ZAP.” The company considered placing the proposed steel mill in Mississippi.

The Arkansas Teacher Retirement System’s plan to invest $60 million in the project “personally provides a high degree of confidence” in it, Lamoureux said.

System Executive Director George Hopkins’ job “is to get a good rate return and protect the members of his organization,” he noted. The system investments were valued at$12.25 billion through Jan. 31, according to Hopkins.

Earlier Monday, the system’s trustees voted 14-1 to authorize a proposed $60 million investment in Big River Steel LLC. That’s a 20 percent stake in the company.

The action came after Hopkins told the trustees that Koch Industries, a multi-billion dollar company based in Wichita,Kan., is investing $120 million in the project. Hopkins told lawmakers on Friday that Koch Industries would be the largest investor in the proposed steel mill, but declined to say how much it would invest.

“They didn’t just fall off the turnip truck,” Hopkins said, referring to Koch Industries.

The system already has invested $350,000 in the project’s development costs and will soon invest another $250,000, Hopkins said.

Richard Abernathy of Little Rock, chairman of the system’s board of trustees, said the proposed $60 million investment is a good one for the system.

“That [the proposed steel mill] is coming to Arkansas is a bonus,” he said.

Trustee Danny Knight of Sherwood said a few people are objecting to somebody building another steel mill in Arkansas.

“But this is Arkansas, and we have got an opportunity to invest in Arkansas,” he said.

Afterward, trustee Janelle Riddle of St. Paul said she voted against the system investing $60 million in the proposed project partly because she doesn’t believe “we have done enough due diligence” about it.

Hopkins said he has been working on the proposed investment since August. The Arkansas Economic Development Commission hired Delta Trust Investments for the system to analyze the project and it gave the project high marks, he said.

He has said he expects the system’s $60 million investment will result in an annual investment return of at least 20 percent to 30 percent a year.

An executive summary of Delta Trust Investments Inc. report dated Feb. 1 said “projections indicate a likely investor return between 20 [percent] and 30 [percent]. Delta Trust Chief Executive Officer French Hill said that projected investment return includes an increased value on the original investment if it was sold.

The report said the strongest competitor the company will have is the Severstal mill in Columbus, Miss., and the Nucor Berkley mill in South Carolina.

State officials plan to seek the Legislature’s approval for a $125 million bond issue for the project under Amendment 82to the Constitution, Beebe said. The amendment was adopted in 2004.

He said he’s about “as stingy and tough” as the state Department of Finance and Administration about these type of economic development incentives, but this project is worth the risk.

“The ball is in your court,” Beebe told lawmakers.

Grant Tennille, executive director of the Arkansas Economic Development Commission, said the $125 million bond issue includes a $70 million grant to the company and a $50 million loan. The other $5 million would cover the cost of issuing the bonds, he said.

Tennille repeatedly told senators that Big River Steel has to place$300 million in the form of cash or letters of credit into an escrow account and its $700 million in financing has to be in place before the state will sell the bonds.

Big River Steel has to spend $250 million on the project before they can spend any of the state’s $120 million contribution, he said.

“We’ll start to see that mill coming out of the ground before we start to spend,” Tennille said. He said state officials have done everything possible to ensure the safety of taxpayers money though this project “is not without risk.”

State Sen. Jeremy Hutchinson, R-Little Rock, said he hopes that Big River Steel LLC will encourage its vendors and employees to locate in Mississippi County and other counties in Arkansas.