Arkansas competes with other states, and particularly with our neighbors, for new jobs and capital investment. Economic development incentives help bring business to Arkansas and keep it here.
While the details of incentives programs can and should be evaluated, eliminating incentives as proposed in a recent op-ed (Jacob Bundrick, "On the bottom line: Corporate welfare hurts taxpayers") would handicap the state. It was argued that Arkansas should not need incentives to attract businesses for which Arkansas has a comparative advantage.
That is wishful thinking if the state wants to compete for jobs with neighboring states with strong economic development incentive programs. Unilateral disarmament is not a viable economic development strategy.
Many businesses have their choice of where to locate and grow. Almost any manufacturing business could locate in several different states. Corporate headquarters, remote service centers, and certain other kinds of service businesses also have geographic flexibility.
In a free market, these types of businesses are going to look for the best deal in deciding where to locate and expand. Indeed, most are in competitive industry sectors and must do so if they do not want to be at a disadvantage versus competitors. Additionally, as existing facilities and equipment age, businesses must decide whether to reinvest in a state or to seek better economic climates elsewhere.
Economic development incentives are a way to bring such geographically flexible businesses to Arkansas and keep them here. While Arkansas has certain advantages in climate, demographics, geography, and government, our neighboring states are similarly situated. These neighbors also tend to have lower taxes on businesses (Texas) or very strong incentives programs (Mississippi and Louisiana).
Arkansas has to be able to compete with these states if it wants to attract and retain good manufacturing and corporate jobs.
Arkansas still comes out ahead on incentivized projects because it receives taxes on economic activity that otherwise would not be in the state. There is no injury to taxpayers. The Arkansas Economic Development Commission rigorously evaluates project proposals to make sure that Arkansas comes out ahead from a cost-benefit perspective. Indeed, sometimes the cost-benefit analysis does not support more incentives, and another state with a richer offer will get the project.
Most Arkansas incentives pay out only as the incentivized growth occurs, so there is little risk to taxpayers. And those incentives that do involve upfront payments also have "clawback" provisions to get the money back if the company does not follow through on its promises.
There are ways to lessen the state's need for economic development incentives.
We can reform our tax code to make it more business-friendly, particularly for manufacturers. We can make the workers' compensation system less burdensome. And long-term, we can reform and invest in our education system so that we have a better work force.
But even with those improvements, there will always be a need for incentives to attract the most competitive projects.
It may well be the case that one day the United States Congress will act to curtail state and local economic development incentives. Until then, states will be using these tools to attract and retain jobs that could go to other states.
Arkansas cannot afford to abandon its incentives programs and lose out on these opportunities.
------------v------------
Randy Zook is the president and CEO of the Arkansas State Chamber of Commerce and Associated Industries of Arkansas. Matthew Boch is a member of Dover Dixon Horne and an assistant editor of the Journal of Multistate Taxation and Incentives.
Editorial on 04/15/2016