OPINION - Guest writer

MIKE PRESTON: Incentives helping Arkansans

The academics at the Arkansas Center for Research in Economics (ACRE) in recent months have posed questions in this newspaper about whether incentives are beneficial to Arkansans and whether they are important to the economic development efforts of the state.

The simple yet resounding answer is yes.

Arkansas competes for jobs not only regionally but nationally and internationally. We are unique in many ways but also similar to other states and regions. And we're all fighting for the same thing--to improve the lives of our citizens with higher-paying jobs that can raise the quality of life for us all. When companies are deciding where to locate, expand or even close, they must consider their bottom line and what site makes the most financial sense for them. While we've made progress as a state, we are still at a disadvantage as compared to others in the region when it comes to our tax structure. Incentives help level the playing field so that we can compete for companies in targeted industries with high-wage jobs and show that the state is committed to growing business.

Perhaps there is an overall misunderstanding about how and when incentives are used. Incentives typically come in the form of rebates or tax credits, all of which are performance-based. Most of them are statutory, meaning a company meets the requirements based on the number of jobs created and wages they pay, in addition to capital investments and sales tax paid. Simply put, there's a formula and a clear outcome required within each agreement to qualify for any state dollars.

While the Quick Action Closing Fund is a discretionary incentive, the Arkansas Economic Development Commission and Gov. Asa Hutchinson do not award it lightly or without regard to risk. It also has performance metrics and clawbacks specific to each agreement, and the governor's proposed budget for that fund this biennium is prudent yet aggressive. Frankly, the assertion from ACRE that the state has weak penalties and poor enforcement of incentives clawbacks is patently false.

Having flexibility in our incentive agreements allows us to work with a company that is already in Arkansas or has relocated to our state. Oftentimes businesses are at the mercy of the global economy, and a slowdown can have repercussions throughout. For example, the Caterpillar facility in North Little Rock announced its decision to locate here in 2007, shortly after the company--along with just about every other industry--was impacted by the 2008 financial crisis and subsequent recession. Rather than demand payment from Caterpillar and perhaps force its closure and subsequent job losses, the state was able to work with the company leadership to keep the facility open. As a result of the machine industry booming again, Caterpillar is back up to full production and recently announced two more production lines coming to the facility, resulting in an additional 250 jobs.

The number of jobs, percentage of clawbacks and funds provided by the Legislature from the last 10 years that ACRE analyst Jacob Bundrick relayed from his ivory tower can be interpreted in several ways, but his claim that incentives are costly and ineffective is erroneous.

Bundrick bungles the numbers of the Hewlett-Packard deal so badly that space prevents me from correcting the errors of premise and fact. But the bottom line is this: The Hewlett-Packard deal evolved into two Fortune 500 companies (Insight and DXC) whose cumulative and current local payrolls far exceed what was negotiated a decade ago. The state and the taxpayers weren't just made whole with clawbacks during that process--we came out ahead. Incidentally, they're both hiring.

Perhaps he's visited one or two of the world-class facilities in his own backyard, including Snap-On Tools, Virco Manufacturing or Tokusen, but that's doubtful. If he had, he'd know firsthand that reality is sometimes different than the world of academics, and these are real jobs and real people we support. Since the governor took office in January 2015, the Arkansas Economic Development Commission has signed incentive agreements for more than 400 projects. Through these agreements, those companies have agreed to create 16,959 jobs at an average wage of $20.34--more than double the state's new minimum wage--and invest almost $8.6 billion in the state.

Arkansans are hard workers, proud and strong. The public and private sectors have come together in recent years to create high-paying jobs with good environments, putting unemployment at record lows since the governor took office. We work to keep and bring jobs to the state, because we know they want to work. That's our job, to ensure there are jobs for Arkansans and a growing economy. We look forward to another big year in 2019.

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Mike Preston is executive director of the Arkansas Economic Development Commission.

Editorial on 01/17/2019

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