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State economic development agency report details efforts, potential plans Sunday, Aug 26, 2007 By Jason Wiest Arkansas News Bureau LITTLE ROCK - To better recruit industry to the state, the Arkansas Economic Development Commission will consider, among other things, pursuing a constitutional amendment to remove the restriction on the state investing in private companies. Details of the agency's economic development efforts in 2006, as well as possible strategies in coming years, were revealed last week in an annual report to legislators that has been required by law since 2002. "Our efforts to 'grow our own companies' would be enhanced if the state could take a modest equity interest in companies that are receiving state financing or funding," the report said. The consideration - one of many that also include offering income tax credits to Arkansas companies that recruit their suppliers to the state; providing incentives to companies that hire people with certain doctorate degrees; and exempting native Arkansans from income tax or capital gains tax if they return to the state - is only an idea, not a commitment, said Morris Jenkins, director of AEDC's strategic planning division. It's a bad idea, according to a local economic research foundation. "State government should not be investing state money - whether its pension fund money, excess revenues, special funds that they create - they should not be attempting to pick winners with state money," said Greg Kaza, executive director of the Arkansas Policy Foundation. Not all government leaders have the knowledge to do so, Kaza said. Under Article 12, Section 7 of the Arkansas Constitution, "the state shall never become a stockholder in, or subscribe to, or be interested in the stock of any corporation or association." But changing the constitution is worth considering, said Rep. David Dunn, D-Forrest City. Dunn, a candidate for House speaker in 2009, is director of the Forrest City Chamber of Commerce and the city's former economic development director. "I do think that maybe that would be a positive thing for us as a state in order to be able to finance some of these bigger projects that some of these other states seem to have the option of doing," Dunn said. "I do know that, being in business as long as I have been, we are at a severe disadvantage when it comes to long-term financing for projects." Calls to Sen. Bob Johnson, D-Bigelow, elected Senate president pro tem for the 2009 regular session, and two other state representatives running for House speaker were not returned. Rep. David Rainey, D-Dumas, another House speaker candidate, said he would have to study the issue before commenting. A spokesman for Gov. Mike Beebe said he is studying the issue but had no immediate comment. As another possible solution to the problem, AEDC will consider revisiting Amendment 82, approved by voters in 2004 authorizing the state to issue bonds of up to 5 percent of net general revenues during the most recent fiscal year to attract super projects, Jenkins said. "The amount of money that's available for super projects may be insufficient," Jenkins said, noting that the department will consider a tiered approach that may allow smaller projects to qualify with different thresholds. With the current incentives the state has available to offer companies, Arkansas lured more development in 2006 than the previous year. New and expanded jobs reported by AEDC increased 60 percent from 2005, rising from 3,455 to 5,534, according to the report. To attract jobs last year, AEDC made 153 formal incentive offers to eligible companies. Of those offers, 85 were accepted, resulting in the announcement of 19 new businesses and 66 business expansion projects. The rise in pay for those jobs, however, was minute: from $13.20 an hour in 2005 to $13.44 last year. At the end of 2006, Arkansas ranked 48th nationally in per capita personal income and last in average hourly earnings of manufacturing workers. "This is a state where officials have maintained for decades ... that their policies would lead to an increase in our per capita income rank," Kaza said. "We have gone from being three-quarters of the U.S. average in the mid-70s to where we are today." Last year, Arkansas' per capita income of $27,935 was 77 percent of the U.S. average, according to the U.S. Bureau of Economic Analysis. "That's not improvement," Kaza said. However, he said things could change under Gov. Mike Beebe and AEDC Director Maria Haley. Through the first four months of 2007, AEDC announced 1,510 new and expanded jobs with an average hourly wage of $18.34. "These wages illustrate that AEDC is moving toward creating jobs that pay above state averages," the report said. The agency expects the average to decrease by the year's end, however. When the report was written in May, yet-to-be announced jobs averaged $11.63 an hour, according to Jenkins. But Kaza said AEDC is heading in the right direction by considering the reduction of the state's capital gains tax. "There's a reason we're a poor state," he said. "A state capital gains tax is a powerful disincentive to attracting capital to the state." Other factors that affected the state's economy over the past decade included "the dominance of technology, globalization, and the changing nature of corporate governance," according to the report. In the future, AEDC predicted declines in areas of manufacturing that have already been hard hit. The textiles and apparel industry "will continue to decline as worldwide production moves to China and other low-wage countries," the report said. It predicted the same for the electronics and appliances industry and the furniture industry, which "will continue to struggle as competition with Chinese imports increases." Additionally, AEDC predicts job losses in the "mature" lumber and wood products industry. A brighter future is seen in the food industry, largely because of the rooted poultry industry in the state, and in biofuels. To foster the alternative fuels industry, the report said AEDC "might consider" supporting a bill that would provide biorefineries that convert cellulosic materials to motor fuels or chemicals with incentives unique to the industry, similar to the 25-year income tax exemption that windmill blade manufacturer LM Glasfiber was offered prior to announcing it would bring 1,000 jobs to Little Rock. |
