Debate over state financial incentives for the proposed Big River Steel plant, which would be built in Mississippi County, takes center stage in the Arkansas Legislature this week, presenting some intriguing political conflicts.
Lawmakers are considering a $125 million bond program, apparently necessary for the $1.1 billion plant to be built. When the project was announced in January, supporters said it would bring 500 to 800 jobs with an average starting salary of $75,000. Furthermore, it would take some 2,000 construction jobs to build the mill.
In this time of economic uncertainty what’s not to like about such a project?
Lots, as it turns out.
Since January the two sides have been gathering ammunition, but this is not your ordinary partisan political battle.
First, you have the Democratic administration of Gov. Mike Beebe claiming it as a major industrial recruitment triumph. In the announcement Beebe said this is the largest economic-development project in the state’s history, that it would make Mississippi County the nation’s second-largest steel-producing county.
The Nucor Corp. already employs about 1,600 people at two factories not far from the 1,140-acre site south of Osceola where Big River would be built. To some extent Nucor and Big River would be competing for the same markets.
Then you have a Legislature with Republican majorities for the first time since Reconstruction. Few of those Republicans have been responsible for Beebe’s high level of popularity.
On the other hand, Republicans generally support big business and industry, and they don’t usually mind government incentives that promote economic development, even while cutting taxes and spending elsewhere. So there are internal conflicts for the GOP.
Take this one, for example — a real whopper.
Billionaire industrialists David H. Koch and Charles G. Koch of Koch Industries plan to invest $120 million in the new steel mill, which would make them a 40 percent stakeholder. The brothers Koch founded and bankrolled a special interest political group called Americans for Prosperity.
In the 2010 and 2012 elections AFP poured thousands and thousands of dollars into Arkansas legislative races to help Republican candidates. While the group’s success rate was mixed, its money certainly boosted Republican gains, at least enough to create the slim majority in the House of Representatives.
You’d think the winners would have a soft spot in their hearts for a project to help the Koch brothers cash in.
Nevertheless, Talk Business Arkansas reported Monday that the AFP Arkansas director had sent an e-mail to legislators last week opposing the bond issue and other state incentives for the Big River plant.
The AFP mailout said the state’s investment is too risky and would give Big River an unfair economic advantage over its competitors.
Indeed, the $125 million bond issue is only part of the state’s "corporate welfare" that would go to Big River, if the project goes forward. The AFP says the total package, including tax breaks, grants and loans, is more like $325 million. The problem is that much of the state’s industrial recruitment, including financial incentives, is conducted in secret — allowing taxpayer dollars to be given away to private interests without public debate.
If we don’t do that, economic development officials argue, we can’t compete with other states, most of which already have financial advantages over Arkansas. They’re probably right.
What industrial recruiters do then is to give away existing tax revenue and potential tax revenue in return for new jobs. The idea is that we recover the lost revenue with the new business and new jobs, i.e., higher payroll, sales and property taxes.
That’s why voters in 2004 overwhelmingly approved Amendment 82, which allows such bond issues as the one proposed for Big River. In effect, we said we would trust our elected officials to use the authority wisely.
The question now is whether this project is wise.
Officials of Nucor are saying, rather loudly, it is not. Over the past week they’ve published a full-page, full-color advertisement daily in The Jonesboro Sun and also Sunday in the Arkansas Democrat-Gazette opposing the project. Urging citizens to contact their legislators, the ad says in part:
"We’re still recovering from the worst recession since the Great Depression. So why is the state now proposing to gamble $125 million Arkansas tax dollars on a start-up steel company? The steel mills we already have only operate at a fraction of their capacity. If demand for steel existed, these mills would be running full-time."
To be fair, it should be pointed out that Nucor has also benefited from state financial incentives. How much exactly is a secret, but a New York Times investigation last year produced a nationwide database accounting for business incentives awarded by cities, counties and states. It places Nucor third highest in Arkansas with $17.8 million in sales and use tax credits, income tax credits and an economic investment tax credit.
Still, that’s small compared to the proposal being debated.
Our lawmakers are looking closely at a couple of independent studies analyzing the Big River project. One of them says the Arkansas Economic Development Commission overestimated the long-term net economic benefits of the plant. The lawmakers will have to determine if that’s true; if so, turning down a $1.1 billion plant will require no small measure of political courage.
Roy Ockert is editor emeritus of The Jonesboro Sun. He may be reached by e-mail at email@example.com.