The Arkansas General Assembly convenes for the 2023 general session on January 9, 2023. Over the weeks and months that follow, the Legislature will consider bills on a wide variety of issues affecting individuals and businesses in Arkansas. Researchers at ACRE have been hard at work since the last legislative session conducting basic research in our primary policy areas of government transparency, labor market regulations (especially occupational licensing), and fiscal policy (both tax and spending issues).

Based on our research at ACRE, we’ve also put together a list of our Top 10 Policy Goals for the next legislative session. These policy goals encompass major reforms that legislators could implement which our research and the research of other academics suggest will improve the economic fortunes of Arkansans. We invite you to take a look at our list of recommendations in the linked document which also provides references to the research supporting our ideas, but in brief here are our policy goals:

• Occupational Licensing
  1. Universal recognition of licenses from other states
  2. Lowering barriers to obtaining licenses such as unnecessary educational and training requirements
  3. Using less restrictive regulations than occupational licensing, such as registrations and certifications
• Taxes and Spending
  1. Structural changes to the state budget, such as a “tax and expenditure limit” which puts a limit on state government growth
  2. Continuing the reductions in personal and corporate income taxes that began in 2015
  3. Targeted spending reforms, especially by learning from other states that spend more efficiently than Arkansas
  4. Reducing state spending on targeted economic development incentives
• Government Transparency
  1. Expanding transparency at the local level
  2. Fiscal transparency for first-class cities in Arkansas, following successful transparency reforms for counties in Arkansas in recent years
  3. Transparency for federal influxes of funds, such as the various federal assistance plans passed during the pandemic

As the legislature gets under way and bills start to be filed and discussed, ACRE researchers are willing and excited for the opportunity to help educate lawmakers and the general public on the costs and benefits of potential policy changes in our research areas. As in past years, ACRE staff will appear before legislative committees to explain how our research informs policies under consideration, as well as work with local media to help explain to Arkansans how policy changes may impact them.

Finally, ACRE is also excited to announce the release of our Annual Report for 2021-2022. If you don’t know much about ACRE and our programs, this report is a great way to learning about all the things we do for students at UCA, and to help educate Arkansans generally about economics and public policy. We look forward to continuing this work over the next few months during the legislative session, as well as throughout the rest of the year after the session concludes.

The arrival of Pittsburgh-based U.S. Steel Corp’s new sustainable and technologically advanced mill in Osceola, Arkansas promises to bring jobs and revenue to the state. This is something most of us can get behind. However, the way the deal was secured raises concerns for a free and fair marketplace. The legislature openly passed a law, HB 1007, to benefit one company. This law will provide tax breaks and incentives to U.S. Steel, and the law was written in such a way that they are the only firm that could benefit from the new policy.

As Dr. Jeremy Horpedahl, ACRE Scholar and BT����Associate Professor of Economics, recently put it in :

the openness with which the legislature seems fine with passing laws that everyone acknowledges will benefit just one firm seems like a huge change to me. … In my opinion, this is something which we should be very worried about going forward, as more firms may now feel that they can come to the legislature, tell them that other states are offering them deals, and the legislature will amend state laws with no debate. Usually, there’s at least the appearance that these incentives are available to many firms

While jobs and revenue take center stage of this discussion, we should ask ourselves how doing business in this manner influences future industry partnerships in Arkansas, and how it erodes fiscal integrity. Dr. Horpedahl also emphasized that the 700 jobs that may be created from the new steel plant are small compared to “the normal job creation of a growing economy” which averages about 1,400 new jobs per month during most recent years (excluding the unusual times of the pandemic).

Past ACRE research has shown that targeted economic development incentives are not beneficial to Arkansas’s economy as a whole. For example, in the paper “,” ACRE Affiliated Scholar Jacob Bundrick and BT����Associate Professor of Economics Thomas Snyder find that QACF subsidies do not increase employment in a county receiving the subsidies, nor do they increase employment in neighboring counties.

Policies that promote job growth in Arkansas are to be praised, but only when they are aimed at growing the entire Arkansas economy, rather than targeted to specific firms or narrow industries. As Dr. Horpedahl put it in The Daily Record article, “the governor’s efforts to lower income taxes for all Arkansans and businesses, and his restructuring of the state’s onerous corporate tax code had more impact than incentives” offered to politically-favored businesses. Focusing on further lowering the burden of taxation for all families and businesses should be the goal of development policy.

To read more about this topic, see ACRE’s past work on targeted economic development incentives and tax and spending reform.

By Caleb Taylor

ACRE Legislative Research Associate Nathan Smith recently testified against legislation expanding tax credits for some businesses in Arkansas.

Smith said the bill would be “basically just a giveaway of millions of dollars a year to shareholders of these companies.”

sponsored by State Sen. David Wallace and State Rep. Joe Jett was considered and passed by the House Revenue and Tax Committee on Thursday, April 15.

According to the :

Senate Bill 543, by Sen. David Wallace, R-Leachville, would allow for recycling tax credits to be calculated at 30% of the expense of the eligible equipment for qualifying projects.����

Wallace said his bill aims to assist Big River Steel in Mississippi County.��

The income tax credit is available under current law to qualified steel specialty products manufacturing facilities that started construction on or after Jan. 1, 2017, with a closing date before July 1, 2018, the finance department said.��

SB543 would extend the credit to such facilities that start construction on or after Jan. 1, 2021, with a closing date before July 1, 2023.”

Jett said to qualify for the tax credits a business would have to have a project of at least a $200 million investment and 150 new jobs with an average salary of $75,000 per job.��

Smith said, based on dividing the size of the tax credit by the number of jobs required, the legislation would lead to the state effectively paying 44 percent of the wages in the target jobs.��

Smith said:

Lots of employers would love to have 44 percent of their wage bill covered by the state but we can’t afford to do that for everybody so in practice it only gets done for a privileged few. That’s not a good way to do business.”

Smith also said the lost revenue from the legislation “could better be used for state infrastructure needs or income tax cuts.”

Smith said:

These types of incentives are usually not pivotal in business decisions. If you give a tax break to a business to do what you’d do anyway, that’s basically just a giveaway of millions of dollars a year to shareholders of these companies. There are better things you can do with this money.”

You can watch his full testimony . Smith’s testimony begins at 5:56:21 p.m.

You can find more of our research on economic development incentives here.

By Caleb Taylor

Should local public officials be able to meet in secret to discuss economic development projects?

sponsored by State Rep. Delia Haak R-District 91 and State Sen. Lance Eads R-District 7 would amend Arkansas’s Freedom of Information Act (FOIA) to allow for an executive session to be called by local government officials to discuss economic development projects.��

Executive sessions are closed to the public and these discussions aren’t subject to FOIA requests. Currently, local governments can only call an executive session for discussions related to employment, demotion, promotion, appointment, disciplining or resignation of public officers or employees.

During a meeting of the Senate City, County and Local Affairs committee on April 8th, Eads said the “bill allows cities and counties to go into an executive session to discuss an economic development project” and “specifically defines what that means and what types of things they can talk about.”

Eads said:

This would provide an exemption within the executive session from FOIA so that they would have the ability to discuss where they’re at in the process to make sure they have the best opportunity to be successful while at the same time not give out any vulnerable information by creating undue competition with information they don’t want to share with anyone else at that point in the process.”

ACRE Economic Policy Analyst Dr. Mavuto Kalulu said the bill would “erode” Arkansas’s FOIA that’s widely considered to be one of the best in the nation.

Kalulu said:

The bill restricts government transparency. In general, transparency is beneficial to both the government and for their citizens.There’s academic evidence that shows that economic development incentives are not as effective as they’re advertised hence the need for transparency. We’re pumping public money into economic development incentives that aren’t very effective. That’s why we need to be more transparent in the way we’re going about these deals.”��

Kalulu is a co-author of “Access Arkansas: County Web Transparency” with ACRE Policy Analyst Joyce Ajayi.

You can watch Kalulu’s full testimony (begins at 10:34:23 a.m.)

The bill failed to pass for a lack of a motion to pass. Previously, the bill .

For more of our research on targeted incentives, go here. For more of our research on transparency, go here.

By Caleb Taylor

How effective are Arkansas’s economic development incentives?

Not very, according to ACRE Research Fellow Erica Smith in an op-ed published on May 11 in Arkansas Business entitled “.”

Smith writes about the economic literature on economic development incentive programs such as Arkansas’s Quick Action Closing Fund (QACF) and concludes that the return on investment from such programs don’t match up with the alleged benefits claimed by proponents.

Smith writes:

The QACF disbursed almost $134.8 million between October 2007 and June 2019, state figures show. With such money being spent, we should ask if this program is worth its cost.��The governor and the AEDC commonly publicize new grants from this fund, and each press release typically estimates the amount of job creation and future investment expected to result from the allocation of our tax dollars. For example, in 2019 and create 65 jobs with the help of $300,000 from the QACF.��Empirical evidence generally does not support the claim that these programs create jobs. Stephen Goetz of Penn State University, Mark Partridge and Shibalee Majumdar, both of Ohio State, and Dan Rickman of Oklahoma State University found that these policies were associated with lower statewide job growth from 2000-07.”

A forthcoming paper entitled “Do Politicians Use Targeted Economic Incentives for Political Gains? Evidence from Arkansas Gubernatorial Elections” co-authored by Smith, ACRE Affiliated Researcher and BT����Lecturer I of Economics Jacob Bundrick, and BT����Assistant Professor of Economics Dr. Weici Yuan examines the question of whether there’s a connection between gubernatorial re-election and which counties get economic development incentives.

Smith is one of the fellows in ACRE’s inaugural summer fellowship program. She and other fellows will continue to work on research with a mentor, participate in an online reading group, and professional development training. She will also continue to be a tutor for econometrics.

Smith was also recently named economics student of the year by the .

For more of ACRE researchers’ work on targeted economic development incentives, go here.

Congrats to ACRE Undergraduate Research Fellow and new BT����alumnae Erica Smith for being named economics student of the year by the !

Smith plans to begin her professional career with a few years working in supply chains and learning about logistics before pursuing a graduate degree. Erica majored in economics while at BT����and is originally from Vilonia.

Smith was a part of ACRE’s Research Fellowship Program. In this program, students work with a professor or policy expert to write a publishable research paper and an op-ed.��

Smith studied the intersection of economic development incentives and politics in Arkansas.

A new working paper entitled “Do Politicians Use Targeted Economic Incentives for Political Gains? Evidence from Arkansas Gubernatorial Elections” co-authored by Smith, ACRE Affiliated Researcher and BT����Lecturer I of Economics Jacob Bundrick, and BT����Assistant Professor of Economics Dr. Weici Yuan examines the question of whether there’s a connection between getting re-elected and which counties get economic development incentives.

Smith is also one of four fellows in ACRE’s inaugural summer fellowship program. Over the summer, she and three other BT����alums will continue to work on research with a mentor, participate in an online reading group, and professional development training. She will also continue to be a tutor for econometrics.��

Smith is also a two time recipient of an ACRE travel reimbursement award. She received funding last summer to study the ideas of classical liberalism in Prague and in the fall of 2019 she attended the 2019 O’Neil Center Annual Conference, “Past As Prologue: What History Teaches Us About Today’s Economy” in Dallas, TX.��

For more of ACRE researchers’ work on targeted economic development incentives, go here.

By Caleb Taylor

Is there a connection between getting re-elected and which counties get economic development incentives?��

A new working paper entitled “Do Politicians Use Targeted Economic Incentives for Political Gains? Evidence from Arkansas Gubernatorial Elections” co-authored by ACRE Undergraduate Research Fellow Erica Smith, ACRE Affiliated Researcher and BT����Lecturer I of Economics Jacob Bundrick, and BT����Assistant Professor of Economics Dr. Weici Yuan examines this question.

According to the abstract of the paper:

State and local governments spend billions of dollars a year on economic development incentive (EDI) programs in an attempt to attract and retain businesses within their localities.�� Among these programs, targeted economic incentives allow governments to award discretionary cash grants to select individual companies. However, such policies are generally found to contribute very little to economic performance such as growth, employment, and poverty. This paper investigates political gains from targeted incentives. Using Arkansas’ gubernatorial elections data between 2006 and 2018, we find the evidence suggests that Arkansas’ targeted incentives such as Quick Action Closing Funds and Create Rebate do increase the likelihood that the incumbent party wins the election in the recipient counties. However, there is no evidence that the government strategically direct business subsidies to counties with close votes in the previous elections.”

Smith is a part of ACRE’s Research Fellowship Program. In this program, students work with a professor to write a publishable research paper.��

Smith is from Vilonia, Arkansas. She is a senior majoring in Economics and is considering a career in the global supply chain after graduation.

Bundrick and Yuan also published a paper recently on a similar topic titled “,” published in Economic Development Quarterly on September 20, 2019.��

Bundrick and Yuan used evidence from Arkansas’s Quick Action Closing Fund (QACF) to analyze how effective deal-closing funds are at increasing incomes and decreasing poverty at the county level. Their results indicate that the funds are ineffective at achieving these goals.��

For more of ACRE researchers’ work on targeted economic development incentives, go here.

Bundrick’s latest publication, “” is a policy review highlighting five ways Arkansas officials could improve the Quick Action Closing Fund.

For a summary of the costs of Arkansas’s Quick Action Closing Fund, go here.

By Caleb Taylor

Are economic development incentives a cost or benefit to Arkansas?��

ACRE Affiliated Researcher and BT����Lecturer I of Economics Jacob Bundrick was quoted in an article in the Arkansas Democrat-Gazette titled “,” published on December 14.��

The article focuses on an annual cost-benefit study of economic development incentives by Arkansas Legislative Audit.

The study found “TaxBack, Advantage Arkansas, Create Rebate and Invest Arkansas (incentive) programs have a net positive cost effectiveness, while In-House Research and Development-Targeted Business projects were negative cost effective.”

However, Bundrick disputed the study’s methodology of incentives being “analyzed under the assumption that, without the incentive, the corresponding economic activity would not have occurred.”

Bundrick said:

We see time and again that incentives are not the deciding factor in a company’s location/expansion decision, but merely serve as a reward for doing as they intended. In these cases, incentives are a cost to taxpayers and provide no benefit. Put more simply, if the assumptions used in the analysis are invalid, how can we trust the results? We’re making real decisions with real taxpayer money using analysis we know to be flawed.”

Bundrick was also interviewed by about the Arkansas Legislative Audit study.

Bundrick and BT����Assistant Professor of Economics Dr. Weici Yuan published a paper recently on a similar topic titled “,” published in Economic Development Quarterly on September 20, 2019.��

Bundrick and Yuan use evidence from Arkansas’s Quick Action Closing Fund (QACF) to analyze how effective deal-closing funds are at increasing incomes and decreasing poverty at the county level. Their results indicate that the funds are ineffective at achieving these goals.��

For more of ACRE researchers’ work on targeted economic development incentives, go here.

Bundrick’s latest publication, “” is a policy review highlighting five ways Arkansas officials could improve the Quick Action Closing Fund.

For a summary of the costs of Arkansas’s Quick Action Closing Fund, go here.

A frequently used Arkansas business subsidy program largely fails to increase incomes or lower poverty rates over the long term, according to the latest research from two BT����academics.��

ACRE-Affiliated Researcher and BT����Lecturer of Economics Jacob Bundrick and BT����Assistant Professor of Economics Dr. Weici Yuan’s researched the Quick Action Closing Fund (QACF) and wrote a paper titled “.” It was published in Economic Development Quarterly on September 20th.��

Bundrick and Yuan use evidence from Arkansas’s QACF to analyze how effective deal-closing funds are at increasing incomes and decreasing poverty at the county level. Their results indicate that the funds are ineffective at achieving these goals.��

Created in 2007, the QACF allows the state to provide cash grants to select entities in the hopes of attracting and retaining businesses within Arkansas. From the start of the fund in 2007 to mid-2018, $185.7 million was appropriated to it. These subsidies are awarded to businesses primarily at the discretion of the governor.

Bundrick and Yuan conclude:

Our results coincide with the existing literature, indicating that QACF subsidies were largely ineffective at increasing per capita personal income and decreasing poverty rates in Arkansas’s counties. Few counties home to QACF projects experienced improvements in incomes and poverty rates relative to their counterfactuals. Moreover, the sparse improvements in treated counties generally proved to be temporary shocks rather than lasting improvements. Examining the average effects of the QACF also revealed that the subsidies did not create long-run improvements in per capita personal income and poverty rates. In general, our findings should caution policy makers who wish to improve incomes and poverty rates with targeted business subsidies.

This isn’t the first paper co-authored by Bundrick that questions the alleged benefits of the QACF. Bundrick and ACRE Scholar and BT����Associate Professor of Economics Dr. Thomas Snyder’s paper �� find that QACF subsidies provided to businesses within a given county have no statistically meaningful relationship with private employment per 1,000 population and private establishments per 1,000 population over a four-year period after the subsidies are disbursed.

Bundrick and Snyder concluded that the evidence provides reason to be skeptical of the QACF as a job creator. Their paper was published in the Review of Regional Studies in 2018 and first released by the Mercatus Center.

Targeted incentives are costly both when money is spent and when other opportunities are foregone. This funding could be used for other policies with better returns for Arkansans. Bundrick has repeatedly recommended policymakers prioritize more proven ways to improve economic growth through policies like tax reform, reducing barriers to job creation, and investing in education.��

For more of ACRE researchers’ work on targeted economic development incentives, go here.

Bundrick’s latest publication, “” is a policy review highlighting five ways Arkansas officials could improve the Quick Action Closing Fund.

For a summary of the costs of Arkansas’s Quick Action Closing Fund, go here.

By Caleb Taylor

What are the costs of Arkansas’s economic development incentives?

ACRE Policy Analyst Jacob Bundrick discussed this and more with the Faulkner County Tea Party on Thursday, May 9th at Larry’s Pizza in Conway.

During his presentation, Bundrick discussed the fiscal costs, opportunity costs and the “crowding out” of existing businesses that arise from Arkansas’s economic development incentive policies.

Fiscal Costs

According to the Arkansas Department of Finance and Administration, Arkansas has spent approximately $2.32 billion (inflation adjusted) on tax incentive programs from 1984 to 2017. , the Arkansas Economic Development Commission (AEDC) signed 1,569 total incentive agreements with 82,410 jobs being proposed.

Opportunity Costs

While attracting jobs and investment to the Natural State is a laudable goal, Bundrick says these policies have opportunity costs.

Bundrick said:

Opportunity costs are what you give up to get something. If we’re using tax dollars to finance these incentive agreements, that means we don’t have those tax dollars to finance education, road projects or broad tax cuts…police or fire protection. We’re foregoing these other uses of public money. The question we have to answer if we want to be responsible with public money is: Which of these uses has the biggest return?”

Bundrick said the “bar isn’t very high” ��to find other worthwhile uses of taxpayer dollars since most of the academic literature finds that incentives are ineffective. Policies that focus on the “broader business environment” like tax reform, occupational licensing reform and investments in education and infrastructure are better alternatives.

Crowding Out

Bundrick also states that “crowding out” existing businesses is another potential harm done by economic development incentive agreements.

Bundrick said:

We’re trying to attract new businesses and help certain businesses expand at the expense of other businesses. This happens because we’re providing an artificial cost advantage to the incentivized company. We give an incentive or tax break to a certain company, we’re helping them perhaps be able to sell their services or product at a lower cost than existing businesses. They’re able to perhaps take market share that might cause existing businesses some troubles. It might be that because of the artificial cost advantage they’re able to pay higher wages…they shift employees from existing businesses to incented companies. The real problem there is in places where there are workforce quality issues…the skilled employees end up at the incented companies and existing businesses can’t find people to do the work they need to do. That doesn’t leave them much choice…sometimes the existing businesses have to close down.”

To download a copy of Bundrick’s ��presentation slides, go here.

For more of ACRE researchers’ work on targeted economic development incentives, go here.

Bundrick’s latest publication, “” is a policy review highlighting five ways Arkansas officials could improve the Quick Action Closing Fund.

For a summary of the costs of Arkansas’s Quick Action Closing Fund, go here.