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.

What are the trade-offs states make when offering economic development incentives to private businesses?

Prof. Nathan Jensen discussed this and more on Tuesday, November 13th in the BT����College of Business auditorium to a crowd of over 70 attendees.

Jensen is a Professor in the Department of Government at the University of Texas-Austin. He teaches courses and conducts research on government economic development strategies and business-government relations, among other things. He is a coauthor of the book with Edmund J. Malesky of Duke University. The book focuses on political incentives for economic subsidies.

Jensen explained that voters tend to give politicians credit for luring businesses through these incentive programs although they can be “expensive, distorting and ineffective.”

However, voter approval for these programs declines once they’re shown some of the tradeoffs.

For example, support for using property tax exemptions decreases when people are also asked to consider that this would lower tax revenues that support schools.  

Jensen said:

Voters love the use of incentives to bring jobs until you show them the costs. I don’t mean the dollar costs. I mean…what are the tradeoffs?”

Speaking of tradeoffs, here’s some of the alternative programs Arkansas could fund with the money it’s appropriated to Arkansas’s “Quick Action Closing” economic development incentive fund since 2007:

Jensen concluded his remarks with noting that such incentives rarely change firms’ behavior even though all states engage in such policy.

Jensen said:

Just because another state does something that’s stupid, it doesn’t mean you should too. There are unique things about Arkansas and there’s reasons why firms want to be here. There are reasons why firms want to be elsewhere. You just have to know that very rarely these incentives change firms’ investments.”

You can watch a video presentation summarizing Jensen’s research . A video recording of Jensen’s talk will be uploaded to the soon.

New Policy Review

Jensen’s visit wasn’t the only big news related to incentives on Tuesday. The Arkansas Center for Research in Economics released a new policy review entitled Government Accountability: 5 Fixes for Arkansas’s Quick Action Closing Fund by ACRE Policy Analyst Jacob Bundrick last week.

The review outlines five ways Arkansans can improve the transparency and accountability of the program.

The five reforms include:

• Improving reporting standards of the state’s use of the QACF
• Making clawback agreement formulas public and void of renegotiation
• Limiting the value of subsidies awarded on a per-job basis
• Paying subsidies awarded as project targets are achieved
• Capping the number of QACF projects allowed in any given year

For a one-page summary of Bundrick’s research on the QACF, go here. The full text of the policy review can be found here.

For more of ACRE’s research on targeted incentives, go here.

What is the Quick Action Closing Fund (QACF) and what reforms should be considered to protect taxpayers?

Jacob Bundrick, a policy analyst at the Arkansas Center for Research in Economics, was on the Conduit News radio program Wednesday morning to answer these questions and more.

The QACF allows the state to provide cash grants to select entities in the hopes of attracting and retaining businesses within Arkansas. The state legislature has appropriated approximately $176 million to the QACF since it was created in 2007. The Arkansas Economic Development Commission has said the program is responsible for creating or retaining nearly 20,000 jobs in Arkansas.

In the interview, Bundrick discussed the findings of, “an academic journal article he co-authored with BT����Associate Professor of Economics and ACRE Scholar Thomas Snyder that was published in The Review of Regional Studies on March 6, 2018.

Bundrick said:

What we found was that these subsidies don’t actually stimulate increased economic activity here in Arkansas. There’s no increases in employment or establishments in Arkansas counties.

Bundrick also said the best policy would be to end the program and use the savings for tax relief or other governmental needs. However, there are incremental reforms to the program that can better protect taxpayers such as increasing transparency requirements and introducing subsidy limits on a per-job basis.

Bundrick said:

The lower the cap, the less risk there is that you overpay and end up losing money for taxpayers.

You can listen to the full interview here:

Bundrick is also the author of the ACRE policy review, “Tax Breaks and Subsidies: Challenging the Arkansas Status Quo”.

Does Arkansas’s Quick Action Closing Fund (QACF) increase county-level private employment and establishments?

ACRE Policy Analyst Jacob Bundrick and Scholar and BT����Assistant Professor of Economics Dr. Thomas Snyder investigate this question in their academic journal article “published in The Review of Regional Studies on March 6, 2018.

The QACF allows the state to provide cash grants to select entities in the hopes of attracting and retaining businesses within Arkansas. The state legislature has appropriated approximately $176 million to the QACF since it was created in 2007. The Arkansas Economic Development Commission has said the program is responsible for creating or retaining nearly 20,000 jobs in Arkansas.

Bundrick and Snyder find contrary evidence. Their research shows that QACF subsidies provided to businesses within a given county have no statistically meaningful relationship with private employment  or private establishments over a four-year period after the subsidies are disbursed.

These scholars have presented these findings less formally before, but this new, peer-reviewed publication opens the doors for more researchers to examine the promises — and realities — of job subsidy programs like QACF.

They also find no evidence  that counties experience measurable employment or establishment spillover effects related to QACF subsidies awarded to businesses in neighboring counties. Bundrick and Snyder conclude that the evidence provides reason to be skeptical of the QACF as a job creator.

A summary infographic of Bundrick and Snyder’s work can be found here. For more on the pros and cons of targeted economic development incentives, be sure to check out Bundrick’s Policy Review Tax Breaks & Subsidies: Challenging the Arkansas Status Quo.

Bundrick and Snyder’s research paper was subject to the . Dr. Amanda Ross, Assistant Professor of Economics, Finance and Legal Studies at the University of Alabama, is the Editor-in-Chief of the The Review of Regional Studies. Dr. Dan Sutter, Professor of Economics at Troy University, served as guest editor of the most recent edition.

The focus of the is  to foster the exchange of ideas and promote studies focusing on regional topics and issues and utilizing tools, methods, and the theoretical frameworks specifically designed for regional analysis as well as concepts, procedures, and analytical techniques of the various social and other sciences.