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State Capitol Week in Review - October 30, 2021

LITTLE ROCK – Business activity was severely affected by the pandemic last year across most areas of the economic spectrum, from the largest corporations to small businesses and individual wage earners.

In spite of the challenges created by the pandemic, the Arkansas Economic Development Commission signed incentive agreements for 48 projects that will create or preserve 2,917 jobs in the state. The average wage of those jobs is $22.10 an hour.

Those projects represent $695 million in new capital investments, according to a report to legislators by the AEDC.

The cost-benefit ratio of those projects is 6.36 to 1, which means the state will collect $6.36 in taxes for each dollar it offered to companies in financial incentives, as measured over a ten-year period.

The cost-benefit ratio of the projects contracted in 2020 was the highest of any year since Arkansas has been offering incentives to recruit industry.

For the four calendar years of 2017 through 2020, the AEDC signed agreements to offer financial incentives for 880 projects that will create or retain 16,619 jobs. The average cost-benefit ratio of the projects contracted during this four-year period is 4.66 to 1.

The estimated hourly wage for all the jobs created during this period is $22.24

When the AEDC offers financial incentives to recruit or retain a private company, the agreement includes what are known as “clawback” provisions. They are a condition the companies must accept in order to receive the incentives.

The companies must meet performance standards, such as paying wages and investing capital in the amounts to which they agreed.

The state Department of Finance and Administration conducts audits to determine if the companies comply with the “clawback” provisions.

Incentives take various forms. Manufacturers may qualify for refunds of sales taxes paid for equipment and machinery. Companies may get income tax credits for creating jobs. They may receive grants to pay for infrastructure, such as water lines, drainage, roads or rail spurs.

Companies can apply for income tax credits when they pay tuition for employees’ education and job training. Businesses may pay reduced sales taxes on their electricity and natural gas, if the energy is used directly in the manufacturing process.

The Governor’s Quick Action Closing Fund is an important tool for recruiting industry, especially when a firm decision is needed at the last minute to close a deal. For example, $10 million from the fund was committed to finalize an agreement with a manufacturer that recently announced it would create 500 jobs at the Port of Little Rock.

Since 2007 the fund has been used to help bring 97 projects to Arkansas. Those projects created or retained 31,509 jobs with an average salary of $20.90 an hour. The projects represent an investment of $3.35 billion.

Last year the fund was used to create the Quick Action Loan Program, which made more than $7 million in loans to 412 companies that suffered losses due to the Covid-19 virus, helping them maintain 3,318 full-time jobs and 1,480 part-time jobs.

The state attorney general helped fund the loan program with $3 million from the Consumer Education and Enforcement Fund.

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