Should Attracting Business to Arkansas Rely on Legislation That Plays Favorites?

by Dr. Jeremy Horpedahl

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 UCA Associate Professor of Economics, recently put it in an article in The Daily Record:

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 “Do Business Subsidies Lead to Increased Economic Activity? Evidence from Arkansas’s Quick Action Closing Fund,” ACRE Affiliated Scholar Jacob Bundrick and UCA 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.