Corporate Welfare in Arkansas

Corporate Welfare in Arkansas – Governor’s Quick Action Closing Fund

The hard working people in small businesses around the state should be outraged. They are creating value, then having that value taxed by the state. Then the state turns around and gives those tax dollars to another private company, sometimes their competitors.  This not only redistributes the wealth of the small business owner but often re-distributes their employees as well.  Not only do these companies get taxpayer money by the hundred-of-thousands, and even millions, but several of these businesses are large, politically connected companies.   The small businesses of Arkansas who want to be left alone by government are at the losing end on both sides.

How is this done, you ask?  The Arkansas General Assembly established the Quick Action Closing Fund (“QAF”) through Act 510 of 2007. The bill passed unanimously in the Senate, and had only four “no” votes in the House (all republicans). Bruce Maloch (D-HD4) and Jim Hill (D-SD20) sponsored the bill.

The discretionary fund provides tax revenue to private businesses.  Act 1147 of 2015 appropriated $20 million to the fund for the upcoming fiscal year. The Governor has discretion on when and how the funds are used. Recently, Governor Hutchinson awarded American Taekwondo Association $950,000 from the fund to build a headquarters in Little Rock. Ben E. Keith received over $2.27 million from QAF recently as well. Below is a table listing the projects from the QAF for FY13 and FY14.

The table shows that the state of Arkansas has literally been paying for private companies’ rent, parking, bills, salaries, renovations, and equipment among other things.

This slush fund presents Corporate Welfare at its worst.  Rather than having a free market to decide which companies thrive and survive, the government, and in fact the Governor himself, is hand picking who gets taxpayer money to pay their bills and entice the best employees from Arkansas’ limited work force.  Negative sentiment towards abuse of welfare for individuals has grown greatly in the last few years, but many remain unaware of the Corporate Welfare practices in the state.

QAF is characterized as “economic development” that keeps jobs here rather than going to some other state or country. The program’s intent is to save jobs that may otherwise be lost because of budget cuts or because a company is considering moving operations to a more business-friendly area.  With the current manufacturers in the state unable to find a sufficient number of dependable works as it is, one must wonder about the need for this policy.

Some takeaways of the corporate welfare Quick Action Fund include:

• $742,000 to ConAgra Foods for “parking/road” in 2013
• $750,000 to Arkansas Research Alliance for “research salaries” in 2013
• $5,000,000 to Blue Oak Resources through the AR Venture Capital Fund for “investment” in 2013
• $1,000,000 to NanoMech, Inc. for “payment to Waco Title Company” in 2013
• $687,000 to nGage Labs for purposes including “rent” in 2014
• $478,182 to Umarex USA for “building expansion and parking” in 2013
• $599,000 to NUVZN Technologies for “rent reimbursement” in 2014
• $1,600,000 to Inuvo for “relocation and equipment” in 2013
• $865,000 to Dassault Falcon for “road and engineering” in 2013
• $1,800,000 to Windstream for “capital improvements” in 2013
• $$634,000 to Custom Aircraft Cabinets for “building renovation” in 2012

If these renovations, equipment, and rent payments were truly needed and wanted, then the market would be calling for them. With Government making choices for consumers on what businesses will succeed, they decide a specific business’ product/service over others. Left up to individuals in a free market place, this business or a specific area of a business may fail. Allowing otherwise failing businesses to continue through taxpayer handouts fosters the continuation of something the market has otherwise rejected. Continuing of rejected products/services guarantees inferior choices to consumers because it is not allowing the rejected choices to leave the market and make room for innovation for better choices for consumers.

A far better way to spend this money would be to reform the tax code to give the $20 million back to the businesses that actually paid in the taxes. These true producers are creating value. To allow those small businesses in our state which are already producing and creating value to keep more of their money for research and development seems like a no-brainer for investment and true “economic development” for Arkansas. Yet each year we tax businesses then redirect a portion of that money to other businesses for their own operations through QAF.

In the recent past, QAF recipients have had to return a portion of their funds because they closed their operations. Hewlett Packard in Conway and Nordex near Jonesboro were both recipients of QAF money. Both companies closed and/or cut jobs soon after receiving the money. This effectively made those payments interest free loans to failing businesses. All paid for by taxpayers.  And as the list below reflects, some companies come for more than one serving.

If Arkansas were truly a “jobs magnet”, then there would be no need for extra forces to draw businesses here. The jobs would come because of economic opportunity, a strong work force, and the tax and business friendly environment needed to foster economic development. Getting government out of the way, and out of the pockets of small businesses would allow them to grow and thrive, adding jobs and value to the community in which they are located.

Let consumer choices decide the winners and losers. Stop letting Government choose the winners and losers with other people’s money.

Total spent since 2007 – $132,502,000

Total jobs “created/retained” since 2007 – 12,372

Cost “per job” – $10,709.83

                                               87th Session – July 1, 2013 – June 30, 2014

                           86th Session July 1 2012 – June 30, 2013