Chinese Gamble Cost Taxpayers
How much did the gamble cost Arkansas taxpayers?
The communist Chinese company, Shandong Sun Paper Industry, announced it has canceled its plan to build a $1.8 billion paper plant near Arkadelphia in Clark County. The plant had been projected to add 350 employees.
Arkansas Commerce Secretary Mike Preston assured the public none of the previously announced incentives had been paid to Shandong Sun Paper and the taxpayer funds can be used as incentives to other corporations.
With no state incentives paid to Sun Paper is it really “no harm no foul”? That is the impression most people got from the final version of a Democrat-Gazette article, which was shorter than the original version. The longer version included information about other taxpayer expenditures on the project.
How much state and local money is tied up in the canceled project? It could be about $22.5 million to $25.5 million.
STATE TAXPAYER MONEY – According to the earlier version of the Democrat-Gazette article (see screenshot): “State incentives included $12.5 million for site preparation and equipment, and up to $3 million in workforce training funds.”
LOCAL TAXPAYER MONEY – According to the same earlier version of the Democrat-Gazette article: “Local government had used revenue from a half-cent sales tax in Clark County to buy the mill-site, which is a few miles south of Arkadelphia.” How much local money is that? According to an Arkansas Business article the taxpayers of Clark County dedicated $10 million toward the project through the Arkadelphia Regional Economic Development Alliance. Part of the money is tied up in the purchase of 1,000 acres and part of the money is still available for a railroad spur.[i]
Technically, you could say most of the state and local tax money is not lost. It is tied up in a land deal and improvements.
Can some of the money be recovered? Some taxpayer money might be recovered if the regional alliance is able to sell the property. Even if it can someday, that is not going to put money back in the pockets of Clark County taxpayers or state taxpayers who funded the deal. If another corporation comes along looking to build a huge plant, the land could still be used as an incentive to pick that location, but there are no guarantees if or when that would happen or what the size and scope of the project would be.
With no buyer in hand, and an economic downturn caused by the Coronavirus (Covid-19), taxpayers are stuck … at least for now.
This is a sad situation for the Clark County taxpayers who trusted Arkansas economic development officials. It must have sounded like a sure thing for Clark County taxpayers to agree to increase their tax burden. Paying a higher sales tax with no immediate prospect of development of the land must be a bitter pill to swallow.
State taxpayers have lost too. The taxpayer money spent on the project could have been used to hold down tax increases. Despite some tax cuts in 2019, the overall tax increase was about $64.3 million in Fiscal Year 2020 and $54 million in FY 2021. And, we think the state’s estimates are low.[ii]
Bad Economic Policies
A plant cancellation is not the only drawback to Arkansas’ economic development policy. The huge taxpayer funded giveaways (incentives and grants) continue to be criticized as: (1) A waste of money because the giveaways are not the deciding factor in whether a corporation locates or expands in Arkansas;[iii] (2) Hurting small businesses and individuals because to fund the giveaways Arkansas taxes must be higher; and (3) Being a form of “crony capitalism” which supplies campaign contributions to politicians.
CRONY CAPITALISM (Noun – derogatory) An economic system characterized by close, mutually advantageous relationships between business leaders and government officials.[iv]
Turning A Page
Because of the sudden economic downturn, the temptation will be for the big government planners to double down to spend even more of your money on giveaways to attract new corporations. Instead, this time should be used to rethink Arkansas’ big government policy.
Picking winners and losers in business through incentives and grants should end or at the very least be substantially limited. Instead, it is time to treat small businesses fairly. Instead of burdening Arkansas businesses, especially small businesses, with high taxes to fund crony capitalism, cut taxes by the amount that is now being spent on crony capitalism.