I am collecting data on investment incentives around the world as part of a book project.  One big deal was just announced this week.  Big River Steel is investing over $1 billion in Arkansas.

According to this article, the incentive deal includes:

…$125 million for start-up costs: a $50 million loan to the company, $50 million for site prep, $20 million for piling and $5 million for bond insurance.

Other state incentives include:

• sales tax refunds on building materials, taxable machinery and equipment used in the project;
• a 4 percent income tax credit based on new payroll jobs for five years;
• $10 million from the Governor’s Quick Action Closing Fund;
• $5 million from the Department of Workforce Services Trust Fund to be used for training;
• an income tax credit for recycling equipment equal to 30 percent of eligible recycling costs that will include legislation that could extend the credit from three to 14 years;
• and a sales tax exemption on utilities that will include legislation to fully exempt sales tax associated with the sale of natural gas and electricity.

This is a huge deal, but the dollars often obscure the actual costs to the state.  There are big differences in a loan (even at a subsidized interest rate), tax exemptions (which reduce the tax burden in the future) and cash up front.

To me, the most troubling type of incentives are the “deal closting funds”.  Arkansas has one of the larger deal closing funds (although dwarfed by the Texas Enterprise Fund).  The last report I can find is that in 2011 it had $23 million in assets.  Essentially, the Governor’s office is providing a special, $10 million cash grant to a specific firm.

What could go wrong?

A year or so ago I put a freedom of information act request to Texas and Arkansas on their incentive programs.  Texas gave me the info on the accepted and rejected applications (they accepted most applications).  Arkansas couldn’t provide any info on rejected applications.  Dodgy.