Special Editorial By Mikel C. Lolley, ED of the Treadwell Institute
Last week, Gov. Mike Beebe, Grant Tennille, and a cadre of expert advisers presented the first Economic Development Superfund Project under Amendment 82. The project is a $1.1 billion start-up steel mill, Big River Steel, LLC. The terms include $132 million worth of incentives on the backs of the Arkansas taxpayers. Wow! Questions: What is the Bonding Capacity for the State of Arkansas? Would a deal of this scale soak up future bonding capacity for the next 15 years, and leave us unable to pursue other development opportunities? Why should Arkansas taxpayers finance $132 million in a risky start-up steel mill?
Two hours into the presentation, and thanks to Representative Douglas House, we learned that $70 million would be in the form of a “grant.” Grant Tennille (no pun intended) danced around the definition of “grant” until it was defined as a one-time investment, “a gift” never to be repaid, but with a guaranty of 525 jobs at $75,000/year for 15 years in return. We learned that another $60 million would come from the Teachers Retirement Fund with a promised rate of return above 20 percent, reminding me of the promises made by the infamous Bernie Madoff of his investors, and we all know what happened to those investors.
So why would Arkansas taxpayers be willing to give away $70 million in “gifts” to billionaire investors? That was billionaire investors with a “B”? Isn’t that called a government subsidy? Another representative asked if this same type of incentive could be expected for other small businesses that might spring up around this start-up steel mill. As you could probably imagine the answer started with an “N” and ended with an “O.” Stay with me, are you seeing a pattern here?
Once again, these grants/incentives/subsidies are on the backs of poor people, and small businesses. But this time, only to allow our governor to play in the big leagues with billionaires, and on a hollow promise of creating 525 jobs. Sorry, but in my experience, no one is going to ensure my interests, or take care of my money better than me, and my immediate family.
The site for this start-up steel mill in Osceola was described by the CEO, John Correnti, as “Heaven” — last I heard, Heaven is worth something. In the art of the deal, as the buyer, you have to be willing to call the seller’s bluff, and be prepared to walk away from the deal. Only then will you know if you have squeezed the best possible value for yourself from out of the seller. If this start-up steel mill is courting Arkansas, only to pass on an additional $20 million in taxpayer incentives from Mississippi, then we must really have some slice of Heaven here in Arkansas for locating steel mills. Does Beebe, Tennille, the AEDC and their cadre of advisers have the business acumen, and the raw experience to negotiate with likes of the Koch Brothers? These brother billionaires did not become worth over $40 billion a piece by coddling their partners, and ensuring that ALL of their investor partners make out like bandits. No, the Koch Brothers ensure that they ALWAYS make out like bandits, and everyone else, makes it out OK. Is OK good enough for Arkansas taxpayers?
As a developer, and a sweat equity partner, I have learned that cost overruns, construction delays, market volatility, or the unknown, unknowns move those with the deepest pockets into a leveraged position, then they shake you down for your shares at a steep discount just to let you out of the deal.
As the sweat equity partner, you feel fortunate to have been let off the hook just to break even to protect the rest of your investments with your good name, and credit rating left intact. Again, this tactic is subtle, insidious, legal, and built in to their business model by design. Does Arkansas really want to swim with the sharks?
When will leadership recognize, Arkansas is a modest agricultural and forestry state, sparsely populated, and with limited financial resources. We cannot afford to play the traditional, and increasingly cost prohibitive “corporate welfare” style of economic development, only to lure out-of-state billionaires and Fortune 500 companies to Arkansas. We cannot afford to tie up $132 million in bonding capacity, and render other potential economic development opportunities off the table for the next 15 years.
Recall, Arkansas filed bankruptcy in the late 20s due in large part to a superfund roads project that made a few people very wealthy, and bankrupted the rest of the state. It was agriculture and forestry, farmers and loggers, who clawed our poor state back from bankruptcy during the Great Depression — a reputation that Arkansas lives down to this day, as just a bunch of moonshining hillbillies.
I challenge our leaders — why not invest in ourselves instead? Invest in our own entrepreneurial spirit, in our own integrity, and in our own resourcefulness, in the very definitions of what it means to be an Arkansan?
What if we took the $70 million, but created a Loan Loss Reserve? What if we bonded this $70 million at 10 times face value to create a Revolving Loan Fund worth more than $700 million? What if we lent it out as an alternative financing mechanism at competitive terms to Arkansas farmers, small businesses and start-ups? It would be the “gift that keeps on giving,” and in lieu of the “one-time gift” to the billionaires. Let’s help Arkansans develop their own projects; usher in the next wave of entrepreneurs and the future Fortune 500 companies. Let’s help Arkansas farmers develop their family farms with a vision toward the next century. Let’s help Arkansas businesses develop and manufacture the durable goods that will prove necessary as we move deeper into the New Energy Economy also known as the Third Industrial Revolution.
Imagine if Arkansans could finance projects in energy efficiency, and renewable energy, finance research and development in the start-ups coming out of our Universities. Currently, Arkansas lures the best and brightest minds on full-ride scholarship, helps them develop, and patent new ideas, only to be lured away from Arkansas once they graduate due to lack of opportunity. Far too many graduates fall in love with Arkansas; try desperately to create an opportunity for themselves here, so they can stay, only give up after six months to go to where the opportunity is.
I suggest that there are better, less expensive, less risky investment opportunities for the Arkansas taxpayers. Ironically, the very day that Governor Beebe introduced this start-up steel mill for Arkansas, another major steel manufacturer in Europe announced a $4 billion loss with massive layoffs. It is worth noting that steel is particularly vulnerable to global market fluctuations, and commodity volatility. I suggest we invest that $70 million in ourselves instead, and earn us a much richer and fulfilling return on our investment. Corporate welfare for billionaires, and Fortune 500 corporations are just soooo last century.
Mikel C Lolley is the executive director of the Treadwell Institute and vp of stewardship. Contact him at email@example.com or www.treadwell-institute.com.