Two Reasons For Caution On Arkansas / Lockheed Martin Crony Capitalism Deal

Bill Smith, ARRA News Editor: States that are "business friendly" can and do recruit businesses to their states. But being "business friendly" should not mean that existing and future taxpayers should be tagged to pay off or give a business, like Lockheed Martin, $87,000,000 to entice their business to open a plant in Arkansas and to only employ up to 600 new jobs which are not necessarily jobs for existing Arkansans. Where is and when does the return on investment occur for the taxpayers?  The Arkansas Project has detailed "Two Reasons for caution on the Arkansas Lockheed Martin Deal."

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by Caleb Taylor | The Arkansas Project: Late last week, the Bureau of Legislative Research (BLR) released a report detailing the supposed economic benefits to the state of Arkansas if state taxpayers fork over $87 million to Lockheed Martin to expand its operations in Camden.

As we noted previously, state officials claim this “economic development” project would bring 600 new jobs to the Camden area. If you divide the project cost of $87 million by the estimated 600 new jobs, that gives us a price tag of $145,000 in taxpayer dollars per new job from the project.

Upon BLR’s release of the report Friday, the media tended to focus on this sunshine and rainbows portion of the report:Under the analysis from IHS, the consulting group hired by the legislature’s Bureau of Legislative Research, one of the conclusions of the group was: “The net economic benefits would be a positive $16.3 million using a discount rate of 3.38%, or the true interest cost of the proposed bond issue.” IHS said in its report.Most, if not all, of the media stories I read on the report didn’t mention this section in the report:The net benefits are produced primarily during the last five years of the analysis period when the incremental tax revenues are at their peaks, and when the bond debt service has been paid. Using an analysis period of 20 years yields (there is) a net economic cost of -1.6 million using the 3.38% discount rate.Put simply, for the first twenty years, state taxpayers will be paying off the annual bonded debt payment for this Lockheed Martin project — and when we add everything up, Arkansas will actually receive a negative net economic benefit from the deal for those two decades.

So, even the state’s economic forecasters say this deal won’t begin providing an economic boost to the state until, theoretically, 2036 to 2040 — not until 20 years after the project begins.

A lot can change in two decades; I’m skeptical that we should have much confidence in anyone’s predictions about what Arkansas’s and America’s economy will look like that far down the road. What won’t change within the next 20 years? I guess we can be certain about one thing, though: taxpayers will be paying off the state’s $87 million in bonded debt to Lockheed Martin if legislators approve this project.

Another claim from BLR’s report is that the Lockheed Martin project won’t displace any net new economic activity.

From the BLR report:The proposed JLTV facility will consist entirely of net new economic activity within the state; it is not displacing any existing economic activities…With all due respect to the BLR report’s authors, taking $87 million out of our pockets displaces everyone’s “economic activities.” This project will be one more item funded by general revenue taxes, which makes it harder for tax cuts to be passed within the next two decades.

We hope that legislators will consider some of these inconvenient facts when they scrutinize Lockheed Martin’s adventures in crony capitalism deal this week.

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Tags: Arkansas, State Spending, Crony Capitalism, taxpayers pay, business, for jobs, Lockheed Martin, Caleb Taylor, The Arkansas Project To share or post to your site, click on "Post Link". Please mention / link to the ARRA News Service. and "Like" Facebook Page - Thanks!