Thursday, June 21, 2012

New Study Identifies Successful Economic Development Public Policies

Last week the U.S. Chamber of Commerce released their annual analysis of public policies that are driving economic development around the United States.  This study also identified the states that are “most likely to grow, create jobs and prosper” in the next decade.

The U.S. Chamber finds that the traditional model of recruiting industry and jobs by offering incentives is no longer enough.  The most successful states over the past few years shared a number of commonalities.   Part of their success derives from location and part is through proactive policies that encourage economic development.

In part, the states with the highest growth in jobs and gross domestic product are the result of having a state economy that is heavily invested in agriculture and energy.   The United States is the world leader in food production, exporting $135 billion in agricultural products in 2011.  Last year represented a record year as worldwide demand for food continues to increase.  Having a base economy anchored by agriculture provides stability and growth that tends to be recession-proof.

If agriculture provides a stable base then the energy sector supercharged states’ economies in 2011.  The growth of natural gas and the tapping of new oil formations have turned this country into a net EXPORTER of petroleum products for the first time since 1950.  This surprising turn-around has not only created lots of jobs, but the jobs are generally high wage positions.

Over the past few years, Arkansas benefited from a stable agricultural base as well as an energy sector economy that has helped carry the state through the latest recession.  The state cannot rely on its natural advantages alone to create jobs and grow our economy.  So what are the public policies that are working in other states?

A highly trained workforce with a strong background in math, science, technology and engineering is critical in attracting, retaining and growing jobs.  The report finds that even during periods of high unemployment, like those experienced over the past four years, “thousands of jobs throughout America cannot be filled because of a growing skills gap.”  Not all of these high-demand jobs require a four-year degree.  Many need specialized training or a two-year degree so states must support both types.  States also need to support programs that connect high tech graduates to jobs. These efforts typically utilize a statewide job bank and partnerships with employers.  The good news is that Arkansas scores well in several higher education rankings - #5 in higher education efficiency, #5 in high school advance placement and #17 in job placement efficiency, according to the study.

Infrastructure investment also plays an important role in economic development.  The U.S. Chamber finds that “States and cities must continually upgrade their highways, airports, harbors, utility distribution systems, railways, water and sewer systems, and communications networks to keep pace with the requirements of an ever-changing business environment.”  Roads must be sufficient to meet the demands of the business and residents while access to high speed broadband is vital for businesses to compete.  According to the analysis, Arkansas does not rank high in road quality.  However, voters will have an opportunity in November to authorize a temporary half-cent sales tax to fund new highways in the state, which would significantly improve our state’s infrastructure.  According to the U.S. Chamber, in Arkansas “[t]ransportation infrastructure improvements are especially critical in maintaining affordable shipping options for the state’s product-centric industries, increasing economic competitiveness and long-term job creation.”

Taxes and regulations are also important aspects of a strong economic climate.  They find that a “reasonable tax code and a sensible, predictable regulatory environment can encourage investment.”  Many of the states that have seen tremendous growth over the past decade have made a concerted effort to review business regulations and eliminate those that are overly burdensome and streamline governmental processes especially those related to payment of business taxes.

Finally, policies that encourage and support innovation and entrepreneurship are producing a tremendous return on investment for states around the country.  In Maryland, the state invested $70 million to support startup and early-stage companies that emerged from that state’s research universities.  They found that for each $1 invested by the state, an additional $38 dollars of private funding was raised to support entrepreneurs in Maryland.  Supporting innovation goes hand-in-hand with supporting higher education’s efforts to increase graduates in science, math, technology and engineering.

So, applying the U.S. Chamber's analysis to Arkansas finds that the state enjoys a solid agricultural base as well as a strong energy sector presence.  Both sectors should be support and encouraged to continue to grow and produce jobs.  The state should continue to fund higher education and encourage students to pursue high tech related degrees and certifications.  Additionally, support for programs that encourage entrepreneurship and fund early stage companies is important.  A review of existing business regulations may be in order to find rules that unnecessarily waste time and create added business expense.  Finally, investment in infrastructure is vital to Arkansas’ economy and necessary if the state hopes to add jobs and compete with our surrounding states.

Download the full report HERE.

Monday, January 23, 2012

Government Affairs Committee Hears from AHTD

Arkansas voters will have a plethora of choices on their ballot in November 2012. Redistricting at the local and state level resulted in every state legislative and city council seat being on the ballot this year. Not only will voters be selecting candidates, but they will also vote on at least two proposed state Constitutional amendments.

One proposed amendment relates to the creation of a new type of tax exempt bond called a Sales Tax Anticipation Revenue bond. These bonds utilize new sales taxes from retail developments as a source of repayment. The Chamber will be discussing these bonds in detail at our July Government Affairs Committee meeting.

The other Constitutional amendment deals with highways. Arkansas is facing a tremendous disparity between highway needs and the resources to meet those needs. This is especially true in Northwest Arkansas where traffic congestion centers around the region's primary north-south arterial, I-540.

Improvements to I-540 are already in the works. Arkansas voters approved renewal of an interstate rehabilitation bond program in 2011 that will allow the Arkansas Highway and Transportation Department (AHTD) to improve interchanges from Fayetteville to Rogers. These improvements will ease traffic flow on and off the interstate, which should help make travel safer and reduce congestion. Additionally, improvements to the interchanges prepare I-540 to be expanded to six lanes. AHTD estimate that work on the interchanges will cost more than $100 million.

Finishing improvements to I-540 and expanding it to six lanes will cost hundreds of millions of additional dollars. However, under the current funding formula, the entire state of Arkansas has approximately $250 million per year to spend on construction projects. These funds must be spent around the state thus leaving Northwest Arkansas without sufficient funds to complete an expansion of I-540 in the near term.

Proponents of the second proposed Constitutional amendment believe they have a way to complete some of the most critical highway projects in Northwest Arkansas and around the state within ten years. The proposed highway-related amendment is seeking a ten-year, 0.5% sales tax dedicated to highway funding. This tax is estimated to bring in $230 million per year of which 70% goes to AHTD and 30% is split among the cities and counties.

During his presentation to the Chamber's Government Affairs Committee in January, AHTD Director Scott Bennett outlined the projects that would be funded if voters approve the temporary sales tax. The tax would fund expansion of I-540 to six lanes, a two-lane Bella Vista Bypass and construction of the first phase of the Springdale Northern Bypass (I-540 to Hwy 112). Mr. Bennett remarked that with the interstate rehabilitation program and the proposed sales tax funding, "Arkansas would arguably have the best interstate highways in the country by 2020."

The sales tax question could find strong support from cities and counties around the state. Local government stands to gain more than $330 million over ten years that could fund street repair, construction and maintenance as well as transit-related expenses. AHTD estimates that the city of Rogers could receive almost $1 million per year in turnback from the sales tax while Lowell could receive more than $130,000 per year. Benton County could see $1.3 million in turnback funds each year if the sales tax passes.

The past few years have seen Arkansas voters take a positive view of proposed Constitutional amendments. They have amended the state Constitution to create fiscal sessions for the legislature, established a scholarship lottery and increased the maximum rate of interest that can be assessed. But will Arkansans be willing to tax themselves to build roads? It is definitely a difficult economy to be seeking a tax increase and supporters will have a long road (pun intended) ahead to convince voters of its necessity. Stay tuned and follow the Chamber's Government Affairs Division for additional information and education opportunities on this issue in the coming months.