Arkansas has had some bad Amendments added to its Constitution. There is Amendment 59, concerning property taxes, which was written so poorly that Justice Hickman on the Arkansas Supreme Court referred to it as the “Godzilla of constitutional amendments.” Then there was Issue 3 of 2014 which gave us more ethics loopholes than ethics reform and was known as a “Trojan Horse” because it said it was “establishing term limits” when it was actually weakening term limits by giving legislators substantially longer term limits. But neither of those amendments hold a candle to the fatal flaw in Issue 3 of 2016.
Issue 3 of 2016 is the most dangerous Amendment in Arkansas history. A better title for Issue 3 of 2016 would be the “The ROB Amendment” (Risk Our Budget). Issue 3 risks the stability of the entire Arkansas budget, robbing revenue needed for state programs or robbing you through more taxes to give to big business.
If adopted in November, Issue 3 would make changes to a number of provisions in the Arkansas Constitution in the name of economic development. The giveaway of state money to attract business usually raises questions such as:
- How effective are such giveaways in growing the economy?
- How much of your money will be spent for each job created?
- Should it be up to state government to pick winners and losers?
We do not address any of those issues here. Instead, we think it is sufficient to direct our focus only on the shocking irresponsibility in how Issue 3 would amend Amendment 82 concerning bond money directed to “super projects” of chosen big businesses. Without even looking at other provisions in Issue 3 we think the change to Amendment 82 is bad enough to be a fatal flaw.
Twelve years ago (2004) the people adopted Amendment 82 to allow the Arkansas legislature to authorize the issuance of general obligation bonds to pay for “infrastructure” and “other needs” to attract very large new business or large business expansions. These projects are commonly referred to as “super projects.”
Amendment 82 restricts the total amount of bonds that may be issued to an amount equal to 5% of state general revenue collections in the most recent fiscal year. Based on the 2015-2016 fiscal year the current limit would be $322 million in bonds to aid big business.[i]
What does it mean when the state issues bonds for super projects? It means the state is BORROWING money and will repay the bonds with your tax money.
In 2013, the first super project was chosen. Big River Steel received $125 million in bonds along with other incentives. The mill, located in Mississippi County, has been under construction but not yet opened. The financial incentives given to Big River Steel by the state did not sit well with competitor Nucor Steel which already has two steel facilities operating in Mississippi County.
In 2015 the legislature approved $87.1 million in bonds for Lockheed Martin but the project fell through when Lockheed Martin did not win a federal contract.
Reckless proposal – Issue 3 of 2016
With the $125 million for Big River Steel and the anticipated (but unsuccessful) Lockheed Martin project of $87.1 million, some politicians wanted to raise the 5% limit. So, the legislature is proposing to change the limit through Issue 3.
So what new limit is proposed in Issue 3? Did they propose to increase the limit to 6%, 7%, 8%, 9%, or even 10% of general revenue collections? No! With dollar signs dancing in their eyes they proposed to REMOVE ALL LIMITS ON HOW MUCH OF YOUR TAX MONEY CAN BE OBLIGATED FOR PAYING OFF BONDS FOR SUPER PROJECTS OF BIG BUSINESS.
When the giveaways for super projects was first proposed in Amendment 82 (with a 5% limit on bonded indebtedness), Arkansas had a Democrat majority and a Democrat Governor. Now that there is a Republican majority in the legislature and a Republican Governor, they want no limits on how much of our money can be risked on bonded indebtedness! TALK ABOUT A ROLE REVERSAL!
What happened to the concept of fiscal responsibility? How can you claim to be fiscally conservative while proposing an Amendment that has absolutely no limit on how much bonded indebtedness the state can undertake for big business super projects?
Things you will hear
- You will be told, “Trust us”. You will be told not to worry about the risk of unlimited state debt because our Republican legislature and Republican Governor would never approve an outrageous amount of money for private super projects. When they say this, tell them it is not about the current legislature or the current Governor. If Issue 3 is approved, it will be in the constitution for decades and perhaps centuries. Do you trust the economy to always be better and able to support ever growing state indebtedness? Do you trust future legislatures and future governors to not take on too much debt? What happens if one day Arkansas has a liberal tax and spend governor and legislature? Bad things!
- You will be told, “Don’t worry Arkansas operates with a budget surplus, having a $177.4 million general revenue surplus in the most recent fiscal year.” Be worried. Despite the bragging about a surplus, in reality Arkansas spends almost all of its general revenue. It is just a matter of timing of the spending. The annual budget always includes expenditures both from current revenue collection… and in separate legislation more expenditures using surplus from the previous biennium. Much of the surplus is spent as General Improvement Funds and the Governor and legislature even grabbed surplus to transfer to highways. The state always depends on the spending of the previous year’s surplus. This means our state budget always stays on a knife’s edge. Even Governor Hutchinson admitted there is no reserve of state money being saved in case of hard times on the state.[ii]
- You will be told, “Don’t worry Arkansas has a balanced budget law.” Be worried. The balance budget law is the Revenue Stabilization Act. It does not keep the state from building up debt! It merely functions to reduce disbursement of money to state agencies if there is a revenue short fall. If the economy tanks and there is not enough to money to pay the state debt, such as repayment of bonds, then either state services get cut or taxes must be raised to balance the budget.
- Expect your local Chamber of Commerce to support Issue 3. But, you should be aware that the Chambers of Commerce have a BIG FINANCIAL STAKE in getting Issue 3 passed, BECAUSE Issue 3 includes a special provision to authorize cities to financially support the Chamber of Commerce or other economic development groups.
In 2015 a Pulaski County court ruling declared payments from the cities of Little Rock and North Little Rock to the Chamber of Commerce for economic development amounted to illegal donations to a private entity prohibited by Article 12 of the Arkansas Constitution. The Chamber’s endorsement of politicians is important so it is no surprise the Chamber was able to get legislators to include a provision in Issue 3 to, in effect, reverse that decision.
Because of the court ruling against the cities giving money to the Chamber, the city of Bella Vista ended its contract with its local Chamber of Commerce. Even worse for the Chamber was the news that Bella Vista and possibly other cities were considering hiring someone as a city employee to do economic development work in-house instead of diverting money to the Chamber. If Bella Vista is successful, it means cities will be the competitor of Chambers and become the Chambers successors in economic development. Imagine that… cities controlling their own money.
Is diverting your local tax money to the Chamber all that bad of a deal? Not if you always agree with their positions on political issues and agree with who they endorse as candidates. Citizens in many cities have battled their local Chamber of Commerce on proposed tax increases and many citizens still disagree with the State Chamber’s support of Obamacare Medicaid Expansion.
Conduit for Action sees the removal of the limits on super project bonds in Issue 3 of 2016 as the most financially irresponsible proposal to ever make its way to the ballot. Conduit for Action encourages voters to reject Issue 3 on November 8, 2016.
We want to recognize those legislators who did not vote to propose Issue 3 (SJR16 of 2015), most were Republicans. All legislators (Republican or Democrat) who refused to vote for the proposal should be commended. (See how your Representative and Senator voted)
UPDATED: Here is a ink to text of Issue 3 (SJR16) http://www.arkleg.state.ar.us/…/2015/2015R/Bills/SJR16.pdf Removal of the limit on super project bonded indebtedness is on page 8, lines 20 & 21. The provision benefiting the Chamber of Commerce by carving out an exception to private corporations begins on page 2, line 18.
[i] Arkansas’ general revenue collections for the 2015-2016 fiscal year was $6.45 Billion. http://www.arkansasonline.com/news/2016/jul/06/for-fiscal-16-state-reports-revenue-sur/#/