Whenever the term economic development comes up, the conversation frequently turns quickly to incentives, meaning real dollars or savings specifically designed to incentivize new or additional jobs and investment. While top-of-mind, most site selection processes are first driven by available sites and infrastructure, available workforce, and geographic location. While incentives are typically the last step in the site selection process, they are often the distinguishing factor between two or more communities that might otherwise be extremely similar.

In Arkansas, most economic development incentives are administered at the state level by the Arkansas Economic Development Commission. These programs fall into several categories and silos depending on their goal: jobs versus capital investment and how they’re determined: statutory versus discretionary. Finally, a frequently overlooked state-administered incentive involves real training dollars for the company. While some incentive programs exist, a small handful represent the bulk of incentives awarded in central Arkansas and throughout the state.

The job creation incentive most frequently used is Create Rebate. This is a discretionary incentive that is offered after AEDC has received information about the new company or expansion and completed a cost-benefit analysis. According to the AEDC website: “Create Rebate provides annual cash payments based on a company’s annual payroll for new, full-time, permanent employees. This incentive is offered at the discretion of the AEDC Executive Director.

Create Rebate requires a minimum payroll of new, full-time, permanent employees hired as a result of the project, depending on the tier in which the business locates. The business must reach the payroll threshold for the tier in which it is located within 24 months from the date of the signing of the financial incentive agreement.” 

In Faulkner County, that payroll threshold is $2 million.

Create Rebate benefits are available after the business certifies to the Arkansas Department of Finance & Administration that it has fulfilled the terms of the financial incentive agreement and the reported payroll has been verified. The percentage of the benefit depends on the tier assignment of the county where the job creation occurs. In Faulkner County, the standard rebate benefit is 3.9%.

The second incentive targeted for job creation is the Governor’s Quick Action Closing Fund. As the name implies, these funds are used with a high degree of discretion where cash is required to “close” the deal. Those scenarios usually involve a lack of key infrastructure at an available site. The Quick Action Closing Fund will sometimes share the cost of project infrastructure needs by committing grants from state and federal infrastructure funds. These funds are offered at the discretion of the state. The amount of assistance committed is dependent upon the strength of the company, the number of jobs, average wage, project investment, and costs associated with facility/site improvements.

There are two commonly used investment incentives designed to incentivize the installation of new equipment and facilities construction. A large capital investment from a company can be viewed as a sort of “insurance policy” or pledge to remain active in the community. In short, it’s difficult for companies to walk away from large, recent investments.

The first is a sales tax incentive known simply as Tax Back. AEDC explains Tax Back as a program that “provides sales and use tax refunds on the purchase of building materials and taxable machinery and equipment to qualified businesses investing the minimum required based on the tier in which the company locates and who either a) sign a job creation agreement under the Advantage Arkansas or Create Rebate programs within 24 months of signing the Tax Back agreement or b) have signed an Advantage Arkansas or Create Rebate agreement within the previous 48 months.”

The state’s Tax Back incentive is a partial rebate of state sales tax. However, cities and counties have the opportunity to follow suit if the state offers this program. Cities and counties where an approved project is proposed may pass a resolution to rebate the local portion of sales tax, providing an additional 2%-4% rebate.

The largest investment incentive available to eligible projects is property tax abatement through the issuance of Industrial Revenue Bonds. This is the one major incentive tool that resides at the local, rather than state, level. It is also one of the most confusing incentives for both residents and prospective industries.

There is a limit to the types of businesses eligible for property tax abatement. Eligible firms typically include manufacturers with SIC codes 20-39, tech-based companies, corporate headquarters, and distribution centers that meet specific out-of-state sales and job creation thresholds. AEDC describes the process in the following way:

“Industrial revenue bonds, commonly known as Act 9 Bonds in Arkansas, provide eligible existing companies with competitive financing options for property, plant, and equipment expenses.

Under Arkansas Act 9 of 1960, cities and counties are authorized to issue industrial revenue bonds to benefit private companies. Because Act 9 bonds do not obligate cities or counties to make payment except from project income, the bonds must be underwritten on the financial strength of the company or guaranteed by the Arkansas Economic Development Commission and/or the Arkansas Development Finance Authority. Businesses that use either tax-exempt or taxable industrial revenue bond financing can negotiate with the local community for property tax relief for eligible businesses in the form of a Payment in Lieu of Tax Agreement.”

Finally, the least-heralded, but one of the most impactful, incentives to many businesses is related to training. The Arkansas Office of Skills Development works closely with AEDC, local economic developers, educational institutions, and employers to provide direct and flexible financial assistance for training. The state actually has a lot of latitude in what constitutes training, down to paying for the time and travel of specialized instructors on industry-specific pieces of equipment. One expense that is restricted is wages for an employee while receiving training.

Incentives are far from the most important factor in attracting new or expanded investment. However, when the competition for a project may be global in scope, incentives can be a differentiator. The art and science of incentive negotiation work best when the state, local government, and the company are aligned towards a goal of economic growth that benefits Arkansans.