Gov. Beebe, the legislature, the state Economic Development Commission and anyone else who entertained the idea that the state could not pass up the chance to help investors build a steel mill in Mississippi County should now take a deep breath and a step back. The taxpayers may get a good return on the $125 million they are about to put up for the steel mill, but that is looking unlikely. It certainly is not assured, and virtual assurance ought to be the standard for committing so much of the state treasury.
IHS Global Insight, the big business forecasting firm hired by the legislature to analyze the deal, was skeptical enough that any prudent investor would withdraw. But, of course, the state government is not a private investor. It is playing only with tax dollars, and it is easy to think that there is always more where that came from.
Big River Steel, a combine of investors put together by the promoter John Correnti, offered to build a steel mill on the Mississippi River near Blytheville if the state will float $125 million in bonds to lower the start-up costs for the billionaire Koch brothers and several other investors. Correnti said it would hire 525 people at fairly high salaries. Gov. Beebe thought it was the biggest economic deal the state had ever faced. A 10-year-old constitutional amendment allows the state to commit the state’s cash and credit to really big projects like this, if enough workers will be hired and the legislature will approve.
IHS Global Insight said the state could realize modest economic benefits from the investment in the mill if everything turned out just right, but the consultants were skeptical. Too many things would have to work out just right, among them a big increase in demand for steel. The steel industry is working well below capacity already. Koch’s petrochemical companies probably will buy steel from the plant in which the Kochs will be owners, but how much demand is Big River Steel likely to get beyond them?
As for all the taxes that will flow into the state treasury as a result of the big mill’s commerce and hundreds of employees, the IHS consultants figured there wouldn’t be that much. The plant can claim $216 million in credits against its future corporate income-tax liability. Nearly all of Big River’s sales will be out of state, minimizing Arkansas’ tax receipts. The state likely would collect little if any corporate income taxes for some years.
We have had a deeper concern about these industrial incentives. Should the taxpayers subsidize private investors like this? Conservatives, including leaders of the General Assembly, love to talk about the magic of the free market, which should mean free of government money as well as government restraints. Gov. Beebe and the others will say, yes, but if we don’t do it, another state — Mississippi, Ohio, Alabama? — will put up the money and get the plant and the jobs. Beggars can’t be choosers.
Sure, we need jobs. But even in this climate, the state needs to be coldly rational. What would Warren Buffett do if it were his $125 million? We think we know the answer.
