Ark. consultants question steel mill incentives

LITTLE ROCK, Ark. (AP) -- The incentives Arkansas is offering for a $1.1 billion steel mill erode the benefits the state would otherwise see, but the project's net costs are still comparatively low, consultants hired by the Legislature said Friday.

Legislative officials released reports from a pair of consultants hired to look at the Big River Steel facility proposed for Osceola in northeast Arkansas. Gov. Mike Beebe has asked the state to approve a $125 million financing plan for the project, which is expected to employ 525 people

One of the firms, Regional Economic Models Inc., said the mill's impact on the state's economy was generally positive when compared with the costs. REMI said the project would create about $400 million in additional gross domestic product during construction and about $150 million in subsequent years.

"The net fiscal costs are relatively low compared to the economic benefits, and increasing state taxes or decreasing spending to make the budget whole again to these degrees would have a smaller effect on the state's economy than opening and operating the steel plant," it said.

But REMI also raised concerns about the cost of a corporate income tax credit the facility would receive for recycling material. The credit, which would cover 30 percent of the cost of the equipment and its installation, would cost the state about $216 million over 14 years, state officials estimate.

"The large investments and operations do generate jobs, but the size of some of the incentives erodes much of the tax revenue presented to the state in the form of increased economic activity, payroll, taxable income, and business sales," the REMI report said.

The other report released Friday came from IHS Global Insights, which had said in an executive summary released a day earlier that it believed state economic development officials overestimated the benefits of the mill and didn't take into account uncertainty surrounding the project.

Arkansas Economic Development Executive Director Grant Tennille said the reports back up his agency's impression about the steel mill proposal.

"There are risks, as I've said from day one, but there are risks in every business endeavor," Tennille said. "We think we have taken appropriate steps to mitigate the risk. We think that once the legislators read the entirety of both reports, they'll be comfortable with the deal."

Tennille said the recycling tax credit would be limited when compared to the useful life of the plant, which he said is typically 40 years, and said it's a credit Big River Steel can only receive if it's making money.

"While REMI and others have said that the hit to the state over that 14 years, they view it as problematic, my view is when those 14 years have run, that's when our return is going to be maximized," Tennille said. He also noted that the incentives Arkansas is offering Big River Steel are dependent on the mill's performance.

Of the $125 million in bonds that Beebe wants to issue to help finance the project, $50 million would be a loan to the company while the remaining amount would be paid off by taxpayers. Big River Steel is led by John Correnti, a former Nucor Steel executive who engineered the 2007 launch of a successful $650 million steel mill at Columbus, Miss.

The reports were released as lawmakers prepare for a hearing Monday on the project.

House Speaker Davy Carter said earlier Friday that the reports would be useful in helping lawmakers evaluate the project, but he declined to say whether they had swayed his view of the project either way.

"If they had sent back something with two pages and said, 'This is great, no brainer,' I would have been worried," Carter, R-Cabot, told reporters. "At least they identified areas where we need to ask more questions about."

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Associated Press writer Michael Stratford contributed to this report

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