Legislative Joint Auditing
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Good morning. The meeting will come to order. Thank you, everyone,
for being here today. i think the first order of business for us is the adoption of the minutes from the november 8th
meeting i have a motion i have a motion from senator pitch in a second all those favor say i all opposed motion passes next order of business the adoption of the reports from the various committees and i believe up first is my co-chair representative womack thank
Representative Richard Womack
Unverified
7:23
you mr chair uh the executive committee met thursday december 12 2019 staff reported to the committee the audit special investigative and shortage reports scheduled to be presented to the standing committees and the
full legislative joint auditing committee this month with no new or additional business to discuss the meeting was adjourned the next meeting of the committee will be held on thursday january 23rd 2020 i move for adoption of this report all right
have a motion representative rye second have a second all those favor say aye all opposed no moving now to the committee on counties and municipalities representative Watson I think you're prepared yes thank you
Representative Danny Watson
Unverified
8:05
mr. chair the committee adopted the minutes of the
November 7th 2019 meeting the committee discussed the towns having turned back withheld per code Arkansas code section 14 59 117 staff reported that the towns of Allport and Jericho remained in substantial non-compliance with the municipal accounting law and the town of Fulton was now in substantial non was in substantial compliance Allport officials were first notified that their records were in non-compliance with the municipal accounting law in November of
2017. The town of Allport is currently ineligible to receive any turn back and is going through this process for the second time. Per Arkansas Code 1459117C1B, if the town's records remain in noncompliance after 60 days, the Legislative Joint Auditing Committee may report to the Treasurer of State. The Standing Committee on Counties and Municipalities recommends to the legislative joint auditing committee that the provisions of Arkansas Code
section 1459-117 continue for the town of Allport and the standing committee also recommends that the state treasurer be notified of the town's status regarding the municipal accounting law. Jericho officials were first notified that their records were in non-compliance with the municipal accounting law in May of 2019. Per Arkansas Code section 1459-117-D1 If the town's records remain in noncompliance after 120 days, the legislative joint auditing committee may notify the municipality and the treasurer of state of the continued noncompliance.
For Arkansas Code Section 1459.117.D.2, upon notice by the Legislative Joint Auditing Committee, the Treasurer of State shall withhold all turnback until Arkansas legislative audit has determined that the records are in substantial compliance with the municipal accounting law. The Standing Committee on Counties and Municipalities recommends to the Legislative Joint Auditing Committee that the Provisions of Arkansas Code Section 1459117 continue for the Town of Jericho and the Standing Committee also recommends that the State Treasurer be notified of the Town's status regarding the Municipal Accounting Law.
There were no reports deferred from the November 7, 2019 meeting. The committee reviewed 89 current reports, including one investigative letter. One of these was certified to the bond board, and 13 were referred to prosecuting attorneys. Officials from two entities were present to address the repeat findings in their current reports. The committee filed 84 current reports and deferred five. Mr. Chair, I move for adoption of this report.
All right. Looks like would you take a question on that? I think Senator Elliott may be chiming in for
Representative Danny Watson
Unverified
11:13
a question here. If I can, we have someone that will. Thank you. Senator Elliott, you're recognized.
Senator Joyce Elliott
Unverified
11:19
All right. Thank you, Mr. Chair. Mr. Chair, I was just wondering with the referral to, I think if I've got the right order, to the treasurer, we can refer, I heard, two or three times. So what does that mean?
What should we know about anything being referred to the treasurer? What happens? We'll
have staff to answer that question for you. All
Speaker 17
11:47
right, thank you. Senator Elliott, the process is there's a report that they're not complying. They get a chance to fix that after 60 days. If they don't, at some point they lose 50% of their turn back after 120 days.
They have 100% of their turn back withheld. At the end of six months, if they are still not complying with that law, they lose that turn back that has been held in escrow. It's distributed to the other cities, and they are not allowed to get turn back until
Senator Joyce Elliott
Unverified
12:21
they are actually in compliance. so is there an incremental a set of dates or time periods that this has to be reported to the treasurer
yes ma'am yes that's correct okay all right thank you that's
all i have mr chair thank you anyone else seeing none thank you representative watson uh i have a motion
for adoption is there a second i have a second all those in favor say aye all opposed no thank you very much and now we are to representative stan berry will give the education if you'll hit your button for stan for some reason it's not showing up there yet ask the there you go
Representative Stan Berry
Unverified
13:10
thank you very much you're recognized thank you mr chairman the committee reviewed four current higher education audit reports two current school district audit reports
and one current open enrollment charter school audit report for the year in june 30 2019 the committee also reviewed a special report for the period of july 1 2018 through april 30 2019 the committee deferred acceptance of the current audit report of the Pine Bluff School District without review due to the superintendent not being present as requested as a result of the State Board of Education classifying the district as being in fiscal distress and since the district's
audit report contained repeat findings. The superintendent had contacted the staff that he was attending the State Board of Education meeting and had planned to address the committee once finished. The superintendent of the district will be requested to attend the next meeting of the committee. Representatives from the University of Arkansas system and certain campuses of the University of Arkansas system and representatives from Arkansas State University system were
president and answered questions from the committee related to each system's respective audit report. The audit report of the University of Arkansas system and the special report related to the review of selected policies, procedures, and transactions of six Arkansas school districts that utilize private auditors were referred to the respective prosecuting attorney. As a result of the request made by staff the committee adopted a motion to extend the time to
file the audit reports of Earl, Lee County, and Marble School Districts by up to 90 days. The districts are classified as being in physical distress. The committee filed seven of the current audit reports and special reports that were brought before it mr. chairman to move that adoption of of the report all right thank you
very much any questions seeing no questions I have a motion for
adoption to have a second have a second all those in favor say aye all opposed no thank you very much represent Barry and now we have representative
Representative Nelda Speaks
Unverified
15:46
speaks for state agencies report you're recognized ma'am thank you mr. chair we We had 15 reports that were on our committee agenda yesterday. Four reports with findings were presented. The Beef Council had a repeat finding related to the submission of monies owed to its national
board and other states. The Sword Bean Promotion Board had repeat findings for not following the proper procedures regarding non-exempt discretionary grants and for not obtaining the proper disclosure forms. The Board of Architects, Landscape, Architects, and Interior Designs report contain findings for not properly approving expenditures, not retaining supporting documents for expenditures,
employing contract labor for more than six consecutive weeks, not properly adding equipment items to its asset listings, failing to adhere to state travel regulations, and making wasteful expenditures. The Game and Fish had a theft of property. In addition, the commission did not have proper identifications on buildings and structures owned,
which resulted in adjustments to its assets listing. Various agents' staff members were present to report on how the agencies intended to address the audit findings and to answer committee questions. During the meeting, the committee adopted a motion to file 14 of the 15 current reports. However, the committee deferred the report on the Board of Architects, Landscape Architects, and Interior Designs to the next meeting, since the director was not in attendance at the meeting.
I move to adopt this report. All right.
Seeing no questions, I have a motion to adopt the report. I do see a question popped up
Chair
Unverified
18:03
there. Representative Rye, you're recognized, sir. Thank you,
Representative Johnny Rye
Unverified
18:08
Mr. Chairman. One question on the equipment that has to be listed within the audit each time they purchase a piece of equipment. Is it $5,000? Does that have to be at least $5,000?
Speaker 33
18:25
the staff is going to respond yes sir mr. wright that's the capitalization threshold currently for the state is five thousand dollars now they have to track that's right peel for dribble stuff smaller than that but that's
the capitalization threshold is five yes sir thank y'all all right thank you anyone else seeing none have a motion to have a second yes i have a second boy i tell you what y'all are being real quiet this morning on that. All those in favor say aye. All opposed no. Motion passes. Thank you very much. Now we
move down to D on the agenda review of reports. We have a special report on the disposition of matters referred to the legislative joint
auditing committee and I believe Michelle Ashley will be presenting on this. You're recognized.
Speaker 40
19:14
Thank you Mr. Chair. This report is issued to provide this committee a summary of the disposition of matters referred to the prosecuting attorneys of the state's 28 judicial districts for calendar year 2018. This report has been issued annually since 2005. Excuse me
just a minute. Members, please watch the
conversation. It's getting a little loud, so if you would. Thank
Speaker 40
19:38
you. Provided in Appendix A of your report is the Arkansas Code that requires the legislative auditor to notify the appropriate prosecuting attorney of transactions reflecting apparent unauthorized disbursements or unaccounted for funds or property by a public official or employee. The legislative auditor is also required to report findings related to a prosecuting attorney's office to the attorney general. This code section also requires prosecuting attorneys to submit a disposition of matters referred by June 30th of each year.
In addition, the legislative auditor notifies the Arkansas Governmental Bonding Board of improper transactions for which a public official, officer, or employee may be liable. The bond board determines whether a loss is covered by the Arkansas Self-Insured Fidelity Bond Program. Entities must meet a $2,500 deductible per occurrence, and the coverage limit per occurrence is $300,000. dollars. Examples of matters referred are receipts not deposited, missing assets,
unauthorized or undocumented disbursements, unauthorized salary payments, improper use of entity credit or credit card, conflict of interest issues, and non-compliance with the public purpose doctrine. As shown on the screen using the 14th Judicial District as an example, Each judicial district's report page includes a map identifying the counties located in the district. In addition, matters referred to each prosecuting attorney are detailed individually by the counties in the judicial district,
the prosecuting attorney during the calendar year, the governmental entity involved, the year the matter was reported to the prosecuting attorney, and information relating to amount and type of matter. The status according to the PA is provided and payment by the bond trust fund when applicable. Presented in Exhibit 3 on pages 6 and 7 is a summary of disposition reports organized by judicial district. Shown on this slide is the portion of the exhibit for the first, second, and third judicial
districts as well as the total for all districts. This information includes number of matters referred, number of instances in which charges were filed and the case results, the number of instances in which charges were not filed and the reason why, and number of instances in which a matter is still under review. As described on page two of the report, case results are indicated by each prosecuting attorney and are designated as convicted, pending, acquitted or dismissed, prosecution declined, insufficient evidence, other, and under review.
As shown on the slide, criminal charges were filed in 40 of the 267 matters referred to to prosecute an attorney. Eight cases are pending in court, two cases were acquitted or dismissed, and the remaining 30 cases in which a conviction was obtained and sentence imposed are listed by judicial district in Exhibit 4 on page eight. This slide shows an example of information from Exhibit 4 regarding court-ordered sentences for matters in several judicial districts.
Information provided includes the entity audited, the matter referred, the amount of the improper transaction, the position of employee or elected official against whom charges were filed, the plea of the defendant, and the court-ordered sentence. The terms of a defendant's court-ordered sentence is also presented in Exhibit 4. Defendants entered pleas of guilty or no contest in 29 cases in which a conviction was obtained, and courts found one other defendant guilty. Of the 30 cases, 28 were disposed of in state court.
One was disposed of in state district court, and one was disposed of in federal district court. Mr. Chair, this concludes my presentation on the disposition of matters. There's representatives from the Office of Prosecutor Coordinator and Arkansas Association of Prosecuting Attorneys to answer any committee questions. All right. We do have
a question, so Bob McMahon and Kyle Hunter, why don't you go ahead and come up, and that way you could help with some questions. appreciate you for being here this morning
senator chesterfield you are number one on the list well
Senator Linda Chesterfield
Unverified
24:01
thank you so much mr. chair just wanted clarity on note three which includes ethical and conflict of interest matters could the auditor please give me some examples of what we're talking about the apparent violations of the public purpose doctrine what does that mean i think staff is preparing to
get your answer senator all right thank you mr chair when they
Senator Linda Chesterfield
Unverified
24:33
when they get it i'm fine
Speaker 40
24:35
i'll wait on page 14 under helena west helena under the mayor i'll just give you an example to look at where the city paid 24 000 to the boys and girls club of Phillips County in apparent conflict with Article 12, Section 5, as interpreted by Attorney General's opinion, that is an example of something that would fall in the other category. All right. Well, thank
Senator Linda Chesterfield
Unverified
24:59
you. So it's not necessarily with a criminal intent, but it's just not, according to the Attorney
General, something that one would do.
Speaker 54
25:07
Or in conflict with the Constitution. Okay. Thank you very
much. All right. Members, do you have any questions for Mr. McMahon? I always want to get your name. How do you pronounce that properly? McMahon. McMahon. Yes, sir, but I would call it a lot worse. Yeah, Mack Mahan. There's all kinds of opportunities there. Members, any questions at all on this? I will say I know that I would ask you if you, you know,
because we do refer a lot of things, and sometimes things don't happen. We don't see any follow-up on that. Is there any comments that you see regarding the process by which we refer? Just maybe some editorial remarks on that. Thank you, Mr. Chairman. I'm Bob
Speaker 58
25:59
McMahon. I'm the prosecutor coordinator. I think what we're looking at a lot of times is we have kind of a misunderstanding sometimes. It's hard to follow. there's a difference between what the auditor's responsibility are in terms of finding that there's maybe missing funds
or something was dispersed inappropriately or somebody, like you said earlier with Michelle's example, donated something to somebody that might have been a violation of the public purpose doctrine but wasn't necessarily a criminal intent. So for audit standards, they are looking at any kind of missing funds or things like that. And then when it's turned over to the prosecutor, it's very, very different. We have to be able to, at that point, we're not looking at just whether something was missing or not. We have to prove beyond a reasonable doubt who did it. So a lot of times there is a difference between those two responsibilities
that Audit has and that the prosecutors have. So a lot of times there's a misunderstanding there. We would agree that money was missing, and it's just oftentimes we aren't able to prove who did it. For example, there may be a situation where 35 people had access to a particular fund, so it's not as clear as just is something missing. it's it's much more than that for our responsibility i don't really know how we can ever change that i mean those are our standards you know in order to prosecute something um we do have a memorandum of understanding between the prosecutors association and law enforcement in legislative
audit for the procedure so we're always looking at you know ways that we can maybe change that or improve that but we're still bound by those two things you know no matter what our procedures are in fact we we had a meeting in october and kim and michelle came and we talked about making some amendments to that memorandum of understanding to kind of update that because it was you know last i guess we did that in about 2006. so you know we've kind of changed some of the procedures and you all have changed some of the procedures so we do need to update that but that's just kind of a general statement is is one of the obstacles that that we face sometimes and that burden of
proof um and and sometimes that you know results in a you know misunderstanding as to whether we're doing something or not doing something um if you look at the numbers basically on page seven I mean, I will point out, you know, if you strictly just look at the first two categories, the matters that are referred and then the number and the charges are filed, that's a little misleading if you just look at those two numbers. Because, for example, if you just said, well, at a glance, you know, they only prosecute or file charges in a sixth of the cases.
But if you look at the far right, you know, there's 56 more that are still pending. And again, so if you just look at those first two numbers, they're somewhat misleading. and also, for example, where insufficient evidence was found, I mean, there's a specific reason those didn't go forward. So you've got to almost look all the way across that column to really get a true picture of what is actually happening because I'm afraid sometimes we just look at those first two numbers and it's misleading. And I hope that you understand what I mean. I'd be happy to try to answer any questions about that.
Yes, I appreciate you taking a moment to discuss that
because, you know, over the years, you know, you do recall some things that were referred and some people wonder why it was any action taken and i think it's very clear you've got to find something under the statute that gives you the authority to proceed so thank you for that members any questions at all seeing no questions uh thank you for being here mrs actually do you have anything else at all uh i don't think we
really need adoption of this do we okay all right thank you very much for being here appreciate thank you mr chairman thank you committee
next item on the agenda we have a report on the Arkansas Department of Higher Education by Nick Fuller this is a summary of intercollegiate athletic revenues and expenditures I think members do have something at their desk don't they yes I'm sorry there should be a lot as big spreadsheet there maybe with a cover sheet is what I've got all right mr. Fuller you're recognized sir
if you just state your name and
Nick Fuller
Unverified
30:06
who you represent for the record yes my name is Nick Fuller I'm the deputy director at the division of higher education thank you you're recognized so before you is a report of the athletic revenues and expenditures for fiscal year 2018-19 for each institution of higher education the 2018-19 total amount of athletic expenditure is reported by state-supported institutions. The four-year institutions is $201,926,435, and for the two-year colleges, it's $1,067,153.
The statewide total of $202,993,588 is an increase of 7.1% over the prior year of fiscal year 17-18. which is $13,431,000. In the spreadsheets, there's also a comparison of those actual expenditures to the submitted fiscal year 19 budgeted revenues and expenses that were submitted to our coordinating board in July of 2018.
Certified budget expenses for fiscal 19 totaled $195 million for all institutions. And total actual expenditures for the year exceeded this budget amount by 3.9 percent and I will point out as you look at this report since submission of this report to our coordinating board for approval and submission to your committee here we have since noticed that there was an error in one of the submissions for Casa talk community college it was
within this past week that they've sent it to us so we have not been able to update the sheet but it currently shows that there's a negative between the expenses and revenues of the school they they realized they had missed some revenues in reporting so they're actually not in a deficit for their athletic expenditures but we will need to get that report updated and approved by our board as well and I will send you an updated version of this once we get those numbers reported okay
members do you have any questions on this report
Senator Pitch, you recognize I had him first, so we'll come back to Senator
Senator Mathew Pitsch
Unverified
32:21
Chesterfield in a moment. I just want to clarify some numbers that I think I'm reading here. We had an increase on the second to last paragraph on the first page to a 7.1 percent increased budget, and we still exceeded even that amount on the next page in the budget amount by 3.9 percent do we have good reasons why i mean we don't typically up budget 7.1 percent
in our day-to-day type stuff sure and we really typically if we've upped it that much don't just sit idly by and watch it be exceeded by another four percent or almost four percent so maybe
Nick Fuller
Unverified
33:03
you can help me understand what happened there and the 7.1 is the increase in expenses over the prior year the 3.9 is a separate percentage is what they exceeded the predicted budget amount for the year so they're two different year comparisons so the 3.9 percent is each institution submits a budget for what
they expect to spend on athletics for the year and as a whole the institutions exceeded that predicted budget about 3.9 percent in athletics now none of them exceeded authorized appropriation levels none exceeded any of that budget this is just the athletic expenditure side right and then the 7.1 is just expenses compared to the year before's expenses there was an increase of 7% in total expenses so in effect follow-up mr. chair
Speaker 74
33:51
of course you're in the Senate now I
I got you. Follow-up. Thank you, Mr. Chair. I think. I
Senator Mathew Pitsch
Unverified
34:02
just want to clarify. We spent $13,431,000 more than the year before. Yes, sir. And I assume you had some budget increase that allowed for some more growth. Yes, sir. And what I think I'm seeing then, because they both are 2018-2019, is that you spent around $195,000 on the budget, and we're at 3.9 percent over budget and I guess I'm I mean is that just a typical year that we
get that kind of overspending and that kind of an increase in expenses or do we have good reason oversight to that money because that's a lot of money in a state deal so I guess I'm whatever you can tell us to make us feel better about that's
Nick Fuller
Unverified
34:45
what I'm after yes sir I don't have anything to give you today for a reason i mean it is a self-reported expense and the the schools are staying within their allocated allotments for there's only a set limit for how much state funds that could transfer to be spent on athletic revenues all the institutions are staying within
that limit all the other revenues would be coming from the athletic actual athletic fees or charges that the school's charged to students or ticket sales revenues or auxiliary revenues so all of it is staying within the means that they've came in and got approval for in prior years it's just the expenses have gone up over a
prior year anything further senator pitch all right mr chesterfield you're recognized thank you mr chair
Senator Linda Chesterfield
Unverified
35:40
the amount of cost went up yes ma'am from where did they get the money to make up
Speaker 75
35:51
the cost the majority of it would become from the the ticket sales the revenue the other revenues
Nick Fuller
Unverified
35:57
that the athletic sports generated or it could be from television contracts things like ad sales but it's not being
Senator Linda Chesterfield
Unverified
36:03
passed on to the kids is
Nick Fuller
Unverified
36:07
it there are a majority of the schools that do have athletic
fees at least on the four-year side that charge to their students um i don't believe there may have been one or two that increased their athletic fee in the prior year but the majority of them held their athletic fee flat from year over year so it's not an increased charge to the
Senator Linda Chesterfield
Unverified
36:27
So our kids are not picking up the cost for the over expenditure of revenue from athletics? The increased cost? No, ma'am. All
right. That's helpful to me. Thank you,
Mr. Chair. Thank you. Representative Mayberry or someone sitting in that seat?
Representative Julie Mayberry
Unverified
36:44
There we go. Representative Mayberry. Thank you, Mr. Chair. Sort of an annual question here, biannual question. So we
have game guarantees from the
University of Arkansas at Fayetteville at nearly $4 million. Can you tell me how much of that stays
Speaker 72
37:05
in state? I don't believe any of those game guarantees are paid to in-state schools. They are
Representative Julie Mayberry
Unverified
37:13
not. So it's $4 million that goes out of state elsewhere to play those games, a guarantee.
Is that a correct statement? Okay. Just reminding us of that. Second of all, on the back, maybe I'm missing something and maybe it got said and I just missed it. On revenues at ASU, I just find it peculiar that there's zero dollars under broadcast TV, radio, internet rights, and program sales, concession, novelties, and parking. Zero? Zero revenues? i mean i know
when i went up there i paid to park
sure and i'm just and i know that they've been on tv and it has
zero yes ma'am represent mayberry what are you looking at on there you say did you say expenditures
Representative Julie Mayberry
Unverified
38:12
or revenue no i'm on revenues okay and i'm in the first column asu jonesboro broadcast tv radio internet um revenue for broadcasting has zero and i just know that they've been on tv so i believe
Nick Fuller
Unverified
38:25
all of theirs are reported under that royalties licensing advertisements and sponsorships was where they reported all of the revenue
Speaker 100
38:30
from the two two lines down from that okay so then the sales concession
Representative Julie Mayberry
Unverified
38:35
novelties and parking is all underneath that too That is a good question.
Speaker 66
38:47
And this is a self-reported document that the institution sent to us,
Nick Fuller
Unverified
38:51
so that would be a question I would need to come back to. It might be a good follow-up for you.
Representative Julie Mayberry
Unverified
38:57
Well, and there were just lots of zeros on the broadcast TV radio. I mean, not just ASU. It was just the first column, you know, Henderson, several UALR, I mean, I don't
know you found that peculiar maybe it's something i can look underneath another and find out more information for you um thank you
members any other questions i don't see any other questions i would would mention while you're here this is a good opportunity i would like to get some follow-up and and i think it maybe touches on sometimes the
members have questions about what we're spending in this regard okay specifically to athletics But I just happened up on some numbers just in the past few days that really got my attention. And the numbers that I'm looking at is price changes in vital expense goods and categories from December of 1989 until December of 2017. So it's basically an inflationary cost. If you were looking at what I'm looking at, the number one category was college tuition.
357 percent gain over that time that was the increase over that number to give members some perspective electricity was just 81 percent new cars were just 15 percent energy was just 93 percent and so what it was looking at is a category of expenses across our entire economy and the number one on the list was 357 percent number two on that list is hospital services at
353 percent which we kind of get that but even exceeding the cost of health care was college tuition and we've been dealing with this issue in our state and the whole country has about workforce education and classic liberal arts education etc I just while you're here I would love for you to follow up with me because that that blew me away yes sir because so often we have been looking at these costs as
it relates to education alone we've been looking at a microcosm only in education and talking about how much it goes up in education but when i saw a comparison to every sector of the economy and the number one on that was college tuition it's just amazing i had a parent last night her husband is actually a dentist. It was about $75,000 in loans when he went through dental school. Their son is looking at about $225,000 to do the same thing. I would just want to put
this out and would love for you all to get back with me specifically. We need to take a much harder look. And we've been talking about it and talking about it. But when I saw that in relation to the rest of the economy, we're way out of balance here. Something's up. And as it relates to education spending and when we're spending $4 million to go out here and you don't even get a win out of it, I mean, we've just got some issues that we need to look at because I always remember that the number one mission of education,
higher education, should be to educate the students. And so just since you're here and it was just the timing of it, I'd appreciate you have the department get back with me, and let's start looking at this. We may need to have some more hearings about it in the future on that, but we thank you for what you do. Appreciate your department. Appreciate you being here. Uh-oh, I seem to have stirred up Senator Elliott. She's got a question or a comment at least.
Senator Joyce Elliott
Unverified
42:38
Stir that cauldron. Mr. Chair, I would also like, because I think there needs to be a comparison here, and we've done this, I think, sometimes.
I'm sure we have sometimes in the past because I agree with you about the concern in tuition. But one of the other things that we have seen in the past that's been driving this is the extent to which the legislature, in our case, funds higher ed. So along with that report, if Mr. Fuller could or would, I would like for you to bring us information on what over the years maybe match up the same number
of years or whatever but like give us a perspective on what has happened with funding for higher ed and I guess you will also too it seems obvious within that will be the main drivers obviously tuition is one but what are the other main drivers because i know last time we looked at this about five or six years ago technology was a huge one and that might have waned some so i would like to have that
information so we can kind of compare yes ma'am our effort and higher ed's
efforts thank you thank you very much seeing no further questions we appreciate your report thank you thank you sir members the next report We'll be taking today as a special report, Cost-Benefit Analysis of Selected Economic Incentive Projects. I believe Clay Beckwith is here to do that
report for us. You're recognized, sir. Thank you, Mr. Chair.
Speaker 112
44:20
The Consolidated Incentive Act of 2003 combined existing economic development tax incentives primarily into four statutory and five discretionary economic incentive programs. legislative audit is required to prepare a cost-benefit analysis of the economic incentive projects annually. The objectives of the report were to evaluate controls over the awarding and issuance of CIA incentives, determine the overall effectiveness of CIA programs, determine the effectiveness of selected
CIA projects. This chart which appears on page three of the report shows the distribution of CIA funds by region. Incentives awarded to companies totaled $684.5 million and the incentives used totaled $564.7 million. Exhibit 3 on pages 3 and 4 of the report also breaks down the CIA awarding and issuance of funds by program, industry, and calendar year. 2013 ALA staff began reviewing CIA
programs on a project by project basis. The accumulation of data from these individual project reviews, ALA is able to draw overall conclusions about the cost-effectiveness of entire CIA programs, as shown in Exhibit 4 on page 6 of the report and on this slide. Among four statutory incentives, three resulted in a net positive benefit to the state. Of the five discretionary incentives awarded, one returned a net positive benefit to the state, and one returned a net negative benefit to the state. We could not reach a definitive
conclusion regarding the four remaining incentives, as more projects will have to reviewed from these programs and more time will have to last before conclusions about the effectiveness of these programs can be drawn
sorry yes yes thank you senator chestfield uh If you could, try to speak very clearly for everyone.
Speaker 112
46:28
In addition to drawing conclusions regarding the overall effectiveness of the CIA programs, legislative audit staff reviewed 67 individual projects that received CIA incentives. These incentives were offered for tax years 2008 through 2017, and the projects were distributed among tier rankings which are based on economic need. The results of our analysis can be found on pages 7 and 8 of the report.
Our review of 67 incentive projects identified several projects with noticeably high cost-benefit ratios, primarily due to the company receiving a relatively small incentive because of the tier ranking of the county in which the project is located. For example, a project approved for the Statutory Advantage Arkansas program in a Tier 1 county would receive 1% of new wages related to the project as an income tax credit.
In this situation, the state is providing a relatively small incentive to encourage job creation. One might conclude that small incentives do not actually affect the company decision-making, only provide a refund for an action the company likely would have taken anyway. Further analysis of the size of statutory incentives is warranted to determine if legislative changes should be made to incentive programs. ALA staff review resulted in one finding, Arkansas Code states that tax-back incentives
are a refund of state and local sales and use taxes, accepting the sales and use tax dedicated to the Educational Adequacy Fund and the Conservation Tax Fund, which totaled 1%. During our review of incentives, legislative audit staff noted that one company was awarded excess incentives for tax year 2011, as the 1% reduction was not applied during the DFA audit. The resulting overpayment to the company totaled $172,370.
370 dollars. Legislative Audit staff recommended that DFA request repayment of these incentives, interview procedures to ensure all tax-back incentives are only paid for eligible time periods and at the correct rate. Based on our analysis of CIA projects, ALA staff concluded that the tax-back, Advantage Arkansas, Create Rebate, and InvestARC programs have overall positive cost effectiveness while the in-house research and development for targeted
business projects have negative cost effectiveness due to the nature of the programs legislative audit staff has not yet evaluated significant data to draw conclusion regarding the other programs based on methods used data available and the assumption that all project cost and jobs created would not have occurred without the corresponding incentive ALA staff concluded that the economic incentive projects result in a positive net tax benefit to the state with the exception of the research and development projects these projects do
not return positive cost benefit ratios due to the significant amount of the incentive the primary purpose of the research and development incentives is to encourage research and assist in the growth of certain business sectors in the state the short-term impact may be less valuable to the state than the potential long-term gains. Economic development has provided ALA with a summary of changes made to research and development incentives in the last legislative session addressing these concerns. These changes will be reviewed
by a legislative audit in future reports. That concludes my presentation. Representatives from the agencies are here to answer any questions. Why don't go ahead
and have them come forward i believe
we have three folks here tom chilton and jim hudson and renee doughty if you would come and be present for questions we have at least three that are ready to ask senator chesterfield you win again you're number one on the list
call me quick straw mcgraw why don't we go ahead and wait and uh just a second we'll let the these folks. If you would, go ahead and just go down the line and tell us who you are
Speaker 120
50:59
and who you represent for the record. Good morning. Thank you, Senator. Jim Hudson, General Counsel and EVP
Speaker 122
51:05
of Operations for AEDC. Renee Doty, Senior Policy and Legislative Affairs Analyst with AEDC.
Speaker 124
51:10
Tom Chilton. I'm the Division Director of Science and Technology. Okay. Thank you very
Senator Linda Chesterfield
Unverified
51:15
much. Senator Chesterfield. Mine was a simple question for staff to please explain to me the
difference between the tiers what is the difference
Speaker 128
51:29
between tier 1 tier 2 tier 3 and tier 4 if you look
Speaker 112
51:34
on page 2 of the report there's a section about the county tier system that the tier rankings are intended to for the most prosperous counties to get lower percentage rates on certain incentives and there are four criteria to determine that that annually poverty
Speaker 130
51:50
rate population growth per capita income unemployment rate and that's redone annually okay so
Senator Linda Chesterfield
Unverified
51:58
in tier one which is basically the eastern part
of the state which has traditionally been the area that has the least financial viability tier one goes there is that now one of the areas to you guys here is that one
of the areas that you are concentrating on so that we can eliminate some of the poverty in that area or is it just where they want to go because I know when we sent this new company to Conway that certainly is not a
Speaker 132
52:34
tier one area sure and just let me clarify senator tier one reflects a higher
Speaker 133
52:38
prosperity so So under the incentive programs, Tier 1 counties would get less incentives. Tier 4 counties are the least prosperous. Correct me if I'm wrong. No.
Senator Linda Chesterfield
Unverified
52:48
I mean, Tier 4 is over there in Northwest Arkansas where you've got Walmart.
You've got... No, ma'am. Senator, actually... I'm looking on page 2. I know you are, but there are counties dispersed around the state. These are not geographical in nature. you you you do have some in northeast arkansas and central arkansas uh so we have
Senator Linda Chesterfield
Unverified
53:12
two different things going on look with me on page two mr
chair i am an exhibit two on page two yeah is that
Senator Linda Chesterfield
Unverified
53:19
giving me a false impression no i think
you need to look at the top the top map which
shows you instead of looking at the bottom one what they're showing you at the bottom is just an accumulation of the different tiers at the top you're going to notice the counties for instance the very dark blue you do have northwest arkansas but you also have their green county and craighead county in northeast arkansas as well as an accumulation around the central arkansas you also see that the tier four are dispersed some obviously heavy in the delta but you have some over bordering Oklahoma over here as well and some up around Missouri so the
counties are spread out I see where you were thinking
that possibly but if you look at the other map there and
Speaker 138
54:09
see the counties dispersed it will help okay so
Senator Linda Chesterfield
Unverified
54:15
tier four is where you have the greatest wealth is that what you're saying no that's
the opposite the opposite tier one is where you have the greatest wealth correct okie dokie i am thoroughly confused but tier four down here in southeast arkansas
that area is the area where you are going to concentrate your most effort or the least effort
Speaker 120
54:44
well i'd like to think that we concentrate effort throughout the state the way the incentive programs are designed is that the tier four counties the
Speaker 133
54:52
actual benefits are increased for those tier four counties compared to a tier one county so it would be financially advantageous all
Speaker 120
55:00
things being equal for a company to consider a tier four county to get a higher incentive
Senator Linda Chesterfield
Unverified
55:05
benefit well enough with the maps that are confusing the heck out of me how many new companies have gone into areas like DeShay, Chico, Phillips, Ashley, how many companies have located there? That will get to the heart of what I'm thinking. Because when I think of those areas, I think of areas that are underrepresented as far as economic development is concerned. So help me with that. Because me beating around the bush with this is not helpful to me at all. At the bottom of
Speaker 146
55:36
Exhibit 2, under the Tier 4, that 17.9% of the projects have gone there. into DeShay County,
Senator Linda Chesterfield
Unverified
55:43
into Phillips County, into, give me some county stuff. I don't
have it broken out by county. Well, would you get that for me, please, so that I'll have a better understanding of this, because to me this is very confusing. And when I go into places like Marvel and Helena, West Helena, and Lee County, I'm not seeing thriving economics. When I go into Dermot and into Lake Village and into other areas of DeShay County,
I'm not seeing thriving entities there. So help me with that and get it to me by county as to who or as to what companies have gone into these underserved areas. I would appreciate that. Thank
you, Mr. Chair. Thank you. Senator Elliott, you're next on
Senator Joyce Elliott
Unverified
56:29
the list. Thank you, Mr. Chair. Every time I go to a regional or some kind of national meeting, we discuss these issues of incentives. And every time I read a new report, it always comes back as this is really not going to get it done
as far as well-being of a state or an entity or whatever. And that there are much better ways to spend our money rather than put it into incentives. And that one of the reasons that is the case is something somebody alluded to. They probably would come anyway, but why not go ahead and take the money since we're dishing it out? So I'd like for you to, you know, respond to that vis-a-vis Arkansas, and I'll just ask both of my questions so you don't have to hear me that long. And I'd like to hear your thoughts about that, and what are you learning about that?
And second thing is we talk a lot about other people being in silos, and I don't think there's anybody more siloed than the Arkansas legislature because we tend to just keep ourselves basically in our own little committee, this little committee does it, blah, blah, blah. So I'm wondering to what extent do you coordinate or inform the rest of Arkansas government about how and what we need to be doing to make sure that whatever we need to expand economic development other than incentives, what else would that be?
How do we need to be informed
Speaker 120
58:06
about that? Senator, it's a good question. I think in terms of the question, would they come anyway, is always a question that gets asked. I think if you consider, though, the conversations that we have
Speaker 133
58:19
with companies that are looking at coming to Arkansas, they're not looking at Arkansas in isolation. They're looking at our competitor states around us.
And, you know, Arkansas needs to be competitive with those other states who also have incentive programs. And
Speaker 120
58:36
so it is a highly competitive situation, particularly for these very large projects. As, you know, we consider whether or not to approve incentive package for a particular company, the cost-benefit analysis is paramount
Speaker 133
58:48
for us. As you look at the sample that's in this particular report, it's just a sampling of the 900 projects, almost 900 projects, that we have offered incentives to since 2015,
the average actual cost-benefit analysis on a pro forma basis, I mean, forward-looking, anticipating what we're going to get, is about $4.22 per $1 of incentive. So it's actually way more significant than what you see in this particular report. It would be speculation as to whether or not a particular company would choose to come to Arkansas or not come to Arkansas. I can tell you it is a very competitive process, and it is highly negotiated. It is not a situation that we've made a decision, you tell us how much you're going to give us after the fact.
It is a very long process, and these companies put an awful lot of investment in the site selection process. Your second question is a great question and probably is not the sort of thing that we talk about as much because we're talking about obviously expending taxpayer dollars, which is an important topic, but we have another division
Speaker 120
59:57
in AEDC. it's called community development and that division is a teammate with our business
Speaker 133
1:00:02
development team they report the same individual and so community development is a precursor to economic development
and those teams their responsibility is to travel this state every single day to network with local chambers of commerce to network with our local judges county judges with our local mayors to understand what's in place there and how we can help them take their next
Speaker 120
1:00:26
step toward economic prosperity that's a very important topic for us and so we want to make sure that it is not
Speaker 133
1:00:33
just the tier one sort of counties uh here getting the opportunities we had a great announcement
just a few weeks ago down in eudora a place where my family comes from and and eudora has struggled in recent years so it's important for us for the towns like eudora also get the opportunity as well when you
Senator Joyce Elliott
Unverified
1:00:54
are networking with those local folks do you also include legislators i believe we do
Speaker 133
1:01:02
i believe that we you know keep the the lines of communication open with them obviously if anyone has a particular concern ever about their community about whether or not we're
bringing opportunities to them we'd love to have a have
Senator Joyce Elliott
Unverified
1:01:13
a detailed conversation about that well that's kind of where i'm going is that we would love to but we don't type thing because if you are meeting with uh local folks every local folk has at least two legislator at least two and many times more than that and and should be um i see that's where the legislature kind of gets left out i guess because if the local folks there are being told uh you quality i know people don't
go places because of quality of life. I know that's the major thing they're looking at right now other than somebody handing them some incentives. Quality of life, housing, education, those kind of things. So when you are talking at the local level, are those the kind of things you are talking about and including legislators so that when we come here to the legislature and we make policies and we make policies in silos just like everybody else. Because we're not talking to each other as a collective. And what I fear is we're not talking
to each other as a collective here and not
talking to each other as a collective out there, at least including legislators. Am I making sense to you?
Speaker 120
1:02:28
Yes, ma'am. I think I take your point. And I guess I'd say, you know, on behalf of Secretary Preston and the rest of the ADC team, you're incredibly important partners to us. And
Speaker 133
1:02:37
so any point in time you have a concern that you want to share with we want to hear it and i will also relay the desire that we're proactive as well in reaching out to local legislators whenever we're talking to a community if i might add as well you know one
of the initiatives that we launched a little over a year ago was our competitive communities initiative cci is what we refer to recognizing that there are some communities that may not have as large a chamber they need a little bit of help understanding how they stack up in terms of competition and so we have a very detailed process a dedicated team that goes into these communities and helps them understand to be able to see with clear clear eyes really where they stand and help them again identify the next step
Speaker 120
1:03:26
next improvement opportunity they can take advantage
of so they can become competitive so we're committed to being out
Senator Joyce Elliott
Unverified
1:03:31
there let's share this even my last question i think but so if you do
when you do that let's say you go into i don't know newport and you talk with everybody is there a way that are there some way we get those kind of reports that so that we can be informed about what we should be doing at a state level as well or is it just left there at that
local level i want to interject something who is do you have
to help this because i understand first of all i appreciate what you do and we've had a good year in arkansas with new jobs and development but do you have someone now maybe under the transformation and the changes that actually
acts as your legislative liaison we do actually you know obviously uh
Speaker 154
1:04:21
miss doughty is dedicated to supporting us as well she's on the adc team but also alicia curtis um who came to us from the governor's office is she's for the whole department
Speaker 155
1:04:33
she's not she's not aedc she's not and and
she can't cover insurance and she can't cover banking and she can't or shouldn't really there's no way to do that so she's she's kind of your overarching for the department but so
who is aedc's person or is there no longer a person that's specific to that miss doughty
Speaker 158
1:04:52
and i both you know have responsibility for that within the agency so any concerns
Speaker 133
1:04:57
you have please feel free to reach out to us we will make sure they get directed to the right person from a community development perspective individual name
Speaker 120
1:05:06
of Matt Twyfer is the director of community development for ADC and so he's in charge
of handling that yep it well I just was thought I was helping there Senator Elliott is that you're really you're really looking for how can we get better communication with the legislator to know about some of these opportunities that are happening in the community
Senator Joyce Elliott
Unverified
1:05:28
correct well not exactly mr. what I was what I'm trying to get at is to make sure we are all working together to have the same
kind of understandings about addressing in particular the deficits like for example
if some if some if you have any difficulty getting some development in some communities some
areas what are the reasons for that and then when we know the reasons for that that might require four five of our committees to work on it because we work in silos you come to me and you say it's education then i go and do my little education thing go to somebody else and you say it's housing
they go and do their their little housing thing so what i was suggesting mr chair is if we could get some kind of composite about what are the major things that are keeping and we could do this even by tiers i think would be smart because we're having more difficulty with tier four what's going on that we need to know about all right that's my I'll take that request back to secretary Preston that'd be
good members we do have six people in the queue just so you know so from here on out if we will let's be specific on the questions and if we need follow-up we'll
do that representative Richardson you're up next sir you were you were you
Speaker 169
1:06:52
should be able to speak Okay, thank you. I guess my question is more maybe for staff. As I'm looking through the report on page 7 at the bottom, where it talks about tax back and advantage Arkansas, there are two companies that are identified that received a combination of those two incentives and it doesn't seem like they did what they said they were going to do.
You know, who are those two companies, and where do I
Speaker 170
1:07:20
find that? I believe that's privileged information. if I'm not mistaken. That's why it's addressed like it is in the report. Thank
you. I will say on that, too, I think that the one, as we get ready for the next person in line, there's the one section that obviously seemed to have the negative payback
in that particular category. Would you mind addressing that particular category from your perspective because obviously of all the different areas you know to as Charlie Collins drilled into us if we want to be a good jobs magnet then we want to make sure that our information is going in the right you know our resources and information going in the right spot so on maybe that one I would like to hear on that that category that'd be the research tax credit that
Speaker 133
1:08:12
was the one that had the biggest question mark on it that's actually had been previously
noted by a legislative audit as well and of course since it's a statutory program we're somewhat limited in aadc about what we can do in terms of changing the parameters of
that legislature's got to take the lead on that who is who is so statutory statutorily required
then who who is the entity that's actually getting that money and doing something with that money is that you or is that another little segment out here
Speaker 154
1:08:43
in terms of actually getting the money the company fills out an application for
that but but is it you're because I'm
it's failing me right now there's a little entity out here that that keeps popping up every year and I think is it is it Johnny he's from Conway he's now that is directed with UAMS I was trying to figure that name somebody help me I'm having a senior moment here but there
Speaker 133
1:09:12
it's a research entity yeah that that's not this program this program is a company who actually that would actually have research expenses that we're looking to incentivize continued research and development of research
in the industrial setting you know i'm with you on that
but i was wondering if the the entity that i was referring
to was responsible for driving that decision or is
Speaker 158
1:09:35
it adc it's adc that approves on the front end and dfna that
pays it on the back end okay all right uh thank you very
Representative Julie Mayberry
Unverified
1:09:46
much representative mayberry you're next thank you mr chair kind of along the same questions the the in-house research and development on page three it shows um statutorily 54 million
discretionary 12 million so we're talking 66 million dollars can you just kind of help me understand specifically what that 66 million dollars does explain a little bit more i'm kind of grasping to understand in-house research and development and from what you just said now i'm even more confused or are we giving one company 66 million dollars and they're doing all the research can you break can you do some sort of breakdown of where that money goes that's that's a lot of
Speaker 182
1:10:30
money, $66 million. There it is now. That's a very good question, and it goes along the lines of that you have to think in terms of those two programs, one being an investment type of program where we're taking innovative entrepreneurial companies that are just establishing themselves and providing them with early funding that they couldn't necessarily get in the marketplace, and that's a smaller subset
of this. The in-house for the strategic research and development was originally in its concept designed to provide an incentive to draw companies that do research to come to the state. What it's morphed into is companies that are already in the state who are also eligible under that law now have the ability to apply to reduce their corporate income tax liability
relative to the investments that they're making in keeping research people here. That's one of the things that we've undertaken to change in such a way that the numbers, they look very gaudy, but the reality is it can only be used against their corporate tax liability, so there's a confusing number that comes out of that that shows a large negative that only exists on paper because in reality it's not being used because it can't be used.
They've exhausted the amount that they can use it against. The primary function for that was to align ourselves with the federal tax for research and development. We have found that the federal tends to be so much more generous in its benefit that we have now taken the statutory piece out of that, migrated that fund to a discretionary with the Secretary of Commerce slash AEDC director to limit the exposure there of that
large number for a tax credit. It sounds very confusing, but the reality is I think if you think of those two things, one is there to stimulate research and development and keep those kinds of entities here like an axiom and keep those researchers here as opposed to going to Austin. The other is really more of an investment at the 33 percent level to be able to fund a innovative entrepreneurial small shop
by giving them a tax credit that can be transferred to somebody with an actual tax liability. And we get generally about 85 to 90 cents back on every dollar that goes back and is helping these fledgling companies to be able to create the next generation of high-tech jobs. Okay, so answer
Representative Julie Mayberry
Unverified
1:13:35
the question then, how many companies, and then the second part of this question, then I'm gonna stop, I know there's other people, but at the end of the report and the conclusion, it says ALA staff, again, recommend AEDC consider developing a verifiable method to capture
the long-term economic benefits. So is that possible? Are you working on that? Apparently,
Speaker 182
1:14:02
So to answer your first question, the 20%, which is targeted towards corporate keeping of research facilities here in this state in the last 10 years we've had about 54 companies be engaged in that particular tax credit tax incentive for
the 33% which is the one that's targeted specifically at the fledgling innovative entrepreneurial companies in the last 10 years have had about 44 companies participate in that so it's it's not a large penetration the number looks very gaudy because of the fact that they were able to, some of the companies under the plan as it was originally drafted in its statutory makeup, had created a large number that can't be used because of the corporate income tax liability cap. So at the end of the day, those companies,
I think, have kind of resolved themselves, especially by changing through the last legislative cycle taking it from a statutory to a discretionary function I think we'll see a much better targeted outcome the difficulty of how do we measure this is that our tools that we use categorized as a cost-benefit tool from in plan is really designed for major construction manufacturing kinds of incentives to keep or a re and sent those kinds of companies to come here it
it doesn't work when you get down to the smaller minimums of these innovative and entrepreneurial companies. That, if you think in terms of it, is more of a investment type of opportunity, but because of the state's inability to be an equity partner there, all we can depend on is the cost recovery model as these companies start to grow and what they pay back in taxes into the future with these higher paying, higher tech jobs.
So it creates a vacuum if we try to use the tool, we wind up with information that's of no useful value because it has these large swings. A first Orion that Charles Morgan's developing here across the river in North Little Rock is seeing explosive growth. We look great as far as the return is concerned. The others, we look negative because it takes years to work that through from just strictly a tax recovery model.
And so consequently, we're looking at ways to accelerate that, measure that more accurately. But what we've done, I think up to this point in time and what we've done through the legislative process when the law was first put into effect, it created some very, very tight parameters. They had to have more than $100,000 worth of payroll, but they couldn't exceed over a million, so we're making it targeted. They had to be part of a targeted business,
which is six categories of very high-tech kinds of jobs. It has to go through an analysis that they've had at least $250,000 worth of equity put in so that we know that they can be a viable long-term player. And then ultimately, we've taken that through. we have a committee that evaluates each company. We take that to our advisory board of the science and technology, where it's once again reviewed by a cross-section
of individuals from the community who sit on our advisory board, and then it ultimately goes with a recommendation to the Secretary of Commerce. So we feel that there's lots of adequate protection in deference to Clay, who I think did a good job of kind of categorizing what our deficiencies are. It's finding that tool that will give us a good measurement, because right now in the private sector market the only tool that we could use would be one of an investment banker, and since we can't take an equity position to experience the real payback of the phase
one venture capital raise, then we wind up with numbers that are not as attractive as we'd like to see them. Do other states do this? You know, this is one that's Arkansas kind of pioneered because we didn't have the ability to take an equity stake like a lot of states do. We've seen now many other states start to embrace this because it provides a tax credit that comes right off the top before it's collected. It's sold to an individual or organization that would have a tax liability, and then they can use that.
And financial impact is somewhat lessened
Speaker 188
1:18:49
as a result of that. All right, members, we're going
to have to move on. I've got Senator Hammer. You're up next, sir. Thank you, Mr. Chair. Just give me
Senator Kim Hammer
Unverified
1:19:01
proper perspective, make sure I'm reading this report and looking at it right. This is a review of a program that we previously had, and it's kind of a measuring stick as to how successful that program was. Am I correct on my view of this report?
Speaker 120
1:19:22
That's correct, Senator Hammer. What Lesley-Avada is doing is looking as the programs have paid
Speaker 133
1:19:27
out. So we do our cost-benefit analysis on the front end looking at pro formas. They actually are doing cost-benefit analysis on the back
Senator Kim Hammer
Unverified
1:19:36
end based on actuals. Okay, so in the simplest terms, just summarize it for me real quick. what's the positives we're going to take and apply to the future as far as how you do business with the results of this report being out now just quick bullet points would be fine
Speaker 133
1:19:54
their cbas that they ran verify that in most cases we're yielding a positive contribution to the taxpayers of arkansas based on the expenditures for these incentive programs there is one program in particular that they note has a potential for a negative which i believe we addressed adequately in the last legislative session when Senator Pitch ran that bill for us, where we've now narrowed the expenses that can be considered for credit under the R&D tax program. It's fewer expenses run through that.
What we're incenting now in that R&D tax program are actual R&D salaries, which is part of the broader focus that we have at AEDC of attracting high-wage jobs. So what we're incenting now is the incremental growth year-over-year in someone's R&D salaries. We think that's going to narrow the category and really provide a more verifiable cost-benefit because salaries are those things we know directly you can get tax revenue from.
Senator Kim Hammer
Unverified
1:20:53
Okay, and these are all state tax dollars, no Fed dollars involved in this.
Am I right on that? That's correct. Okay, and so one last question then. When you talk about, you know, the companies that you're looking to entice in the state and all that discussion that goes with it, you can't put a company where you don't have people to run that company. So no matter is any of the intent in the money that we're spending, is it for the purpose of retaining the people? Like you, Dora, for example, you used that illustration. is it for the purpose of holding the populations that's there
or to try to draw a population back to areas that people have moved away from and whether they move back or not I guess is going to be dependent upon a lot of
Speaker 120
1:21:44
variables. Can you speak to that real quick and thank you. I would say it's not in terms of drawing
Speaker 133
1:21:50
people back but retention is a priority for us and so understanding just the historical net outflows in communities increases the urgency of ensuring that we have good retention programs and so again as our teams are
out there they're visiting with local manufacturers local businesses understanding what their business plans are understanding kind of what their history of investment is if a company stops investing then that's a company may be at risk for closing at some point and so understanding what their needs are to see if we can come alongside them and help them so we can retain the jobs thank mr
chair okay members we've got three in queue and i've got now representative
Representative Jack Ladyman
Unverified
1:22:30
ladyman thank you mr chairman um i think uh some of the questions earlier i'm looking at page two here
where it talks about the tiers and tier four would be the poorer counties and that's you know that's where the incentives are higher and that's where you would you would target or want to go but when When you look at the investment down below, you know, 43% or the largest amount of incentives go to those wealthier counties. And I've heard people say, well, the people aren't there or the type of people that you might need are not there. But isn't it true that these companies actually go?
When you look at this, Northwest Arkansas, Northeast Arkansas, Central, and Fort Smith, and I think that's Mountain Home, they go to those areas because things are there that they need maybe in the infrastructure as an example you know if you want to put something down in southeast arkansas that takes a high power requirement and the grid is not there they're not going to go there or if you have a company that needs rail and they're going to say southwest arkansas and the rail is not there they're not
to go there they're going to go to northwest or northeast or someplace else so is the infrastructure and some of those support things is that the reason they're going to these wealthier counties you know i
Speaker 120
1:23:56
think there are a lot of variables that go into that obviously infrastructure is is very high on that depending upon how intensive the manufacturing process is you know you
Speaker 133
1:24:04
look at some of these locations where you have an established company that's been there for some time look at lockheed martin and all it's doing it it begins to kind of gain some momentum
obviously natural resources you know being close to natural resources for some manufacturers going to be incredibly important so all those are variables that as site selectors are coming into arkansas and evaluating us relative to our competitor states that surround us they give us their punch list of here are key requirements and you know a lot of our you know sister competitors states gonna have those as well now what are the differentiators what is it that Arkansas has that you know these
surrounding companies don't have I think this is one of the intent where the intangibles come into play a little bit for us you look at the nature of the relationships that we try to cultivate with these manufacturers the the recent work this this body has done in terms of improving the competitiveness of our tax structure all those things become very very important as well so what we try to do is understand their needs we have a good rich deep database from all of our communities that tell us what they have
and then we're we're going to be you know even-handed and equal partner with all those communities and we'll show them here's what's out there you tell us what's
Speaker 154
1:25:26
most important to you and and then we'll continue the conversation and see if they can get you sold on doing business
Representative Jack Ladyman
Unverified
1:25:35
in Arkansas. Mr. Chairman, could I have one quick follow-up? Yes, sir. So it's very difficult to go to these poor counties that don't have the infrastructure. They may not have power, whatever that is. I mean, you can't just zap that in there. That's hard to get. So how do you – or do you all have any focus on how you can put a factory or something in these poor counties?
And what I'm talking about is if you get a huge factory, say you get a car plant in, say, Jonesboro, where I'm from, is there any way to focus on supplier smaller facilities that could maybe fit in these rural areas and maybe have the infrastructure that they need for a parts supply? Maybe they're making a small part and it's only 50 people, which would really help a town of 3,000 people. Yes, sir. so i mean is there any can you can you focus on something like that or is that possible
Speaker 146
1:26:34
and we have we have looked at its suppliers but not just for automotive facilities but for other major industries that we have in arkansas and we always do have a campaign to try to attract those to not the area where they would necessarily be competing for higher wages but the outlier areas as well but again it does come down to sometimes having a necessary site for them to go into or you know some of these companies and every project is different you know they may need rail access they may need port
Speaker 122
1:27:03
access they may need access to a university within a certain
drive distance so they're all really different but we work with each company on their
Chair
Unverified
1:27:15
individual needs all right thank you representative rye you're up sir thank you thank you mr
Representative Johnny Rye
Unverified
1:27:23
chairman if you look at the map all the way from top to bottom the biggest portion of the problem is in the delta area of arkansas okay now if you look at at craighead county and green county you'll see two counties
that are doing real good and that's been going on for 40 years now it's a sad thing that you know to really admit these type things going on but the farming industry in arkansas has shrunk as far as a job creation, okay? In other words, I'll give you an example. In 1969, you probably had, on a 1,200-acre farm,
you had 12 to 15 folks that were working there. That's not the case anymore. You have a 30,000-acre farm with five or six people working there. Now, as time has went on, these folks are moving out. okay I'll give you an example in Mark tree in Toronto places like that Blyville Osceola folks are moving out because there's no there there's really no jobs
there and you say well who are we supposed to blame here are we supposed to bring blame a Jack and Craighead County no no no because what's happened is Jack's County has adjusted to the times. Now, if you came back and you said, well, what can we do to get this thing rolling in a better direction? Well, in Mississippi County, now you've got 500 new jobs at Nucor,
which is a powerhouse company in Arkansas and really in the world. But they could have added more. But the reason they could not add more people is because they were not equipped with education through the folks that they could hire. And this is a true fact. So you say, well, what can we do? Well, 40% of the kids that graduate from Arkansas schools can properly read.
And that's the problem. how can you hire people and how can you get incentives to bring people into a place that you're not properly educated so i mean i don't think you can really point a finger at this thing i think that you've got to adjust to it you're going to have to do the things that are right to get things rolling in the right direction and uh and and that's the problem because if you look at that map you'll see that's the delta where the problem is at and that's where the loss of jobs
and i'll tell you something else you've got even a bigger problem because the folks that have actually raised children in those areas now you're talking about a lot of assistance from the federal government okay so i think we need to attack these things in the right manner and admit where we're and see what we can do to move in the right direction thank you
all right any comments in response to
Speaker 154
1:30:52
that if I very quickly on that I think you know
represent value you've hit on the issue of terms of workforce quality
Speaker 133
1:31:00
that that is the differentiator and a lot of respects in our conversations in terms of preparing for economic development it is a major initiative for us one of things that you will see i think in a department of commerce where you have aedc now working alongside workforce services to be able to identify what are things that we can do to improve workforce quality so that the the folks who are graduating who are coming out of our high schools and not
only have a diploma but they have the skills to be able to to work in these manufacturing settings that we want to attract to arkansas and so to be able to say that we have programs in place where people have gone through they're getting a certificate that demonstrates that they know how to do basic machinery operation that they have just basic understanding of what it's like to work in the workforce that can become a differentiator for arkansas and so we're committed to doing that all
Speaker 200
1:32:00
right representative fortner you are our last question thank you mr chairman
if I could be so bold as to go back to Representative Richardson's inquiry about the two companies on the bottom of page 7. I think the word was proprietary or something like that. Or privilege. Privilege. That's it. Thank you. Why is Companies 23 and 32 privileged, and why can't we know their name if they took our money? uh mr
Speaker 170
1:32:32
fortner that's the way it's set up in the law i mean that's that's the legislature
determined that it was not open under foy
Speaker 205
1:32:43
well wouldn't you know we did it okay well i'll remember that next time i want to
Speaker 133
1:32:50
be proprietary whatever privileged it's individual you know company but it's still individual taxpayer information and that's
considered privileged information confidential information okay thanks all right thank you
members anything else on this topic we thank all of you for coming and helping it was a very robust discussion and appreciate what you do members the next meeting of legislative joint auditing
will be january 23rd and 24th of 2020 we appreciate the work of the staff and all the members who make the audit process possible throughout the year and hope you have a merry christmas and and a Happy New Year. We're adjourned.
Agenda
A. Call to Order
B. Adoption of Minutes
C. Reports of Executive and Standing Committees:
D. Review of Reports:
E. Other Business: The next meetings of the Legislative Joint Auditing Committee will be held on January 23 and 24, 2020, or at the call of the Chairs.
F. New Business
G. Adjournment
Documents
| Title | Type | Pages | Source |
|---|---|---|---|
| Agenda — LEGISLATIVE JOINT AUDITING, Dec 13, 2019 | Agenda | 1 | Official source ↗ |
Speakers
Senator Jason Rapert Chair
Unverified
Representative Richard Womack
Unverified
Representative Danny Watson
Unverified
Senator Joyce Elliott
Unverified
Speaker 17
Representative Stan Berry
Unverified
Representative Nelda Speaks
Unverified
Chair
Unverified
Representative Johnny Rye
Unverified
Speaker 33
Speaker 40
Senator Linda Chesterfield
Unverified
Speaker 54
Speaker 58
Nick Fuller
Unverified
Senator Mathew Pitsch
Unverified
Speaker 74
Speaker 75
Representative Julie Mayberry
Unverified
Speaker 72
Speaker 100
Speaker 66
Speaker 112
Speaker 120
Speaker 122
Speaker 124
Speaker 128
Speaker 130
Speaker 132
Speaker 133
Speaker 138
Speaker 146
Speaker 154
Speaker 155
Speaker 158
Speaker 169
Speaker 170
Speaker 182
Speaker 181
Speaker 188
Senator Kim Hammer
Unverified
Representative Jack Ladyman
Unverified
Speaker 200
Speaker 205